Full text of Renewal of Reichsbank Charter
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61ST CONGRESS |
2d Session
SENATE
[
I DOCUMENT
\
N o . 507
NATIONAL MONETARY COMMISSION
Renewal of Reichsbank
Charter
Washington : Government
Printing Office : 1910
NATIONAL MONETARY COMMISSION.
NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B. VREELAND, New York, Vice-Chairman.
J U L I U S C. BURROWS, Michigan.
J E S S E OVERSTREET, Indiana.
E U G E N E H A L E , Maine.
J O H N W. W E E K S , Massachusetts.
PHILANDER C. K N O X , Pennsylvania.
R O B E R T W. BONYNGE, Colorado.
THEODORE E . BURTON, Ohio.
SYLVESTER C. SMITH, California.
JOHN W. DANIEL, Virginia.
LEMUEL P . PADGETT, Tennessee.
H E N R Y M. TELLER, Colorado.
GEORGE F . BURGESS, Texas.
HERNANDO D. MONEY, Mississippi.
A R S E N E P . P U J O , Louisiana.
JOSEPH W. BAILEY, Texas.
ARTHUR B . SHELTON, Secretary.
A. PIATT ANDREW, Special Assistant to Commission.
TABLE OF CONTENTS.
Page.
I. Results of the German Bank Inquiry of 1908 (articles published in t h e ' ' Frankfurter Zeitung'' during December, 1908).
II. Draft of a bill for the amendment of the German bank act
with explanations
I I I . Excerpts from the proceedings of the Third German Bankers'
Convention, held in Hamburg in September, 1907—The
discussion of deposit banking (speeches by Dr. Jaffe\ Dr.
Damm£, Dr. Solomonsohn, Max Schinckel, and Geh. Mueller) _
IV. Credit at the Reichsbank. By Dr. R. Koch, former president
of the Reichsbank
V. Concerning the collateral loan business of the Reichsbank,
especially the lending on imperial and state securities. By
Dr. R. Koch, former president of the Reichsbank
VI. Concerning the renewal of the Reichsbank privilege. By Prof.
W. Lexis
VII. Concerning the renewal of the privilege of the Reichsbank
and of the private note banks. By Dr. Moriz Stroell, director
of the Bayerische Notenbank
VIII. Law of June 1, 1909, amending the Bank Act
3
5
79
123
201
217
231
243
261
I
Results of the German Bank Inquiry
of 1908
[Articles published in the Frankfurter
5
Zeitung during: December, 1908]
RESULTS OF THE GERMAN BANK
INQUIRY OF 1908.
I. THE INQUIRY COMMISSION—WHAT CAUSED THE MONETARY
STRINGENCY—GERMANY'S
FOREIGN
TRADE—
THE NATIONAL WEALTH OF GERMANY—THE DEMAND
FOR CAPITAL AND CREDIT MONEY.
The bank act confers upon the State the right to revoke
the charter of the Reichsbank on January i, 1891, and
at intervals of ten years after that date upon one year's
notice. The charter, therefore, cannot be revoked before
January 1, 1911, notice having been given not later than
January 1, 1910. Recommendations for the renewal
of the charter have to be submitted by the Imperial
Government to the Reichstag during the session 1908-9,
which has just opened. The Government appointed
last April a representative commission which was intrusted
with the examination of a large number of experts. The
inquiry commenced on May 1 and was conducted in such
an efficient manner that the hearing of the experts was
concluded during the same month. Since then, after
sifting the material and collecting additional data, the
commission on October 12 began to wind up its labors,
finishing on October 19. The results became known the
same day through an inspired press notice which appeared
with our comments in the second morning edition of the
Frankfurter Zeitung for October 20 and 21. Full information may be expected by the public from the discussions
7
National
Monetary
Commission
of the proposed measure in the Reichstag, from the
amendments to the bank act which have now been drawn
up by the Imperial Government and from the explanation
of these amendments, and also from the minutes of the
inquiry commission, which will most likely accompany
the Government's proposals. The statements of the
expert witnesses, in accordance with a promise given
them, will not be published, nor is it at present intended
to prepare a summary of the deliberations of the commission. The publication of the minutes just as they stand
will, it is true, make it more difficult for one to inform
oneself of the main points by a rapid glance; at the same
time, it will enable the careful reader to get at the complete arguments pro and con, and weigh them against
each other, instead of depending solely on a count of votes.
How far the Imperial Government will embody in its
draft of the proposed measures the results of the inquiry,
and how far the Reichstag will approve or alter this draft,
are questions for the future. It will be remembered that,
although more time and work had been devoted to the
problems of the bourse inquiry fifteen years ago—the
commission then appointed rendered a very full report
containing well-considered proposals—yet the Government materially changed the proposals of the commission and the Reichstag in its turn "improved for the
worse'' the plans presented by the Government. This
time the problems are much simpler and clearer, at least as
far as the work of the commission goes. Nevertheless the
members of the commission were asked to remain silent for
a while; but the problems put before them have lately
8
Renewal
of
Reichsbank
Charter
been discussed so thoroughly and generally that beyond
the meagre information given out for publication one may
easily acquire a definite and interesting knowledge of the
whole question.
The valuable and very comprehensive statistics compiled by the Reichsbank for the purposes of the inquiry
have also helped to enlighten a wider circle of the public.
We are therefore of the opinion that we shall broaden and
deepen the general interest in these important questions
if now, upon the conclusion of the inquiry, we follow up
our comments on the questions put to the inquiry commission (cfr. Frankfurter Zeitung, April 26 to May 12,
1908) with our observations on the work of the commission and on the subject-matter of the inquiry.
It is generally recognized that the deliberations of the
commission under the chairmanship of the president of
the Reichsbank, Mr. Havenstein, were conducted on all
sides very impartially, even when opinions were widely
divergent; consequently, such refining of views and
such an elucidation of the pros and cons of the questions
have been reached by the opposing groups that very
beneficial results may be expected therefrom by all concerned, more particularly by the Imperial Government and
the Reichstag. In so far as a change of views took place,
it must be ascribed to the slackening of the demand for
credit facilities and to the fall in interest rates which has
meanwhile occurred. Had this taken place a year ago an
inquiry would perhaps not have been instituted at all.
At least up to the year 1907 it seemed that the inquiry into
banking matters which had been promised was to consist
9
National
Monetary
Commission
merely of the examination of a few expert witnesses—•
especially of some men who had already advocated certain
changes. But when, during the year 1907, in spite of a
gradual lessening of the industrial activity, the monetary
stringency increased, and at last our bank rate reached
its record figure of 7 X p e r cent, the public as well as the
Reichstag became fairly alarmed.
This apprehension has since considerably subsided, owing
to easier money markets and the enlightening influence of
the bank inquiry. The popular view has more and more
come in line with that so long expressed by the Frankfurter
Zeitung that the strain on the money market and rise of
interest rates have not been caused through any inadequacy of the Reichsbank, nor through mistakes of its management nor through lack of currency, but principally
through a steadily increasing disproportion between the
supply and demand of capital. Moreover, we have long
ago shown that the stringency and its effect were not confined to ourselves alone, but were international, although
it must be admitted that Germany was especially hard hit.
With us the transition to a commercial and industrial nation has made and is making rapid strides; in particular
the large industries have made signal progress. The result
is that wealth, capital, and credit have quickly grown, but
more money has also been locked up in new plants and investments; the standard of living, wages, and prices have
also risen, and the demand for capital has created a correspondingly high demand for circulating media. Yet our economic policy, as we have shown on former occasions, does
not favor the formation of new capital, but rather retards it
10
Renewal
of
Reichsbank
Charter
through high tariffs and their exploitation by the industrial
combines (cartels), through weakening the effectiveness of
the stock exchange and through other legislative blunders.
All these subjects were omitted from the list of questions
submitted to the inquiry commission, and were therefore not
fully discussed by it. The statistical material contains
very little information concerning them, but we now add a
few figures showing the development during the last two
decades. The events of more recent times will be discussed
later on.
Our foreign trade with the principal countries, taking
together the import and export of goods (excluding precious metals) shows the following changes since 1889:
[In millions of dollars; $1 = 4.20 marks.]
Country.
Germany
France
England
United States
___
______
_ _
_ _ __
____
_
__
Increase,
1907.
1889.
$3,682
$1,703 !
1907.
Per cent of
increase.
2.235
1.546
$i,979
688
44. 4
4.767
2,966
1, 800
60. 1
3,346
1.597
1. 749
1
As will be seen from the above, Germany's trade has increased much more than that of France and England, and
even a little more than the trade of the new country, the
United States. Besides this growth of Germany's foreign
trade a heavy increase of the domestic trade must be taken
into account, which was bound to create an increased demand for capital, money, and credit. More significant still
is the difference influencing the international balance of
payments. Looking at imports and exports separately, and
taking the excess of imports over exports, we find that the
amount owed by Germany for goods imported from abroad
National
Monetary
Commission
has grown much more than the corresponding item in other
countries, while in the United States the amount to be
received for exported goods has risen enormously; and
whereas in the United States the excess of exports during 1907 does not mark a record (the years 1898, 1900,
and 1901 having shown a greater excess) the excess of
imports into Germany has had a steady upward trend and
reached its highest mark during the year 1907.
[In millions of dollars; $1=4 20 1marks ]
1907
1889.
Increase
( + ) or decrease (—)
for 1907.
Excess of imports into—
Germany
France
England
Excess of exports—
United States
$4ii.S
$196.4
97-5
621.3
118.2
S4S-o
500. 1
56.6
+ $215. 1
+
76.3
4- 443-5
How far during this period the increasing demand for
currency necessary to settle balances was met by currency-saving devices will to some extent be evident in
the next table. Concerning Germany this table covers
collections passed through the clearing-houses of the
Reichsbank, and one-half of the turnover effected without
actual cash payments; concerning France the table shows
one-half of the turnover effected in "compensations" of
the Parisian bankers; England is represented by the collections passed through the London Clearing House; the
United States by the collections passed through the New
York Clearing House. This table does not show the
clearings outside of the principal banking centers of the
United States and England, nor does it show the increased
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Charter
saving of currency resulting from the use of postal orders,
checks, etc.
[In millions of dollars; $1=4.20 marks.]
Germany
France
England
United States
I $37,050.9
1
2,534.5
61,924.3
87,182.1
$10,884.5
487.8
37.059.7
34,798.8
$26,166.4
2,046.7
24,864.6
52,383.3
In spite of certain disadvantages Germany, as will be
seen, shows some marked progress, thanks to the energetic efforts of the Reichsbank, but a good deal remains
still to be desired. There is no doubt that the wealth of
Germany has considerably increased. When, toward the
end of 1893, Schmoller made an estimate for the stockexchange inquiry commission he thought it likely that
the savings of the German nation amounted then to
between 2 and 2]/2 billions of marks ($500,000,000 to
$625,000,000) annually, of which 1 billion ($250,000,000)
went into investment securities. Since then in Prussia
alone taxable incomes exceeding $750.00 had grown
from $726,050,000 in 1892 to $1,371,520,000 in 1907.
The deposits in the German savings banks (at the end
of 1907, $3,307,000,000) have, during the last decade,
increased by a yearly average of about $143,000,000.
Therefore, the annual savings of the German nation must
to-day be taken as far exceeding those of 1893 or 1889.
Recent estimates put the annual savings of Germany between $625,000,000 and $750,000,000, the Grenzboten of
July 9, 1908, even rating them as high as $1,000,000,000.
On the other hand, capital, too, has been in increasing
13
National
Monetary
Commission
demand. Schmoller's estimate in 1893 that we invest
every year about $250,000,000 in securities agrees with
the statistics of new issues of securities floated during
that period. Yet during the last five years (1903-1907)
German securities, not including conversions, totaling
about $625,000,000 annually, have been admitted to
quotation on the German stock exchanges. This figure
is taken from the official statistics which, among other
things, include mortgage bonds authorized to be issued
by the mortgage banks, and also mining stocks, etc.
According to the statistics of the Frankfurter Zeitung
(leaving out mortgage bonds and mining stocks, but
including foreign securities) the new issues for the seven
years 1901-1907 reached an average of nearly $524,000,000
annually, and for the years 1905-1906 alone nearly
$714,000,000. In addition to this brisk demand for
capital and money, for investment as well as for circulation, Germany has had to cope with the greater demands
of agriculture due to an increase in the price of land and
its products, and above all with the greater demands of
manufactures due to a rapid enlargement of plants and
of output. It is only necessary to point to the following
statistics of German consumption:
Average yearly consumption in kilograms for—
1886-1890.
Amount.
Coal
Pig iron
Cotton
1907^
Per capita.
S 8 . 7 3 S . 000
Amount.
Per capita.
1, 2 2 5 . 0 0
8 9 . 20
136,934,000
2,2IO.OC
4,278,000
13,046,000
201,046
4-19
a 385,280
213.80
0 6.28
a For the year 1906 •
14
Renewal
Naturally
of
Reichsbank
t h e demand
for
increased very considerably.
credit
Charter
money
has
also
Taking stamp fees as a basis
for determining t h e amount of commercial paper p u t in
circulation (deducting 10 per cent on account of t h e sliding
scale fixed for such fees) we arrive at t h e grand total of
$3,144,300,000 in 1889, which has since steadily increased
from year to year until it reached $7,325,000,000 in 1907.
This is an increase of $4,180,700,000, or about 133 per cent.
If we add t h a t of all t h e bills created in Germany less t h a n
40 per cent passed through the Reichsbank—that of the
average of the outstanding bill circulation t h e average
holdings of t h e Reichsbank amount to only about oneseventh (in t h e first decade of its existence only 11 to 12
per cent, reaching in 1889 a maximum of 15.3 per cent and
in 1907 about 13.8 per cent)—then we have furnished
sufficient proof t h a t the monetary stringency and the
high interest rates of 1907 were, speaking broadly, caused
by phenomena t h a t had nothing t o do with any flaws in
t h e organization of t h e Reichsbank or mistakes of its
management.
II. GOVERNMENT OWNERSHIP OF REICHSBANK — PRIVATE
BANKS OF ISSUE
NEW REICHSBANK SHARES —
INCREASE OF SURPLUS—DISTRIBUTION OF PROFITS—
TAX-FREE BANK NOTES AND INVESTMENT OF AVAILABLE FUNDS.
Although t h e members of t h e inquiry commission and
t h e general public are satisfied b y this time t h a t t h e
existing organization of t h e Reichsbank cannot b e held
responsible for a monetary stringency of such severity as
15
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Monetary
Commission
we have recently passed through, and that no change of
the organization could possibly prevent a recurrence of
such an event, the affairs of the Reichsbank have been
the main feature of the commission's work. It is that
part of the deliberations which has been brought to a
conclusion, whilst the discussions regarding the protection of depositors were broken off and are to be continued
next year. The commission was guided in its work by
the list of questions which had been submitted to it by
the Government, and we will treat the different subjects
in the same order as they appeared on that list. The
preliminary question as to whether it would not be better
to place the Reichsbank under government ownership
was not touched upon, but the Government opened the
inquiry by declaring that the constitution of the Reichsbank should not be changed in any respect, and the way
in which the questions were put clearly showed that it
was the intention of the Bundesrat to renew the charter
of the Reichsbank, and by no means to make use of its
lawful right to abolish the institution. This policy is
quite in keeping with the position which the authorities
have always taken. While the sessions of the commission
appointed to consider the banking act of 1899 were in
progress, the representative of the Bundesrat announced
in definite terms that it was unanimous in the determination " t o oppose the nationalization of the Reichsbank
for political, economic, and financial reasons/'
At the time when the Reichsbank was established we
should have preferred to have had the capital supplied
from imperial funds alone. Instead of that the Empire
16
Renewal
of
Reichsbank
Charter
contented itself with the power to revoke the Reichbank's
charter at intervals of ten years, and when in 1889 this
prerogative first led to discussions, we pointed out that
the question hinged upon whether the Imperial Government considered itself entitled, in return for treating the
resources of the Reichsbank as private property in case
of war, to an insurance premium the amount of which
has been steadily reduced at every renewal of the charter.
The demands of the Agrarians that the Reichsbank should
be compelled "to assist the economically weak" were
later on met, in a measure, by state aid for agricultural
credit institutions. In spite of this, however, the agrarian
wishes carried considerable weight at the deliberations
preceding the first renewal of the Reichsbank charter in
1889. We insisted at the time that the Reichsbank, in
pursuance of its most important duty, the regulation and
protection of the monetary system, had to consider above
all the fluidity of its investments; and also that its policy
already favored the demands of agriculture for financial
help as distinguished from those of commerce and industry, and even from those of the banks and the bourse.
And yet a member of the Reichstag, Doctor Arendt, has
announced his intention of again proposing the nationalization of the Reichsbank. It seems likely, however, that
his political followers will not support him in this, and he
himself declared not long ago "that the business methods
of the Reichsbank would not be changed in the least if
the bank were continued for account of the Empire
alone," which to him seemed purely a "financial question." The Reichsbank has demonstrated on many
83703—10
2
17
National
Monetary
Commission
occasions—for instance, in the Reichstag and in its historical review for the period 1876-1900—that the financial
importance of its privilege of note issue is generally overestimated and that the return which the Reichsbank
makes for this right and the legal conditions governing
the issue of its notes are either overlooked or considerably
underrated.
If government ownership of the Reichsbank meets
with a more decisive defeat this time than in previous
agitations—as is generally expected—it would be advisable
to give this question a longer rest than ten years, as in all
likelihood the same reasons which now influence the
retaining of private capital would be equally potent ten
years hence. In the interests of the Reichsbank and
even, it may be, in the interests of the Empire, it would
seem to be better not to provoke the same discussions
again after a lapse of only ten years, the question having
so often been fought out without gaining in import or
interest. No suggestion seems to have been made as
yet that the charter should be renewed at once for twenty
or thirty years instead of ten years only. If such a
new departure were advocated, it could not be passed
without the strong support of the Bundesrat.
The inquiry commission has apparently not discussed
at all the renewal of the privileges of the four remaining
private banks of issue. If the question had been up for
discussion, a continuation of these institutions would
undoubtedly have found zealous advocates not only in
the governments of the respective countries where these
banks are located, but also among the members of the
18
Renew
aI
of
Reichsb
ank
Charter
commission, whether conservative or otherwise. When
the legal-tender provision for the notes of the Reichsbank
was considered, it was often urged that the same privilege
be extended to those private institutions. This recommendation was strongly opposed; the most that seems
attainable is that these notes may be decreed legal tender
in the country where they are issued. Strenuous objections would be raised even to a law which should permit
the acceptance of private notes by public ofl&ces outside
the State in which the notes were issued. The notes of the
four private banks do as a rule circulate only in their
home countries, which is sufficient. However, when a
traveler wants to pay his fare at a North German railway
station by tendering a South German bank note, the
refusal which he gets is always resented as a nuisance if
not a serious flaw in our monetary system. Provision
should be made to prevent such occurrences, and this
could be done by a simple agreement without amending
the banking act. It will be seen in the following table
what an unimportant part the private notes play nowadays.
[In millions of dollars; $1=4.20 marks.]
Assets.
Year.
1876
1891
Number of
banks.
Discounts.
Loans.
18
$67.01
$10.73
8
48.39
5.83
4
28.73
14. 21
Circulation.
Investment securities.
Total.
$4-35
2.91
2. 61
$56.45
41.77
33.8o
Noncovered.
$20.42
19.05
14. 28
The inquiry commission seems to share our conviction
that a permanent regulation of discount rates can not be
19
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Commission
achieved by increasing the capital of the Reichsbank.
The bank was forced by the last amendment to the bank
act to raise its capital from 120,000,000 to 180,000,000
marks ($28,570,000 to $42,860,000). One-half of the increase took place during 1900, the other half during 1904.
It has since become apparent that this increase served
hardly any other purpose than merely to shift capital
from the open market into the Bank, but it fulfilled the
wish of the Reichsbank not to let its capitalization remain
too far behind that proper to a great credit bank. It also
gave the Reichsbank the opportunity to increase its
loans on collateral. Permanent influence, however, upon
discount rates can never be attained by simply shifting
more private capital into the Reichsbank. The present
capital seems to afford ample security for the Bank's
operations, and it looks as if the commission would prefer
to strengthen the surplus in case a larger working
capital should really become necessary. The Treasury
would thus suffer a loss in so far as new shares become
at once entitled to dividends, thus reducing the excess
profits, of which the Imperial Treasury receives threefourths; but no considerable increase of profit is derived
as a rule from new capital either added to the surplus or
provided by shareholders, while on the other hand every
addition made to the surplus means three times as much
taken from the government's share of the profits as from
that of the shareholders. The investment of capital in
building plots which the Reichsbank has already made
extensively and will without doubt make on a yet greater
scale in the future, might serve as a motive for increasing
20
Renew
aI
of
Reichsb
ank
Charter
the surplus as the profit share of the shareholders. In
1876 $3,160,000 were invested in that way; in 1896
$7,900,000, and at the end of 1907 $13,040,000. The
surplus, however, may, in point of fact, increase faster
than the Bank's building investments.
The bank act provides that after a praecipuum dividend to the shareholders has been set aside, 20 per cent
of the remaining profits are to go to the surplus as long
as the latter does not equal one-fourth of the capital.
The premium received for the last issue of new shares
brought the amount of the surplus up to $15,430,000,
i. e., 36.007 per cent of the increased capital. A further
increase of the surplus would present only one advantage
to the shareholders, namely, that they would be entitled
to half of the surplus if government ownership should
be decided upon, and in this way would get back a
part of the high price which they had to pay for their
new shares, whereas they are entitled to one-fourth
only of the excess profits. They will hardly find much
consolation in this, as they know full well that conditions do not favor the setting up of government ownership at present or for a long time to come. Moreover,
if the Reichsbank should be put under government
ownership it would take an additional $23,800,000 in
the surplus to refund to the shareholders even the 47 per
cent premium and expenses which they paid for the new
shares. Meanwhile the proposed contribution to the
surplus means to the shareholders a considerable reduction of their dividends. If fully 20 per cent of all profits
remaining after a praecipuum dividend of 3% per cent
21
National
Monetary
Commission
had to go to the surplus—as was the case in former years—
the surplus would receive from profits like those of 1907
not less than $2,190,000. This would have meant a loss
to the Imperial Treasury of about $1,640,000 and to the
shareholders of $547,600, which would have reduced the
dividend from 9.89 per cent to 8.61 per cent, i. e., not less
than 1.27 per cent. This would have been the dividend
for a year of brilliant economic success. A charge of 20
per cent to the surplus would mean a dividend of 7.1 per
cent instead of 8 per cent, 6.3 per cent instead of 7 per
cent, and so on. Yet no discussion seems to have occurred
during the bank inquiry on the qestion of how the surplus,
after having been reopened, should be alimented. In
some quarters it was thought that the contributions to
the surplus should cease when the latter reaches about 40
per cent of the capital. This is not far above the present
figure, but the idea is not in accordance with the prevailing
intentions.
A number of ways might receive consideration, such as,
for instance, to provide that in a bad year nothing should
be written off to surplus. This, however, would leave a
discretionary power in the hands of the management
which it might find rather irksome. The simplest way
would be to fix a certain percentage, but if 20 per cent
of all excess profit—as provided at present in the bank
act—were to go to the surplus, it would mean, as stated
before, a very considerable reduction of the receipts, both
of the shareholders and of the Imperial Treasury. For
the next ten years a charge of 10 per cent ought to be
sufficient for all purposes. However, it seems to us well
22
Renew
aI
of
Reichsbank
Charter
worth carefully considering whether a better plan would
not be to establish a sliding scale under which a transfer
to surplus would be made only after the profits of the
shareholders and the Imperial Treasury had reached a
certain minimum, say a dividend of 6 per cent, and of
any profits exceeding a dividend of, say 8 per cent, the
surplus would get not 10, but 20, per cent.
In any case the shareholders will have to reckon with
influences tending to reduce their dividends, not only
because of economic ups and downs, but also because of
the efforts of the Reichsbank to restrict some of their
overzealous officials in the extension of credits and the
intention of the Reichsbank to make pecuniary sacrifices
in order to attract gold and to establish its control of the
foreign exchange market. It is not altogether impossible
that a proposal may be made in the Reichstag to change
the present manner of dividing the profits between the
shareholders and the Imperial Treasury, but we do not
anticipate any success for such a move. Doctor Arendt,
member of the Reichstag, has again declared in the press
that the dividend should be limited to 6 per cent. The
same motion was turned down in the Reichstag in 1899,
on the ground that the introduction of the measure would
stamp the Reichsbank even more as a state institution.
The Government declared at that time that the proposition was unacceptable because it tended toward government ownership. Here and there the fear has been
expressed that the fact that the Imperial Treasury receives
the largest share of the profits of an imperial bank, which
is controlled and managed by the Government, constitutes
23
National
Monetary
Commission
a serious menace in times of war. The maximum of 6 per
cent would give to the shareholders not above 4.869 per
cent on the stipulated amount of capital actually paid up,
and only 4.081 per cent on the purchase price of the last
issue (144 per cent plus 3 per cent expenses), not to speak
of the risk of a possible falling off of the earnings and the
ever present fear that the bank may some day be dissolved by order of the Government. Such a considerable
curtailment of the earning chances would frighten away
capitalists for a time at least, if not altogether; whereas it
is of great importance to the Reichsbank as well as the
Empire that the shares should be held continuously by
strong and permanent investors. It will be seen in the
following table how the changes in the bank act have
affected the distribution of the profits of the Reichsbank
up to the present.
[In millions of dollars; $i =4.20 marks.]
Paid to the
Net
profits.
Imperial
Government.
Stockholders.
Surplus.
Amount.
Per cent
1876-1890
39-41
27. 11
6. 32
.03
1891-1900
4 6 . 27
23-47
22. 56
7.90
.24
1901—1907
51-37
29.42
1931
7-03
•65
The shareholders in 1879 received 86.7 per cent of the
net profits, which were then at the lowest mark, the Government only 8.8 per cent; but in 1890 the shareholders
received only 51 per cent and the Government 34.2 per
cent. The amendment to the bank act which was passed
in 1890 reduced the quota of the shareholders in 1891 to
24
Renewal
of
Reichsb
ank
Charter
48.5 per cent and raised that of the Empire to 46.1 per
cent. In 1907 the shareholders received 34 per cent only,
whilst the Empire's share amounted to 66 per cent. The
next table shows the extent to which the distribution of
profits has been affected by increases of capital.
[In millions of dollars; $1 = 4.20 marks.]
Capital.
1876—1890
1901—1904
1905—1907
_.
Share of profits paid
to-
Stockholders received
on—
Imperial
Government.
Stockholders.
Nominal
capital.
31-74
11. 73
17.69
49-67
8.91
Per cent.
6.95
6. 24
8.09
28.57
35-72
42.86
10.39
Actual
investment.
Per cent.
6.043
5-238
6.563
The average dividends received during the period 19001905 by the shareholders of various central banks of issue
are as follows:
Per cent.
Reichsbank
Bank of the Netherlands..
Bank of England
Bank of France
National Bank of Belgium
Austro-Hungarian B a n k . . .
6. 22
9. 16
9- 5o
12. 60
15. 00
4. 61
The governments received the following share of profits
for 1907:
Amount.
From t h e -
$8,210,000
Reichsbank
Bank of the Netherlands. ..
Bank of France
National Bank of Belgium
Austro-Hungarian Bank....
1,360,000
1,410,000
25
Per cent
66.0
54.8
16. 9
500,000
21. 0
2,270,000
37-5
National
Monetary
Commission
The question whether the existence of the "contingent,"
or limit to the tax-free note issue of the Reichsbank,
affects the determination of its discount rate was in fact
hardly a question with the inquiry commission. The
statistics show that the Reichsbank kept its discount
rates at a minimum of 3 per cent in 1895, 1896, 1897, 1898,
also in 1902 and 1905, even during periods when its circulation exceeded the nontaxable limit. Even during the
years of our greatest industrial expansion the Reichsbank
disregarded altogether the tax which it had to pay and
managed to keep the discount rates at their lowest—e. g.,
\]/2 per cent in 1899 and 1906—at a time when its circulation exceeded the tax-free limit. The system of limiting
the issue of bank notes by imposing a tax has this advantage, that not only the management of the Reichsbank,
but the business world and the public at large are enabled
by this automatically sliding scale to gauge the fluctuations in the demand for money, and have grown accustomed to look to it as a signal of possible stringency. It
is necessary to fix the legal maximum with a view to this
useful purpose. At first the limit of the tax-free note-issue
happened to be fixed at 250,000,000 marks ($59,520,000),
and it had actually risen by 1894, through the lapse of the
privileges of private banks of issue, to 293,400,000 marks
($69,850,000).
The last amendment to the bank act, which went into
force in 1901, fixed the limit at 450,000,000 marks ($107,140,000), and it has since been increased to 472,829,000
marks ($112,570,000). It has happened a number of
times that the total outstanding circulation was more than
26
Renewal
of
Reichsbank
Charter
covered by the cash resources, so that the limit set for nontaxable circulation became practically ineffective. In
1888 this occurred 28 times; in 1892, 27 times; in 1894,
22 times; in 1895, 20 times. Later on such cases gradually dwindled down to 4 in 1902 and 1 in 1905. Nowadays the outstanding circulation frequently exceeds the
legal maximum. During the boom years, 1898 and 1899,
the legal maximum was exceeded sixteen and twenty times,
respectively; in 1902 three times; but seventeen times in
1906, and even twenty-five times in 1907. Not only the
years of great industrial activity, but also the intervening
periods, are accompanied by such rapid expansion of business and demand for money which the Reichsbank has to
cope with, that there can be no doubt that an actual need
for currency and for uncovered notes exists in this country.
The following table shows the investment of funds by the
Reichsbank during periods of five years, and their proportional growth as compared with the figures for the first
five years. The fluctuations in the loans are quite marked,
a great increase having taken place during 1891-1895 and
a pronounced decrease during 1901-1905. Still greater
were the fluctuations in those investment securities which
depend upon the Empire's floating-debt requirements.
The chief item, bills discounted, shows a continuous and
uninterrupted increase, and the sum total of the Reichsbank's investments has increased correspondingly. Uncovered notes show a decrease only during the period from
1886 to 1896, when business was quiet, but since then they
have substantially increased. It is also significant that
27
National
Monetary
Commission
the number of officials employed by the Reichsbank has
increased from 1,904 in 1876 to 3,024 at the present time.
[In millions of dollars; $1 = 4.20 marks.]
Discounts.
Amount.
Per cent,
Amount.
84.89
87.37
n o . 29
131-94
172.49
199.94
235.S8
262.99
100. o
102.9
129.9
155.4
203. 2
235.5
245.5
274.0
12. 25
12.34
14.88
21.65
22.45
17.52
19.91
23.37
1876-1880
1881-1885
1886-1890
1891-1895
1896-1900
1901-1905
1906
1907
Total investments.
Securities.
1876-1880
1881-1885
1886-1890
1891-1895
1896-1900
1901-1905
1906
1907
Percent.
100. o
100. 8
121. 5
176.8
183.4
143- 1
162. 6
190. 8
Uncovered bank
notes.
Amount. Per cent, Amount. Per cent,
Amount.
Per cent
1-55
5.58
4-75
1.89
2.78
19.23
27.88
23.73
100. o
360.8
306.4
122.3
179.5
1,242.3
1,801.3
1.530.6
98.68
105.29
129.91
155.48
197.72
236.69
283.37
310. 09
100. o
106.9
131-6
157.5
200.3
239.2
262. o
286. 7
24.35
27.88
17. 61
11. 64
54.43
66.37
104.40
126.44
100. o
114.5
72.3
47.8
223.7
272.4
365.4
442. 5
While it thus appears that an increase of the "contingent" is justified, the question remains how great this
increase should be. A separate consideration of the
special needs that arise at the close of the quarter
is inadvisable in this connection; it would tend to
confuse the issue, and would be of no practical use.
The management of the Reichsbank and the general public have grown accustomed to these regular
28
Renewal
of
Reichsbank
Charter
flurries and do not overestimate their importance.
Aside from this, it is a delicate task to determine a
new limit. After passing through a period of unprecedented activity we are now in the midst of an era of stagnation, and nobody can say whether the lowest level has
been reached and what the normal level will be in future.
It remains to be seen what will be the effect of the Reichsbank's new policy of cutting down certain credits and of
the increased use of currency-saving methods, although
it must be admitted that progress in this direction is slow
on account of a too timid fiscal policy which, to mention
one instance only, stands very much in the way of the
newly created postal checks. On the other hand the
economic fluctuations during the last decades have never
touched again the low records of former declines. We are
rapidly and steadily progressing, and this causes a corresponding strain on the Reichsbank. It is to be hoped
that the limit of the tax-free note issue will not be raised
too quickly, since it might thus be rendered useless as our
financial barometer in normal times. Nobody can expect
that the contingent will be raised above 600,000,000 marks
($142,850,000). The opinion seems to prevail among wellinformed men that a limit of 500,000,000 marks ($119,040,000) would be best. It is doubtful whether the shareholders of the Reichsbank will benefit from such a change
in the contingent. The need for uncovered notes remains
always uncertain, and if the last amendment of the bank
act had fixed the legal maximum at 600,000,000 marks
instead of 450,000,000 marks it would have meant to the
29
National
Monetary
Commission
shareholders an increase of their share of t h e profits of only
about 0.167 per cent on t h e average capital or about 0.152
per cent on t h e present capital.
This is only an insig-
nificant fraction compared to t h e loss which t h e shareholders will sustain by reason of t h e reopening of
the
surplus reserve.
III. GOU) EXPORTS—GOLD IMPORTS—OUR STOCK OK GOLD—
ADVANCES ON GOLD IN TRANSIT FREE OF INTEREST—
FOREIGN EXCHANGE POLICY—INVESTMENTS IN FOREIGN EXCHANGE—CREDIT BALANCES ABROAD.
W e have already stated t h a t t h e inquiry commission
showed a remarkable consensus of opinion on a n u m b e r
of questions.
This has been particularly t h e case on t h e
questions dealing with the desire to strengthen t h e gold
reserves of t h e Reichsbank b y means of (1) t h e discount
and foreign-exchange policy, (2) interest-free advances on
gold in transit, and (3) gold premiums.
On t h e last
point our opinion is generally shared t h a t such a premium
policy is out of t h e question for Germany.
T h e advocates
of t h e measure have t a k e n t h e idea from t h e example set
b y t h e Bank of France; b u t in France demands for specie
can be satisfied with silver currency.
can not and must not be done.
In Germany this
Nobody who can appre-
ciate t h e advantages of a uniform monetary s t a n d a r d will
advocate t h e imitation of t h e example set b y France,
which for years saw a depreciation of its s t a n d a r d with a
premium on gold in 1898 of almost 0.4 per cent (0.395),
and for a time even 0.65 per cent.
30
Since 1904 t h e B a n k
Renew
aI
of
Reichsbank
Charter
of France, too, has abandoned gold premiums. We infer
that the commission also agreed with us that the outflow
of gold to foreign countries should not be prevented whenever and as long as the metal is required as a medium of
exchange. Our foremost object must be the maintenance
of the exchange parities in order that our credit in the
international market and the reputation of the German
gold standard may not suffer, with ,the purpose in view
of finally placing the latter beyond all doubt and on the
same firm basis on which the English sovereign stands
to-day. We may safely say that all business men agree in
considering it detrimental and regrettable that no gold was
sent abroad when exchange for awhile in the fall of 1907
ruled above the gold export point; and it may be well
to emphasize the fact that the management of the
Reichsbank reached the same conclusion. As we have
explained before, it must have been either mistaken patriotism or fear of antagonizing the Reichsbank which for so
long a time kept our bankers from exporting gold, and
which really created a depreciation, however short lived,
of our monetary standard in the international money
markets. Since that time it has come to light that the
apprehensions of the bankers were quite unwarranted in
fact, and all exporters of gold know better now.
The next table deals with the movement of gold between
Germany and foreign countries since 1900. The output of
gold throughout the world had steadily increased up to
1899, when it reached $306,430,000. The next year it was
reduced through the Boer War to $254,520,000, but it has
31
National
Monetary
Commission
increased each year since, amounting to $400,000,000 in
1906, and to $404,760,000 (estimated) in 1907. Imports
of gold during recent years have exceeded the exports in
the principal countries. According to the trade bulletins of the last seven years (1901-1907) Germany's excess
of gold imports over gold exports for that period was
$316,120,000; France alone went ahead of Germany with
its net import of $496,790,000, while England reported
only $156,000,000, the United States $190,000,000, and
Austria-Hungary not more than $54,050,000. The statistics, to be sure, are not complete, as they do not account
for gold which travelers carry with them across the
frontier in their pockets and portmanteaux. But it
cannot be doubted that the inflow of gold into Germany
during the years 1904 and 1906, for instance, was much
larger than the outflow. In 1907, on the other hand, the
exports and imports of the yellow metal nearly balanced
each other; during October and November alone between
$40,000,000 and $50,000,000 in gold had to be sent out of
the country to maintain the par of exchange. In this
connection it is worth while to notice that Germany's
own gold production—derived either from foreign ores or
from domestic and foreign residues—rose from $400,000
in 1884 to $2,785,000 in 1906. This domestic production,
however, is more than offset by the extensive use of gold
in industry, which seems to have increased considerably
in recent years. The amount of gold thus absorbed has
lately been estimated at not less than $25,000,000 annually,
but the exact figures are not yet available.
32
Renewal
of
Reichsbank
Imports
Charter
of gold.
[In millions of dollars; $1=4.20 marks.}
Germany.
France.
+ 54.8
+ 60.5
+ 35-7
1906
+50.
+ 9+46.
+94.
+45+68.
1907
+ o.
+ 65.2
1901
1902
1903
1904
1905
+ 102. 9
+ 125.0
+ 52. 1
England.
+32.9
+30.2
+ 4-3
+ 4.0
+37.6
+ 16.7
+30. 2
AustriaHungary.
+27
+ 16,
+ 8.
+ 11
— o,
— i,
— 7.
United
States.
+
+
+
+
+
3-1
8.1
20.95
36.4
3-3
108.8
88.1
The changes which the stocks of gold of the central
banks of issue have undergone since the Reichsbank came
into being will be shown in the next table by yearly averages. The Reichsbank's stock of gold touched its lowest
mark in 1881, being then not more than $49,210,000.
By 1888 it reached $144,830,000, and did not rise much
above that figure until the end of 1907—a fact which is
quite remarkable considering the heavy gains which
were made by the other banks of issue during the same
period.
Gold reserves of the central banks of issue.
[In millions of dollars; $1=4.20 marks.]
Imperial
German
Bank.
68.3
144.8
143.3
135.9
177.5
160. 7
150.9
1876.
1888.
1896190019051906.
1907.
83703—10
3
Bank of
France.
297.9
209.7
381.5
406. 9
55i.1
555-4
521. 1
Bank of
England.
AustroHungarian
Bank
138.8
33-4
100. 1
29.0
214. 6
112 3
161. 1
161. 2
183.3
227.8
225.6
165.7
221.9
169. 6
33
Imperial
Bank of
Russia
i57.o
169. 6
425.3
399.4
459-5
405.7
481.0
Bank of
the Netherlands.
29. 6
25.7
13.2
23.4
30.9
27.8
28.8
National
Monetary
Commission
In view of this great disparity, the Frankfurter Zeitung
has for many years urged that the Reichsbank should
make strong efforts to attract gold to this country by
adopting a more effective and businesslike policy. This
advice has not been entirely disregarded. So far back as
1879, when Germany stopped selling silver, the Reichsbank began to make advances against gold in transit,
free of interest. At first these loans were granted for
five or eight days, subsequently for longer periods—according to the provenance of the gold—and lately even for
periods of more than six weeks. The Reichsbank admits
the need for precaution lest advances should be made
on gold which would find its way there anyhow, or which
might merely pass through Germany in transit to another
country. During the present year the Reichsbank has
again resorted to this policy with the gratifying result
that during the first nine months $56,170,000 of gold
have been secured (in 1907, $9,400,000; in 1906, $54,000,000); and that the large increase in bullion and specie,
which amounted to $259,050,000 on November 30 against
only $161,660,000 a year ago, consists largely of gold.
Not only has the Reichsbank gradually brought its
policy with regard to gold imports in line with our suggestion; it has also come over to our view in the matter of
foreign bills. The bank act does not prevent the Reichsbank from "discounting, buying, and selling" foreign
bills. On the contrary, foreign bills may be used like
domestic bills—in addition to its cash holdings—to cover
the bank's outstanding notes. In view of this, there is
a more and more general opinion that, as we have said,
34
Renewal
of
Reichsbank
Charter
the Reichsbank might influence the national balance of
payments through its policy as to foreign bills. The
influence would of course not be permanent, but on
occasion it would be very useful.
The rate of exchange does not very often go beyond
the gold-export point, and even in 1907 sterling exchange
ruled above that point only for twenty days. But that
is quite bad enough, and a quotation for sterling as high
as 20.60—as it was then—does not speak well for the
esteem which our monetary system enjoys abroad.
Fluctuations in the balance of payments and in the price
of bills will always occur; nor will it be possible to avoid
even sharp advances in the rate of exchange, such as are
brought about either periodically, as by the demand for
exchange to pay for grain, cotton, etc., or accidentally,
by a change in the movements of commodities, subscriptions to foreign issues, withdrawal of foreign credit balances, etc. With a good supply of foreign bills at its
command, the Reichsbank could prevent a sudden and
forced rise of the exchange rates and meet the needs of
international payments in time to prevent in many
cases an actual exodus of gold. It is hardly necessary
to state that the Reichsbank has long recognized that
possibility. As late as 1898 its foreign bills amounted
to but a few millions. The commission for the purchase
of long-time foreign bills was then reduced from o. 1 per
cent to 0.05 per cent, and by the next year the holdings
had already increased. A summary for the last few
years will be found on the following page.
35
National
Monetary
Commission
[In millions of dollars; $1=4.20 marks.]
Year.
i8951900.
19051906.
1907-
Purchases
of foreign
exchange.
Per cent
English
bills.
12.86
50. 41
54-53
69.49
63.84
79-3
95- 1
Maximum holdings.
Date.
18951900.
190519061907-
Aug.
Dec.
Dec.
Nov.
Jan.
15
31
30
23
is
Amount.
0. 76
17.70
12.45
14.93
14.98
90. 2
81.7
81.8
Average holdings.
Amount.
o. 61
6.37
7.88
10. 29
10.59
Minimum holdings.
Date.
Feb.
Feb.
Aug.
Sept.
Dec.
28
23
23
15
31
Amount.
0.51 !
0.78
4.84
4.12
5.61
Per cent,
0.5
3-3
3.7
4-4
4.0
Profits.
Per cent.
5-05
4.24
3.81
5- 24
6. 14
The growth of the Reichsbank's foreign bill portfolio
has been considerable, especially in view of the fact that
the currency of such bills, which in 1895 did not exceed
seventeen days, was gradually increased until in 1907 they
ran sixty days. However, the Reichsbank still carries a
much smaller quantity of foreign bills than the other
central banks of issue. Of all bills bought by the Reichsbank in 1907, 4 per cent were foreign bills, while the
Austro-Hungarian Bank's proportion of foreign bills
amounted to 8.3 per cent, that of the Bank of the Netherlands to 12 per cent, that of the National Bank of Belgium
(which treats them like its metal reserve as cover for
outstanding circulation) to 23.9 per cent. The restraint
of the Reichsbank cannot be ascribed to any reluctance
on its part to make material sacrifices. The explanation
is to be sought rather in the fact that for years the man-
36
Renewal
of
Reichsbank
Charter
agement held the opinion regarding gold imports and
foreign exchange that it would be better not to interfere
with the international movement of money, because
attempts at artificial improvement were apt to be succeeded by vehement counter movements. Under the
present management the Reichsbank has come to share
our conviction that, when the balance of payments is
favorable, it is wiser not to look on idly until the natural
movements of foreign-exchange rates force an influx of
gold and to run the risk, by such inactivity, that the
surplus of Germany's commercial credit balances abroad
be invested in foreign loans or used for other purposes.
While gold imported into Germany upon the first
favorable opportunity might be taken away again, it
is nevertheless possible with constantly changing conditions that it might remain in this country longer than
seemed at first likely. The inquiry commission did not
discuss plans for adapting the foreign-exchange policy
to this purpose, as the Reichsbank of its own accord had
already begun to put to practical use the lessons learned
in Vienna and Brussels. The National Bank of Belgium,
as we have already pointed out, holds large amounts of
foreign bills for its own account, besides those which it
holds for the Treasury and savings banks, so that it has
an enormous amount of such exchange at its disposal.
The Austro-Hungarian Bank reports a considerably
smaller quantity of such bills, and yet it is due to the
efforts of that bank that the foreign-exchange rates have
since 1901 never risen in Vienna more than 0.2 per cent
above parity, while in Berlin in 1907 the sterling rate at
37
National
Monetary
Commission
20.60 was 0.83 per cent above the mint parity and 0.5
per cent above the exchange parity. This enabled the
Vienna institution to maintain a steadier discount policy.
For further information we refer to the article of our
Vienna correspondent in the second morning edition of
May 17, 1908, which contains a number of valuable data
on this subject. Our correspondent outlines the remarkable methods by which the Austro-Hungarian Bank has
gradually gained in its country the supremacy in the
foreign exchange and bullion markets and perfected its
arbitrage system in foreign exchange through correspondents all over the world. The article also describes
how that Bank looks after its business and makes ready
beforehand to meet expected heavy demands of money
on the quarter or settlement days. The Reichsbank
evidently intends to follow this example, if for no other
purpose than to gain practical experience. It remains
to be seen whether the Reichsbank will open check accounts
in foreign centers, such as the Vienna institution maintains, and whether a proposition which came from Vienna
about ten years ago, that the two banks should keep a
permanent gold balance with each other, will be taken
up again.
The Reichsbank has apparently not decided yet on the
amount of foreign bills which it will take at any one time,
but seems to be anxious to make very careful observations before coming to a decision on that question.
In its quarter - century report, the Reichsbank gave
expression to the idea that its purchases of foreign bills
might encroach upon the domestic demand for money.
38
Renewal
of
Reichsb
ank
Charter
This contention no longer holds good, since the Reichsbank
will from now on buy bills based on legitimate commercial
transactions only and avoid all finance bills, and, in buying foreign bills, simply takes the place of other banking
firms which formerly used to employ their funds in that
way. Another objection—that the Reichsbank offers its
funds to foreign countries at their low rates of interest—
seems unjustified as long as the Reichsbank does not
make purchases abroad, and this, according to banking
circles, the Reichsbank has never done. The Reichsbank
has managed to increase its foreign portfolio by continuously appearing in the Berlin market as a buyer. The
Reichsbank has thus acquired large amounts of foreign
gold, not only through its investments in foreign bills, but
also through its credit balances abroad, which it has kept
with its correspondents out of the proceeds of matured
foreign bills. In its weekly statement the Reichsbank
does not separate the foreign bills from the foreign credit
balances and it wants to continue keeping the respective
figures secret, pointing to the example of the AustroHungarian Bank, which does not disclose the total amount
of foreign gold at its disposal in excess of the $12,000,000
which serves as cover for its outstanding note circulation.
The Austro-Hungarian Bank's powerful control of the
foreign-exchange rates and market is attributed solely to
its practice of leaving the market in perpetual ignorance
about the extent of its foreign-exchange investments.
The annual report of the Reichsbank, however, will
undoubtedly continue to give this information. At the
end of 1907 the total of foreign bills was reported to be
39
National
Monetary
Commission
only $6,140,000 and t h e total of credit balances with correspondents $2,400,000, t h e latter evidently being balances
with foreign correspondents exclusively.
I t is certain t h a t
the Reichsbank's investments in foreign bills have during
1908 considerably exceeded those of the previous year
and t h a t its credit balances abroad have also largely
increased.
This is evident from t h e weekly statements
which show t h e " other assets " during t h e first months of
t h e new year t o have been practically t h e same as last
year, b u t disclose a heavy increase since t h e end of April.
On April 30 the "other
a s s e t s " amounted t o $11,430,000
more t h a n last year, and on J u n e 30 t o $29,050,000 more
t h a n last year.
This includes short-term advances against
gold in transit.
The excess of " o t h e r a s s e t s " over last
year's figures did not fall below $11,660,000 even on September 30; on October 15 it amounted t o $15,470,000,
a n d on November 30 t o $22,380,000.
IV. GERMANY'S STOCK OF GOLD AND ITS DISTRIBUTION—
SHALL THE NOTES OF THE REICHSBANK BE DECLARED
LEGAL TENDER?—SMALL BILLS—SILVER CURRENCY—
ADDITIONAL ISSUES OF SMALL BILLS.
T h e question whether and in w h a t way t h e cash holdings of t h e Reichsbank, particularly its stock of gold, m a y
or should be augmented b y attracting money from domestic t r a d e , forces upon us for preliminary consideration this
difficult question: W h a t is t h e total gold supply of Germany?
reliable.
Unfortunately, t h e available estimates are not
I t is definitely known t h a t up to t h e end of
1907, after deducting currency withdrawn from circula-
40
Renewal
of
Reichsb
ank
Charter
tion, $1,044,750,000 of gold coin had been minted. It is
not known, however, how much of this gold coin has been
shipped out of the country or whether it has been melted
down abroad or been held in its original shape. Nor is it
known how much has been absorbed by domestic industries or other channels. The only statistics available at
present are those issued by the Director of the Mint at
Washington. The latter estimated the amount of gold
in Germany at the end of 1906 to have been $1,030,200,000,
of which $16.75 P e r capita were in circulation. Both
figures seem too high, considering that the gold coin
minted at that time did not exceed the Mint Director's
estimate, while on the other hand allowance must be made
for coin exported or used for purposes other than circulation, as well as bar gold and foreign coin in our possession which is not considered in the estimate. However,
it is worth while to make a comparative study of the
reports of the Director of the Mint, which for years have
been compiled under a uniform system. The next table is
reprinted from the Washington report. Germany's stock
of gold, it will be seen, is relatively high, and gold coin
circulates to a much greater extent in Germany than in
any other country. The circulation of gold per capita is
as follows:
United States
$6.71
England
7.00
Russia
2.54
France (which is so rich in gold)
io-33
Germany
14. 64
4i
National
Monetary
Commission
[In millions of dollars; $1=4.20 marks.]
Stock of gold.
Country.
End of
1906.
Germany
England
France
Russia
United States_v__
1, 0 3 0 . 2
Increase
during
+ 112. 9
-
926.4
— 106. 2
+ 84.3
+ 172. 6
1.593-3
End of
1906.
1906.
486.7
939-3
In banks.
72.4
190.7
196.4
520. 0
609. 0
1, 0 8 1 . 4
Increase
during
1906.
— 27.4
+
8.3
- 35-5
+ 174.5
+ 125. 7
In circulation.
End of
1906.
Increase
during
1906.
887. 1
+ 140. 2
290. 2
406. 2
- 80. 7
— 70. 7
330.5
— 89.5
5ii.9
+
46.9
We will show next how Germany's gold is distributed
between the Reichsbank and the public. From 1876 to
1907 the Reichsbank bought $821,700,000 in gold bars
and foreign coin, of which only $98,500,000 were resold
and $725,880,000 went to the mint for coinage. The German coined gold held by the Reichsbank has not increased
in a ratio proportionate to these purchases, and this is true
also even of its total stock of gold, including gold bars and
foreign coin. After deducting the gold coin minted in
Germany and held by the Reichsbank from the total
amount of gold coined at the mint, there remained at the
end of 1907 $919,820,000 of gold which was possibly in the
possession of the banks and the public. This estimate
includes gold which has since been exported, consumed,
or lost. Yet, in spite of the liberal allowance which has
been made for coin thus withdrawn from circulation, the
quantity of gold which still circulates in our country will
be found to be very large.
42
Renewal
of
Reic hsb ank
Charter
[In millions of dollars; $1=4 .20 marks.]
German gold coin.
Gold holdings of the Reichsbank.
Year.
Total.
1876
1881
__
__ - _ .
68. 27
49. 20
135-89
150.91
Bars, etc.
1 0 . 12
13-37
31-52
25-99
German
gold coin.
58.14
35.84
104.36
124.92
Minted.
34i.70
419-53
871.85
1.044-75
In possession of the
Reichsbank.
58.14
35.84
104.36
124.92
Remaining in
circulation.
283.40
383.69
767.53
919.83
NOTE.—The amounts are averages for the years given.
It had been suggested in the list of questions submitted
to the inquiry commission that in order to strengthen the
Reichsbank's stock of gold by money drawn from domestic
trade, the notes of the Reichsbank should be declared
legal tender.
Such a provision obviously by itself would scarcely
suffice to draw gold out of circulation into the Reichsbank,
as the notes of the Reichsbank have been taken in payment by everybody without objection for more than three
decades. We pointed out last spring that England, as
well as France, has legal-tender notes, and yet in England
the amount of notes in circulation is quite small, whereas
in France it is greater than anywhere else, the figures
per capita for 1907 being:
England
$3. 19
France
Germany
2
3 • 59
5. 69
As it is, the notes of the Reichsbank are handled with
an absolute confidence which could hardly be increased
by declaring them legal tender. It might therefore be
just as well to wait until an emergency arises and then to
43
National
Monetary
Commission
issue the decree making the notes legal tender, and at the
same time to enact by law that they be accepted at their
face value in payment of debts, as France did in 1870.
But the inquiry commission, which at first, we believe,
was also of this opinion, has changed its mind, and now
considers it advisable that the situation which already
actually exists should receive legal sanction through the
notes of the Reichsbank being made legal tender. The
Reichsbank seems to have exerted itself to bring about
that end, and the members of the inquiry commission,
while thoroughly aware that the notes of the Reichsbank
are freely taken all over the country, probably had in
mind the burlesque "Schnabele" incident, when gold
was hoarded for one whole day in Berlin, any serious
disturbance being sufficient to remind the people of the
fact that a tender of Reichsbank notes does not constitute
a legal discharge from debt. It is therefore deemed
preferable to proceed along these lines immediately, for,
should the country be involved in a prolonged economic
or political crisis, it would by that time have become
accustomed to the legal-tender status of the notes of the
Reichsbank and would in consequence be less inclined to
hoard gold.
To our objections that the enactment of a legal-tender
law will cause a more frequent use of the gold clause in
mortgages, etc., the advocates of the legal-tender measure
point out that, even in the nineties, when our monetary
system sustained for the last time the severe attacks of the
bimetallists, the gold clause was hardly used and never
enforced; only here and there, as in Frankfort, is it still
44
Renew
aI
of
Reichsb
ank
Charter
to be found under ordinary conditions. On the other
hand, we should not care to see the gold clause entirely
abolished by law; if it were, a temporary depression of
our monetary standard—should one really take place—
would surely find the money lenders and money seekers
inventing some expedient, or money lenders might favor
foreign gold bonds to the disadvantage of our own borrowers. No proposition seems to be under way to amend
the law so as to change the present provisions for the
redemption of the Reichsbank notes, as stated in article 18
of the bank act, which compels the Reichsbank to redeem
its notes " at its main office in Berlin upon presentation "—
that is to say, to an unlimited extent—and at all its
branches " as far as cash holdings and money requirements
permit." We have pointed out before that the Reichsbank is quite willing to do more than the law requires,
and to exchange its notes for gold whenever this is necessary for the maintenance of the par of exchange; but it
has not changed its views that, with its extended business
throughout the country, it has no right in critical times
to make it still more profitable for the exporters to ship
gold by sending them whatever quantities of gold they
desire to Kattowitz, or to Cologne, or to Hamburg. Nor
will the bank in Berlin furnish to the exporter gold coin
of full weight. On the contrary, as is also the case with
the Bank of England, it prefers to pay out short-weight
pieces, which, as experience shows, come back more
quickly than others. On the other hand, it is to be expected that the law which at present compels the Reichsbank to redeem its notes "in current German money"
45
National
Monetary
Commission
will be so amended as to compel it to redeem its notes in
gold.
This provision should be extended also to the 20-mark
notes, whereas, according to article 9 of the present currency laws, payments up to 20 marks may be made in
silver. It is advisable to embody this obligation as to
redemption in gold, which has existed in practice for a
long time, in an express law, mainly for the instruction
of foreign countries, where to our knowledge even an expert
has misinterpreted the purpose of the legal-tender decree.
In any case it will be recognized abroad when the next
reports of our big banks appear, that the stringency of
last year was due to the reaction from an unprecedented
trade activity and to nothing else. The condition of the
Reichsbank, and especially its stock of gold, will also
prove this. We have already mentioned that the Reichsbank has at last come over to our view and intends to
specify the gold holdings in its weekly statements. It
will be well for it to do this as soon as possible, at any rate
not later than the beginning of the new year.
It is to be regretted that the inquiry commission
approved the issue of more notes of small denominations.
This recommendation, however, did not receive the
unanimous approval given to the legal-tender provision,
but it was approved by a "majority of votes," in spite of
the recent increase in the number of small notes. In
1906 the Reichsbank received permission to issue small
notes of 50 and 20 marks, and in 1908 the maximum
limit of silver currency per capita, which had been raised
in 1900 from 10 to 15 marks, was increased to 20 marks
46
Renewal
of
Reichsb
ank
Charter
per capita. The effects of these measures are evident
from the next table, which shows how the denominations
of the notes have changed in the course of years. In spite
of the steadily increasing amount of the total circulation,
the largest notes, those of 1,000 marks, have steadily decreased in number in the last decade, whereas the number
of ioo-mark notes has steadily increased, not only immediately after the abolition of the old 500-mark notes,
but even afterwards during the ten years preceding 1905.
Since the issue of the 50 and 20 mark notes the circulation
of 1,000-mark notes fell off still more, but so did that of the
ioo-mark notes, so that it is possible that the 50-mark
notes drove out of circulation, in the main, only the ioomark notes. At the end of 1907, 50 and 20 mark notes to
the amount of $69,150,000 were in circulation, and since
then there has been a slight increase, until now the total
is nearly $71,420,000, which is the maximum that may be
issued in small denominations. Of the total circulation
at the end of last February, 8 per cent consisted of 50mark and 9.4 per cent of 20-mark notes.
[In millions of dollars; $1=4.20 marks.]
Year ending December 31—
1895190019051906.
1907-
Total
circulation.
$314.31
335-7o
394-45
422.83
449.04
1,000-mark notes.
ioo-mark notes.
Amount.
Per cent.
Amount.
$119.98
9 0 . 81
101.10
35-6
27. 1
25.6
22.3
$201.73
64. 2
244.35
72.8
17. 7
94-45
79.58
47
Per cent.
293.45
74-4
307.32
72.7
300.30
66.9
National
Monetary
Commission
50-mark notes.
20-mark notes.
Year ending December 3 1 —
1895
1900
1905
__
1907
__
Amount.
Per cent.
Amount.
$12.54
33- 16
2.9
7-4
$8.53
36.0
Per cent.
,
.
_ __
8.0
It was to be expected that the 50 and 20 mark notes of
the Reichsbank would temporarily drive the treasury
notes out of circulation. The Reichsbank took in such
large quantities of treasury notes that in 1906 it held more
than $8,570,000 (against $5,230,000 to $6,190,000 in
former years), and in 1907 more than $19,520,000, which
left only $8,810,000 in circulation, as against about
$22,610,000 in former years. But it is possible that the
Reichsbank held these treasury notes back on purpose, because it was intended to split them up
also into smaller denominations; moreover, during
the present year $7,610,000 of treasury notes were
again restored to circulation. At the end of 1907
there were in circulation about $79,760,000 in treasury
notes and new notes of the Reichsbank of smaller
denominations whilst of smaller bills only the $28,570,000
treasury notes were available, of which only about
$22,610,000 were usually in circulation.
Of those
$28,570,000 treasury notes, $16,660,000 were 50-mark
notes; $7,140,000, 20-mark; and $4,760,000, 5-mark notes;
now it is proposed to put out $21,420,000 in 10-mark notes
and $7,140,000 in 5-mark notes, besides about $33,330,000
48
Renewal
of
Reichsbank
Charter
of 50-mark and $35,710,000 to $38,090,000 of 20-mark
notes, all issued by the Reichsbank. The idea which
originally guided our monetary reforms was that notes
should be used for large payments, coin for all others,
and small notes for remittances out of town. There were
good reasons for this, because the purer our gold standard
the finer an instrument it becomes to link us with the commerce of the world. England permits no bank notes under
£5; Austria, since the resumption of cash payments,
none below 50 kronen (only up to that time were notes of
20 kronen in circulation); France and Italy, none below
50 francs. It would have been better to do without the
20-mark notes of the Reichsbank altogether; and now
that we have them, it is all the more necessary for us not
to overburden our monetary system with small notes.
We showed above, for gold coin, the amounts of coin
minted, and held by the Reichsbank and by the public,
respectively; and we shall now give the corresponding
statistics for silver coin. The taler coins having only
gradually disappeared from the Reichsbank and from circulation, we have also added the number of talers which
at each of the stated times were in the possession of the
Reichsbank. We have left out the nickel and copper
coins, as almost all of them passed into circulation. Up
to 1907 $24,380,000 were minted (39 cents per capita), of
which the Reichsbank held only $476,000, while all the
rest—$23,810,000—was in circulation.
83703—10
4
49
National
Monetary
Commission
$i =4,20 marks.]
Silver in circulation.
October 31, i88o__
October 31, 1900. _
December 31, 1907
January 31, 1908._
Population.
Taler (3 Per Imperial
Per
marks). Icapita. silver capita
Millions
45.2
Millions.
56.4
61. 9
61. 9
89.88
7.83
5.57
$115.14
52.55
i-59
o. 12
o. 09
Millions.
Millions,
$101.69 $ 2 . 24
2. 24
125.93
3.48
215.76
3.52
217.52
$216.83
215.81
In the Reichsbank and
other government offices.
Total.
Per capita.
Per
capita.
223.59
223.09
$4.79
3.83
3-£o
3- 61
In circulation.
Total.
Per capita.
Millions.
Millions.
October 31. i88o__
October 31, 1900_.
December3i, 1907
January 31, 1908-.
Total.
$86.48
60. 40
55-95
61.52
$1.91
1. 07
0.86
1. 00
$130.35
$2.88
I55-4I
167.64
2. 76
161.57
2. 61
2. 74
It will be seen that at the beginning of the year about
$3.57 per capita had been issued in silver coins, of which
about $2.61 were in circulation. At the time the coinage
laws were last amended the Government declared that the
demand for silver coins (mainly 5 and 2 mark pieces) had
increased to such a degree, especially for the payment of
wages, that many branch offices of the Reichsbank were
very far from being able to satisfy the demand for them.
It was also argued that a careful policy required that the
Bank should have at its disposition regularly at least
$71,420,000 in silver to meet crises—in which case it
would really have at its command, if we count the silver
reserves of public treasury offices, about $78,570,000. If
during the next four or five years another $60,470,000 were
50
Renewal
of
Reichsbank
Charter
to be coined, Germany would then have $276,900,000 in
silver coin. After deducting the above $78,570,000 there
would remain only $198,330,000 for circulation, or, assuming the population by that time to have increased to
64,600,000 people, not more than $3.09 per capita. This
calculation is perhaps an underestimate; for, since an
issue of $4.76 per capita is authorized, the population of
64,600,000 would warrant the coinage of $91,190,000, and
not $60,470,000 only. The Government, however, is
pledged to issue new coins only in proportion to the real
needs of trade, and these the Government expected to become somewhat smaller on account of the issue of the
5-mark treasury notes up to the value of $21,420,000.
We are nevertheless afraid that the Reichsbank may find
the keeping of stock of $71,420,000 in silver (at the end of
1907 it was not quite $49,280,000) not permanently practicable unless it succeeds in attracting and keeping a proportionate gold reserve. We think, too, that the need for
small media of exchange will be amply satisfied as long as
an amount of silver coin (apart from the reserves of the
Reichsbank and public treasury offices) equal to $3.09 or
even $3.57 per capita, and of small bills totaling
$100,000,000, equal to about $1.66 per capita, remains in
circulation. We are the more sure of this in view of the
fact that the extension of the check system and the introduction of the postal check may be expected to lessen the
demand for bills of small denomination.
The suggestion of the inquiry commission that the
Reichsbank be authorized to issue still more small bills
deserves very careful consideration. When, in 1905,
51
National
Monetary
Commission
the first issue of small bills by the Reichsbank was proposed, the Frankfurter Zeitung pleaded strongly that
this authorization should be strictly limited to 50-mark
notes, and that even for these a maximum be fixed. The
sum of $71,420,000 was, in point of fact, set as a maximum
not, indeed, by law, but by a binding declaration from
Count Posadowsky. But besides these 50-mark notes,
the 20-mark notes have since been authorized. If in
future the 50-mark notes, which in moderate quantities
are really needed, should no longer continue to be regarded as small notes, that would strangely contrast
with the spirit in which the limit of $71,420,000 was
declared and accepted. In that case a maximum for the
50-mark notes should be fixed and the limit for the 20mark notes should be reduced considerably under the
$71,420,000 fixed for the 20 and 50 mark notes together.
We attach great importance to the fact that, although
an increase in the amount of the 20 and 50 mark notes
was suggested in the questions submitted to the inquiry
commission, the official information given out to the
press on the 19th of October mentioned only an additional
issue of 50-mark notes as having been approved by the
majority of the commission. The inquiry commission is
supposed to have considered the issue of small notes
preferable to the issue of silver coin because these notes
must be covered in exactly the same manner as the
larger ones; and yet, as things stand now, an increase of
the silver circulation has been determined on which will
exceed the requirements anticipated by the Government.
A strong inflationist sentiment still exists among some
52
Renewal
of
Reichsbank
Charter
powerful interests in this country, which have recently
been humored by t h e introduction of t h e 3-mark piece,
which does not a t all fit into our monetary system. I t
would be well to remember t h a t "Gresham's l a w " is as
good as ever, and t h a t b a d money drives good money out
of a countrv.
V. CHECK SYSTEM OF T H E REICHSBANK—NATIONAL CLEARING SYSTEM—MORTGAGE
CLEARING
ON
AND
DEPOSITS—PRIVATE
DEPOSIT M I N I M U M — D E P O S I T
SYSTEM—INTEREST
PUBLIC
DEPOSITS—THE
AGGREGATES.
I t is generally agreed t h a t t h e best way to reduce the
demand for currency is to encourage the practice of
settling debts without the use of actual cash. The
inquiry commission also regards as highly useful the
efforts to make transfer, check, and clearing methods
popular throughout t h e country. The schemes, however, which have so far been advocated with t h a t object
in view would, if adopted, improve matters b u t little.
I t is t o be hoped t h a t t h e German public will from now
on make more use of the check system, and t h e check
law recently promulgated and t h e thorough propaganda
which has been conducted on behalf of t h e system seem
t o justify this hope. The Reichsbank is in a position
t o support these efforts effectively, and agrees with the
inquiry commission t h a t its powers should be enlarged
so as to permit it to purchase checks. If, however, the
Bank intends, as is rumored, to deduct five days' interest
on all checks purchased, t h e object intended is not likely
t o be attained. This action would be in keeping with
53
National
Monetary
Commission
the half-hearted methods employed by the Reichsbank
in the collection of checks—methods which have been
the cause of many letters of complaint written to the
Frankfurter Zeitung. To quote one instance, it has
transpired that one branch of the Reichsbank, "as an
exceptional favor," complied with the request to take
for collection and remittance of proceeds a check drawn
upon itself, but stated at the same time that the sender
must as a rule get his checks cashed at the local branch
of the Reichsbank in his own city, which usually means
two days' loss of interest and a deduction for postage
and commission. The Reichsbank has the most vital
interest in popularizing the check system as a means of
economizing currency. One would therefore think that,
like the large banks, the Reichsbank might credit to the
account of the payee free of charge checks drawn upon
itself. In buying checks the Reichsbank should drop—
wholly or partly, according to distance—its minimum
charge of five days' interest, seeing that checks are not
intended for circulation, but for collection.
We are still far from realizing the idea of a national
clearing-house. The idea is generally regarded with favor,
but the banks can hardly be expected to lend their unanimous cooperation, although the first suggestion came
from the large Berlin banks, which were interested in the
clearing-house as a means of simplifying their business
with their branches. At first it was planned to make
every check payable not only at the place upon which it
is drawn, but also in Berlin. To this the independent
provincial banks objected. The discussions were then
54 •
Renewal
of
Reichsb
ank
Charter
and there dropped, and it seems that the Berlin Bankers'
Association has not paid any attention to the proposal
for many months past. The establishment of a national
clearing-house was repeatedly recommended by the
inquiry commission, but with the precautionary suggestion
that several other cities besides Berlin be designated as
national clearing-house cities. The latter suggestion
might meet with more general favor, as might also a plan to
make these national clearing-houses an adjunct of the
postal-savings banks which will shortly be established.
Success in this field depends entirely upon time and tireless effort.
A little over a year ago the Reichsbank was authorized
to accept and make payments in connection with mortgages, but so far very little progress has been made in
that new branch of its business. The opening of the
proposed mortgage clearing-house has been deferred
until April i, 1909. In order to attract a fairly large
business to that institution, the cooperation not only of
mortgage banks outside of Berlin, but also of other large
dealers in mortgages should be solicited. Among the
latter class, the insurance companies are conspicuous by
their lack of interest. Our progressive insurance department would add to its laurels if it could successfully draw
the attention of this class of the community to the great
benefits which would be derived from their cooperation
by the public as well as by themselves. State institutions
as trustees of a considerable number of mortgages are also
important to the development of this clearing system and
yet seem to need a stirring up from above.
55
National
Monetary
Commission
The proposal that the Reichsbank take interest-bearing
deposits met with almost unanimous opposition. The
bank act authorizes the Reichsbank to do so up to a total
amount not exceeding its capital and surplus. This privilege, however, was used only during the first years of the
Bank's existence. If the Bank were to try to attract
large quantities of money by paying interest thereon, it
would have to change its present policy of letting business
come to it, and would have to hunt for suitable business to
enable it to pay such interest, especially at times when
money is abundant—that is, when it flows into the Bank
in unusually large quantities, but is also unusually hard to
dispose of. This would force the Reichsbank to adopt
methods and run risks similar to those of the big banks—
a course which is to be deprecated in view of the fact that
the Reichsbank is the guardian of the German monetary
system. As early as 1878-79 the Reichsbank ceased to
allow interest on deposits, because through the speedy development of its deposit and transfer system, it obtained
a considerable quantity of noninterest bearing deposits.
At that time these deposits reached an average of hardly
$47,600,000; in 1907 their average for the year was nearly
$142,900,000. There is surely no need for the Reichsbank to accelerate this growth of its resources by paying
interest on deposits. The statistics furnish interesting
evidence as to the composition of the deposits. The
Reichsbank has again refused to fulfill the urgent request
made by us for years that it should separate the public
from the private deposits in its weekly statements, as it
56
Renewal
of
Reichsbank
Charter
does in its annual report. This we regret in the interest
of the community, which should be enabled to watch the
fluctuation in the private deposits, so that it may form a
judgment as to the weekly statements and as to the position of the money market. The Reichsbank is scarcely
justified in refusing our request; the Bank of England and
the Bank of France set an example in this respect which
our public institutions would do well to follow. Particularly in Prussia, the old dread survives that to bare the
cash resources of the Government to the public view might
obstruct the negotiation or spoil the issue price of a public
loan. This is not as true now with our highly developed
banking system as it was formerly. The big banks generally know the requirements of the Empire and of Prussia,
even though the public deposits in the Reichsbank are not
separated from the private deposits; and they are as a rule
not surprised when the Government announces the issue
of a new loan. On the other hand, it has long been known
that the credit balances of public institutions increase
during the summer and decrease in the fall and until the
beginning of the new year; the difference between the high
and the low figure amounts to about 200,000,000 marks
($47,600,000) or more; it reaches that figure sometimes
within a single month. The public and private deposits
do not move up or down together, but are rather apt to
vary in opposite directions. The present system of combining the two items is therefore liable to obscure the real
movements and to be misleading.
57
National
Monetary
Commission
[In millions of dollars; $1=4.20 marks.]
Private deposits.
Years.
Public deposits.
Total
deposits.
Amount.
1876-1880
1881-1885
1886-1890
1891-1895
1896-1900
1901-1905
1906
1907
46. 02
48.3S
84.08
115.26
117.52
135-S7
137.06
137.92
34.3i
39.03
62.31
73.i8
76.41
87.58
94- 14
95-84
74-5
80. 7
74.i
63.5
65.0
64.6
68.7
69.5
11. 71
9-32
21.77
42. 08
41. II
47-99
42.92
42. 08
Per cent.
25.5
19.3
25.9
36. S
35.o
35.4
3i.3
30.5
This table gives the impression that the deposits at the
Reichsbank, after increasing rapidly, have, for some time
past, attained a certain stability. This, however, applies
chiefly to the aggregate amount. It will be seen that the
public deposits have somewhat decreased since about
1900, while the private deposits show a steady increase.
When in the fall of 1906 the Reichsbank raised the amount
of the minimum balance to be kept on check account,
loud complaints were made which were not altogether
unjustified. The statistics of the Reichsbank do not
sufficiently show the effect of this measure, because they
can be used only for a comparison between the 15th of
September, 1906, and the 31st of March, 1908—dates
which do not correspond. Looking at the figures in that
way, the account of the Reichsbank shows the minimum
balances of private depositors to have increased from
$19,410,000 to $27,000,000, i. e., from 28.3 to 43.7 per
cent of their actual balances. Yet the total deposits had
declined from $68,510,000 to $62,000,000. It therefore
remains at least an open question whether the private
deposits have actually been increased through the rais-
58
Renewal
of
Reichsbank
Charter
ing of the deposit minimums. It is well known that this
measure has caused many large concerns to do their own
clearing; even now the big banks try to do this, particularly with the out-of-town collections, so as not to provoke the Reichsbank to further demands through an
increase in the bulk of their business. The public and
the Reichsbank, however, have such a vital interest in
the further development of the currency-saving check
system that the Reichsbank should be as accommodating
as possible in the matter of fixing the amount of the
minimum balance. Experience does not warrant another raising of it, as was suggested in the list of questions submitted to the inquiry commission. It is our
firm conviction that no considerable increase in the cash
resources of the Reichsbank could be brought about in
that way. We again refer the reader to the articles by
our Vienna correspondent which appeared in our columns
last May. According to him the Austro-Hungarian
Bank does not require a minimum balance in excess of
20,000 kronen ($4,250), even from the big banks; the
Reichsbank demands as much as 1,000,000 ; marks
($250,000), and more. Allowing even for the extended
field of the Reichsbank operations, one must agree with
our correspondent that the Vienna institution does much
more than the Reichsbank in the way of giving its valuable
services to its cilents " without charge or for an obviously
insignificant remuneration.''
We admit, however, that the Reichsbank in its transfer system shows results which are of the greatest value
to our economic life. The next table will show, alongside
59
National
Monetary
Commission
of the total turnover of public institutions and private
customers, the proportion of the turnover which was
effected by means of the currency-saving transfer system.
In 1876, 59.5 per cent of the turnover was effected in
cash, in 1890, 27.9 per cent, falling to a little over 15
per cent in 1906-7. To every mark in the transfer
accounts the total turnover in 1907 reached 451 marks,
i. e., about 65 per cent more than twelve years before;
382 marks of this turnover was settled without cash payment, an increase of about 70 per cent. As an interesting
feature we add to the next table an analysis of the accounts
concerning the occupations and individual credit balances
of the depositors. Of all the private accounts existing on
March 31, 1908, 32.8 per cent were kept by commercial and
transportation enterprises and insurance companies, 40 per
cent by trade and industrial concerns, and only 16.7 per
cent by banks and bankers. Of the sum total, however,
of all private credit balances, only 13.8 per cent belonged
to commercial and transportation enterprises and insurance
companies; 27 per cent to trade and industrial concerns;
and 51.6 per cent to banks and bankers. Each deposit
made by commercial and transportation enterprises and
insurance companies averaged $1,345; by the trade and
industrial concerns, $2,150; by banking concerns, $4,172;
by joint stock banks, $21,566. The deposits under
$2,500 constituted 16.48 per cent; those from $2,500 up
to $12,500, 19.83 per cent; from $12,500 up to $25,000,
10.57 per cent; from $25,000 up to $250,000, 29.64 per
cent; and still larger ones, 22.69 P e r cent. The latter, 22
in number, averaged about $654,500
60
Renewal
of
Reichsbank
Charter
[In million dollars; $ I = M . 2 O marks.]
Effected by cash
payments.
Year.
1895
1900
_ _-
Total
transactions.
Amount.
Per
cent.
$22,309
4,053
38,960
6,534
Effected by book
transfers.
On every dollar in
transfer balances.
Credit
balances.
Total
turnover.
Turnover
settled
without
cash payment.
Amount,
Per
cent.
18. 2
18,256
81.8
81.51
274
224
16.8
32,426
83.2
121.96
319
266
1905
1906
52,890
8,183
iS-5
44,707
84.5
139.14
380
321
58,481
8,936
15-3
49,545
84.7
136. 67
428
363
1907
62,061
9.537
15-4
52,524
84.6
i37-6i
451
382
VI. a DOMESTIC BILLS—GERMANY AND FRANCE—BANK RATE
AND PRIVATE RATE—ILLEGITIMATE PAPER—LOANS ON
COLLATERAL.
The question has come up for discussion whether efforts
should be made to reduce within smaller limits the demands for financial assistance which are being made upon
the Reichsbank at present. In this connection we refer
to our next table, regarding the nature of the concerns in
the different parts of the country whose bills were handled
by the Reichsbank during the year 1907. The northeast
provinces include Brandenburg, East and West Prussia,
Pomerania, Posen, Schleswig-Holstein, while the "other
provinces" include Silesia, Saxony, the Thuringian States,
Hanover, Oldenburg, Brunswick, Hesse-Nassau, and Rhineland-Westphalia. It will be seen that of all bills discounted
by the Reichsbank nearly 53 per cent were tendered by
banks and bankers, nearly 27 per cent by industrial concerns, not quite 18 per cent by commercial houses, and a
<*Gold bars and coin converted at 1,392 marks ($331.42) per pound fine.
61
National
Mon etary
Commission
little more than i % per cent by interests connected with
agriculture. This statement, however, may lead to false
conclusions, unless certain facts are kept in mind. Bills
of agricultural origin, which seldom are commercial but
nearly always accommodation bills, are as a rule not
tendered directly to the Reichsbank; and when the bills
that reach the Reichsbank indirectly are included in the
total, the number of agricultural bills will be found to have
amounted in 1893-94 to 4.3 per cent and in 1897 to 5.1 per
cent of all bills discounted. In the eastern provinces alone
20.2 per cent of the bills discounted were of agricultural
origin; at some of the branch offices nearly one-half of
the discounts consisted of such bills—in Flensburg, for
instance, and also in Koslin, Tilsit, and Posen. Prussia's
share in the Reichsbank's bill portfolio was nearly 77 per
cent, and amounts falling to Prussian banks, manufactures, and commerce formed approximately the same percentage of the various totals in question. The details
naturally vary somewhat; thus, Berlin alone contributed
7% per cent of all bills, but only 2 per cent of the bills
drawn by industrial concerns, 5 per cent of bills by commercial houses, 11 per cent of bills by banks and bankers,
while Rhenish Prussia contributed 12 per cent of the bills
drawn by banks and bankers, 8 per cent of bills drawn by
commercial houses, and fully 30 per cent of bills drawn by
industrial concerns.
62
Renew
aI
of
Reichsh
ank
Charter
[In millions of dollars; $1 = 4.20 marks.]
193.9
Berlin
Northeast provinces
Other provinces. _
Other parts of
Germany
19. 0
54.6
120. 4
76.82 99-7 74-8 5 3 - 2 78.6 3 5 - 2
2. 0
7.52 1 5 . 2 1 1 . 4
1.4
2.3
21.63 28.4 2 1 . 4
47.67 56.1 4 2 . 4
9.8 1 4 . 4
13-4
62.2
19.4
42. 1
78.6 2.3
5. 2! 0 . 0 5
i
30.0
1. 1
Per cent.
Amount.
Per cent.
Amount.
Per cent.
Amount.
Per cent.
Amount.
Amount of domestic bills bought by the Reichsbank, drawn by—
Percentage of
all do- Banks and
A
Industry. Commerce.
f^
bankers.
Domes- mestic
bills
tic bills. bought
by the
Reichsbank.
87.3
1-5
41-3
45-0
4 3 . 3 : 1-2
58.5
23.18 33-6 25. 2 14.5 2 1 . 4
9-6 2 1 . 4 0 . 3
12. 2
!
Total
252.5
100. 0
133.3
100. 0
67.8
TOO. O
44- 7 IOO.O
2 . 6 5 IOO. O
The comparison between the bill transactions of Germany and France will also be found of interest. The
income derived from bill stamps justifies the conclusion
that in this country, as well as in France, the volume of
bills put into circulation has for years been on the increase.
While only $3,333,330,000 of bills were created in Germany
as recently as 1890, the same item ran up to $4,880,950,000
in France.
This is the more remarkable when one takes
into consideration that it is less usual across the Vosges
than in our country to allow commercial debts to stand
on the books for any length of time. But by 1907 the
circulation of bills had increased in Germany to nearly
$7,321,420,000; in France only to about $6,904,760,000.
Therefore the increase in France amounted to about 4 0 ^
per cent only, but in Germany to nearly 120 per cent.
This shows how rapidly the demand for accommodation,
63
National
Monetary
Commission
hand in hand with the demand for capital, has increased
in this country. Although the total amount of bills is
nearly equal in both countries, yet, if we look at the distribution per capita, we find the relatively large amount
of $174.52 in France, while in Germany it is only $118.33,
a figure which France had already reached about the
year 1880 but hardly exceeded before 1895. Assuming
the average duration of all bills in circulation to be ninety
days, it may be said that the Reichsbank participated in
this circulation to the extent of only 13.8 per cent in 1907,
and the Bank of France to the extent of only 12.5 per
cent. The average time to maturity of bills discounted
by the Reichsbank, which gets large quantities of bills
when they are nearly due, is in the neighborhood of thirtytwo days, while bills taken by the Bank of France have
an average of only twenty-six days to run. Up to about
1894 the average time to maturity of bills held by the
Reichsbank had increased from thirty-five to about
forty-one days, and it has since then gradually fallen from
forty-one to thirty-two days. Of all bills put into circulation during the year 1907, 38.6 per cent were discounted
by the Reichsbank, and 44.3 per cent by the Bank of
France.
The Reichsbank is naturally desirous to ascertain as
far as possible how many bills circulate in the country
and what the standing of the individual borrowers may
be. That the Reichsbank does not obtain such a large
proportion of all the bills as the Bank of France is partly
explained by the fact that the difference between the
bank rate and the open discount rate in Paris rarely
64
Renewal
of
Reichsbank
Charter
exceeds 0.5 per cent, whilst in Berlin it generally is as
high as about 1 per cent or even more; in London the
difference is subject to wide fluctuations; it amounted to
fully 1 per cent ten to fifteen years ago, whereas in 1906
it shrank to 0.22 per cent. In this country, too, the difference has been smaller at times. In 1896 to 1900, for
instance, it was only 0.71 per cent; it rose in 1906 to
1.11 per cent, fell in 1907 to 0.91 per cent, and rose again
in the first six months of 1908 to 1.26 per cent. Each
temporary shrinkage of the difference coincided with a
period of monetary stringency, being caused by a rise in
the market discount rate. On the other hand, as money
usually fetches a higher price here than in London and
Paris, the international currents of money are apt to
depress our open discount rates, money being sent to
Germany and German bills going abroad whenever the
difference between the official and the private rate is
sufficiently attractive. There are some differences in the
methods of quoting the discount rates. In Berlin the
discount rate for prime bankers' bills is quoted as the
regular market price, while in London one has to pay commissions, and the bank rate is not always effective there.
There is little prospect of a change until a readjustment of
the relation between capital and credit is accomplished in
Germany. The Reichsbank can, of itself, do little to gain
greater control of the open discount market except
through its discount policy and perhaps by rediscounting
treasury bills in times of monetary stress, which might
cause the market rate temporarily to advance within the
neighborhood of the official bank rate.
83703—10
5
65
National
Monetary
Commission
At any rate, it would be bad policy to attempt to increase the cash holdings of the Reichsbank by reducing
its discount operations. But apart from that, it will be
remembered that in a series of articles published last
spring and entitled "The Problems of the Bank Inquiry/'
the Frankfurter Zeitung expressed the view that the
Reichsbank should not resort to artificial methods of
attracting discounts. Some of its branches have at times
been guilty of doing this, and have even tried to obtain
bills while a rise in the bank rate was imminent, thus
rendering the Bank's own discount policy ineffective. "It
has since become known that the Reichsbank had to put
a damper on the zeal of its officials about two years ago.
So-called finance bills, drawn by bankers on bankers, and
open to the suspicion of being drawn simply for the
purpose of getting hold of money, have long ago and
repeatedly been put on the index. Yet it was discovered
that the branches of the Reichsbank frequently discounted bills which obviously were created for the sole
purpose of furnishing their makers with permanent
working capital. It even appears that on many occasions
one or more renewals upon maturity were promised and
discount credits granted against deposit of securities. Of
course, it can not be denied that such renewals may
represent perfectly straightforward transactions, but
practical experience evidently has induced the Reichsbank to demand that as a general rule all transactions
should terminate upon maturity of bills. Agricultural
interests alone are to be allowed one renewal in case of
need, as heretofore. Discounts against deposits of securi-
66
Renewal
of
Reichsbank
Charter
ties are henceforth to be granted in exceptional cases
only; all other paper taken for discount by the bank and
its branches must be genuine commercial paper, and all
factitious bills are to be rejected. These are the instructions which were again sent to all the branches last spring,
and provisions have also been made to enable the head office
to keep posted on all discount transactions entered into
throughout the country. In this way the Reichsbank is
sure to minimize its risks and to keep its funds in a more
liquid state. Undesirable accommodation is being withdrawn with careful moderation, so that the cleaning-out
process should not bring about disturbances. The banks
and bankers have taken over some of the accounts which
the Reichsbank no longer cared to finance.
It remains to be seen how long the new regulations of the
Reichsbank can dampen the overzeal of its branch managers. It can not be said that the laxer methods were
principally confined to officials who were desirous to
increase their share of the profits. On the contrary, the
illegitimate and undesirable bills were generally found in
the possession of the small branches. The latter constitute about four-fifths of all branches, and their managers
are not entitled to a share of the profits. Some of the
banks' managers did not seem to be aware at all of the
fact that the Reichsbank when investing its money had
to be no less careful to insure quick convertibility of its
funds than it must be to obtain proper security; nor
were they alone to blame, as it is more than likely that
the mistake had been made of judging the work of the
individual manager too much by the profits which his
67
National
Monetary
Commission
branch showed at the end of the year. It will be the duty
of the head office to convince its subordinates that in the
future the quality of their work will be judged not solely
by the scale of profits which they can show.
The Reichsbank can not do a collateral-loan business
to an unlimited extent. Such loans are not to be counted
as cover against outstanding circulation; and since they
are made to one individual debtor, they do not offer the
same chance of quick convertibility as do the bills, which
bear the names of more than one person. It is true that
these loans are secured by a pledge which can be liquidated by a forced sale, which, in case the security was in
the form of stocks and bonds, would tend to depress
prices. The bank act has, therefore, provided a maximum limit for the loans, which is fixed from time to time
by the executive committee of the Reichsbank. If the
capital of the Reichsbank should be increased, or if the
surplus should be opened, this limit will most likely be
raised. It is proposed that the Reichsbank should be
authorized to make loans against hypothecations entered
on the books of the Empire or its constituent States.
The maximum limit provided for loans on collateral
has up to the present never been made public, and the
central management of the Bank seems to take it as an
approximate guide only; but it is known that the limit
has often been exceeded—in 1895, for instance, and afterwards, and in 1907 to a considerable extent. The former
limit of $42,850,000 is supposed to be still in force,
although it was actually exceeded after the increase of
the Bank's capital to such an extent that on one occasion,
68
Renewal
of
Reichsb
ank
Charter
on December 31, 1907, $86,660,000 were outstanding in
loans on collateral. I t is likely t h a t t h e proposed new
limit will be fixed with reference to this figure. The
actual amount of loans on collateral gradually increased
during t h e first decades, rising from a yearly average of
$10,710,000 or $11,900,000 to $25,710,000 in 1897. At
t h a t time t h e Landschaften requested t h a t t h e Reichsbank
should accord t o mortgage bonds t h e same preferential
t r e a t m e n t extended to imperial and state securities.
Instead of complying with this request, the Reichsbank
gave u p discriminating in favor of any securities, and since
then its average loans fell to $17,140,000 in 1905, and
amounted t o only about $23,330,000 in 1907. Most of
t h e loans were m a d e against investment securities (95 per
cent to 98^2 per cent). The percentage of loans against
commodities was still as high as 14.9 in 1876, gradually
decreasing to 1.5 per cent in 1907. The percentage of
loans against precious metals was insignificant—only about
0.4 to 0.002 per cent. The distribution of the loans
according t o t h e occupations of t h e borrowers and according to t h e different parts of the country is shown in t h e
next table, which gives t h e figures as of December 31, 1907.
[In millions of dollars.]
Berlin alone
Eastern and northeastern
Germany, excluding Berlin
Central Germany
Rhineland-Westphalia
South Germany _ _
Total
amount of
loans.
Banking.
36.66
34.5o
0. 30
1. 06
0.03
9.02
1. 26
0.37
o.34
o.35
0.03
5.85
1-95
0.81
1.49
0. 18
68.69
4-73
5-00
o.475
1S.83
18.06
9.4i
6.76
86.72
13.08
6. 24
69
Industry. Commerce.
Agriculture.
1.99
National
Monetary
Commission
The fact that, out of loans to the value of $86,720,000,
$36,660,000 were made in Berlin alone, of which banking
concerns secured $34,500,000, is explained when one remembers that at that time the Preussische Central
Genossenschaftskasse alone owed $16,100,000 to the
Reichsbank in the shape of loans on collateral. On the
23d of January and the 23d of March, 1908, that institution owed the Reichsbank only $119, but on March 31,
1908, again $9,280,000. In view of the fact that the
Preussenkasse makes severe demands on the money
market at the close of the quarter, our belief is confirmed
that the Preussenkasse is largely to blame for the stringency at those times which is the subject of so much complaint. The following table shows the nature of the
pledges in the different parts of the country where the loans
have been made, giving the figures as of August 15, 1907:
[In millions of dollars; $i =4.20 mairks]
Total amount of loans granted in—
Description of
collateral.
State bonds
Provincial bonds
Municipal bonds
Mortgage
debentures
Mortgage
bank
bonds.
Rentes, etc
Second-class securities (50 p e r c e n t ) .
Merchandise _ _
Precious metals
Bills
Amount
of collat- Amount
of loans.
eral
Berlin.
Eastern
and
northeastern
Germany.
Central
Germany.
South
Germany.
RhinelandWestphalia.
Per cent. Per cent. Per cent. Per cent. Per cent.
26.8
8.7
25.0
7-3
32. 2
28.0
12.7
3.o
15.9
40. 0
29. 0
34.6
4. 0
4.2
28.2
69.45
43.67
5-75
9.3i
o.57
0. 69
12. 66
2.31
26.5
58.7
7.7
0.6
6.5
10. 22
1. 92
2-59
0. 46
4-9
i-5
25.6
13-7
33-8
59-3
8.2
22.3
27.5
3-2
1-75
1.67
0. 22
20. 1
29. 6
97-3
24.9
0. 1
11.6
2.6
13.8
0. 64
20.3
41.5
19.1
4.0
0. 002
11. 14
0. 002
100. 0
2. 79
IS-1
70
Renewal
VII. DEPOSITS
OF
THEIR
of
OF
Reichsbank
THE
CREDIT
Charter
BANKS—PUBLICATION
STATEMENTS—PRIVATE
BANKERS—PUBLIC
CRITICISM.
The inquiry commission postponed its discussion of
the deposits of the private credit banks, and we confine
ourselves to a few remarks on that subject. The combination of taking in deposits, granting credits and
financing, which prevails among our banks, was without
doubt invaluable in promoting the economic progress of
the last decades. The natural course of events may be
trusted to bring about a separation of these different
activities that will be sound and lasting. The larger
banks might proceed in that direction at once, although
it is doubtful whether such a step on their part would be
immediately followed by the practical gain which advocates of that policy expect. A general and compulsory
separation, if prematurely carried out, might lead to
serious consequences, and the Government lost no time in
informing the inquiry commission that it did not contemplate enforcing such a change. The only question submitted to discussion was whether it was necessary to
insure the security and quick convertibility of deposits
and savings by an act of legislation. It remains to be
seen what other practical suggestions the inquiry commission will make. The commission knows, as well as we
do, that it would not be feasible to treat alike all the concerns which accept deposits, if for no other reason than
that they are incorporated in so many different forms
(banks, bankers, savings banks, cooperative institutions,
etc.), and that it would scarcely be possible to differ-
7*
National
Monetary
Commission
entiate between deposits and savings on the one hand and
ordinary credit balances on the other. Preferential
treatment of genuine depositors would either inflict an
injury upon the other creditors and thus hold up our
economic progress, or else would not be a sufficient protection to those for whose benefit it would be instituted.
Supposing that laws could be framed which could be
depended upon not to destroy Germany's vital economic
interests and yet not to fail of their object through an
amateurish timidity; even then, how, in the face of the
ever-increasing number of credit institutions and their
complex machinery, could we be sure of a strict observance
of the laws and a proper system of supervision when our
bank examiners have shown themselves so utterly incapable in the supervision of the mortgage banks, of which
there are comparatively few, and whose machinery is much
more simple? It would be dangerous to make the public
believe that their money was absolutely safe because the
banks where they kept their deposits were under the supervision of the Government. The best laws are liable to
violation. Transgressions might occur from careless business methods, which, unfortunately, are not infrequent.
No law could afford protection against fraudulent malversations, which, starting with unsuccessful attempts " t o get
rich quick" and proceeding to minor offenses, grow to
larger proportions step by step. The cases of the Leipziger Bank, the Spielhagen banks, and the Pomeranian
Bank afford ample illustration of this truth. No law can
be framed so as to free men from the duty of watching with
72
Renewal
of
Reichsbank
Charter
their own eyes and on their own responsibility those to
whom they give confidence or money.
The great banks in Berlin will soon begin publishing statements once in two months, so as to facilitate such watching
of their affairs. One can hardly expect these banks to
publish the " detailed balance sheets " suggested in the list
of questions which was submitted to the inquiry commission. The work would absorb too much time and money.
The statements which have been promised will for the present satisfy all requirements. It must not be assumed, however, that frequent publication of these statements will of
itself give greater security to the depositors, but, if carefully analyzed and compared, they will yield valuable
information. Of course the figures will not reveal what
is really behind them—whether the bills discounted consist of quickly realizable bankers' and commercial bills,
or to what extent they represent dubious outstanding
accounts; what the quality of the other debit items may
be; how many of the securities could be sold at short
notice if necessary; whether the liabilities become due on
call or within a short time, or were entered into for longer
periods, or whether they are merely transitory obligations, etc. These defects, however, do not render annual
reports worthless, nor do they speak against the publication of more frequent statements. On the contrary, " window dressing," so long as it was done only once a year, may
have been an easy task; but to "dress u p " an account
which is rendered every month or two would hardly be
worth while, if it were not altogether impossible. Statements issued at frequent intervals during the year show
73
National
Monetary
Commission
at once whether the December statement was in any way
"doctored." This will gradually cure the temptation to
" beautify " balance sheets. It will also become a thing
of the past for long-sighted financial operations involving
large amounts of money to be turned down toward the
end of the year, but immediately afterwards taken up in
the expectation that the transaction can be wound up
before the next report is due. The new practice will deter
the financial leaders from plunging light-heartedly into
new commitments, but it need not be feared that the banks
will refuse any legitimate demands for accommodation.
The lively competition among our banks makes it safe to
say that if any credits are withheld they are refused for the
very good reason that the risk is not desirable.
So far nearly all the members of the Reichsbank clearing house in Berlin have promised to publish their statements every two months, and the clearing house will in
future admit to membership no institution which does not
bind itself to follow a similar practice. Private bankers
are exempt from this ruling. It would have been gratifying, and beneficial to their own interests, if they too had
adopted the same plan, but we have to admit that in
foreign countries also private banks do not as a rule publish such statements. While England was disturbed over
the Baring crisis, some bankers adopted that policy, but it
failed to become a general rule. The wealthiest and most
respected banking firms are the very ones who do not take
kindly to the idea. They do not want to disclose their
resources, and it is certainly not in the interest of the public
to force such private firms as still exist to emigration,
74
Renewal
of
Reichsbank
Charter
liquidation, or incorporation. The absorption of private
concerns by the big banks, the growth of these monster
institutions, and the indirect consequences of this concentration as shown in the banking business—all this has
come about with such swiftness that the tendency must
not be accelerated any further by legislative interference.
The future will reveal more clearly than the present that
the mammoth form is not the ideal in the banking business.
We shall also learn that we can not light-heartedly dispense with the services of intelligent private bankers.
Sooner or later these men will prove most valuable, as
they are not forced by the mass and pressure of business—like the managers of the big banks—to rush through
their work, but retain enough leisure for profound study
and careful consideration of difficult financial problems,
giving their ideas time to mature and retaining the faculty of constructive thought.
The Berliner Handels Gesellschaft intends to refuse the
bimonthly publication of its statement on the plea that
it maintains no branch offices in Berlin to attract deposits.
This contention is hardly sound, as the Berliner Handels
Gesellschaft obtains its share of foreign deposits just the
same as other Berlin banks; and we do not think it will
be able to keep up its defiant attitude very long. It is
expected that the provincial clearing-houses will in their
own interest find it advisable to adopt the new method.
The publication of their statements ought to be a good
advertisement for the banks, as it reaches all classes and
impresses them with the large figures on both sides of the
account—those of the deposits already made, and those of
75
National
Monetary
Commission
the investment of the funds. In fact it is not at all improbable that firms of questionable standing, who least
deserve the confidence of the public but know how easily
small capitalists are fascinated by the title "bank," will
resort to publications of that kind in order to attract
savings and deposits. It is therefore of great importance that the new statements be carefully analyzed by
the public. This will be beneficial to the interests of
depositors and banks alike.
Three decades ago, when the Frankfurter Zeitung first
began to analyze the published reports and look into the
convertibility of the reported assets, the corporations
thus criticised raised strong objections. Gradually the
objections were dropped, and instead we received praise
for teaching the German public how to study and critically
analyze such reports. As another result of our work
the corporations themselves increased their efforts to
maintain a sufficiently liquid state—the industrial corporations because they did not want to become too much
indebted to their bank, and the banks that furnished
accommodations because they did not want to lock up
their depositors' funds indefinitely. Our method of
analyzing balance sheets has now become common
property among the press and the public, the Government
and the parliaments. The inquiry commission has adjourned its further deliberations on the protection of
depositors until next year. The credit banks will by
that time have started publishing their statements at
short intervals, and the commission will therefore have
more information to go upon. It will have to be borne
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in mind, however, that the regularly published statements
may be misleading, whether this be caused by accident
or on purpose. Nor will this new departure satisfy all
wishes. The banks are not compelled to itemize their
obligations on bills rediscounted nor to explain items
which are not easily intelligible to the outsider. It would
be necessary to change our corporation laws in order to
force them to do that, and legislation should keep away
from that difficult subject as long as possible. Painful
experience has shown what harmful results may be caused
by such interference. It rests with the banks themselves
to go ahead and introduce in their periodical statements
and annual reports the uniformity and instructive comments which are needed so urgently. The promised
reforms are welcome as a first step, and if further progress
in the same direction be made, the bank inquiry will
indeed have achieved most commendable results.
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II.
Draft of a Bill for the Amendment of the
German Bank Act.
79
[For No. 1178.]
DRAFT OF A BILL FOR THE AMENDMENT
OF THE GERMAN BANK ACT.
I, WlIyUAM, BY THE GRACE OF GOD GERMAN EMPEROR,
issue in the name of the Empire the following decree, subject to the assent of the
Federal Council and the Imperial Diet:
KING OF PRUSSIA, ETC.,
ARTICLE I.
§ 24 of the Bank Act of March 14, 1875 (Reichs-Gesetzbl.,
p. 177), shall read as follows, article 2 of the act of June 7,
1899 (Reichs-Gesetzbl., p. 311), being canceled:
Of the total net profit of the Reichsbank ascertained
at the close of the year:
(1) a regular dividend of 3 ^ per cent of the capital
stock is first to be paid over to the shareholders;
(2) of the remainder one-fourth is to be handed over
to the shareholders and three-fourths to the Imperial
Treasury; of this balance, however, 10 per cent is to be
assigned to the surplus, the amount being contributed in
equal parts by the shareholders and the Imperial Treasury.
If the net profit does not amount to 3 ^ per cent on the
capital stock the deficiency is to be made up out of the
surplus.
Whenever an issue of shares of the Reichsbank yields
a premium, the sum thus realized is to be assigned to the
surplus.
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Dividends unclaimed after a lapse of four years from
their date of maturity shall accrue to the bank.
ARTICLE
II.
The following provision takes the place of article 5 of
the act of June 7, 1899 (Reichs-Gesetzbl.f p. 311):
The share of the Reichsbank, as provided by the
supplement to § 9 of the Bank Act, in the aggregate
amount of the uncovered tax-free note circulation, inclusive of the shares of the banks listed under Nos. 2
to 12, 15 to 17, and 20 to 33, which have meanwhile
reverted to the Reichsbank, is fixed at 550,000,000 marks,
while at the same time the aggregate amount is increased
to 618,771,000 marks.
In the reckoning to be made for taxation purposes in
connection with the statements appearing at the end of
March, June, September, and December (§ 10 of the Bank
Act), the share of the Reichsbank is increased to 750,000,000
marks and the aggregate to 818,771,000 marks.
ARTICLE
III.
The notes of the Reichsbank are legal tender. Otherwise the provisions of § 2 of the Bank Act remain unchanged.
ARTICLE
IV.
I. In § 18 of the Bank Act the words " legally current
German money" are replaced by the words " German
gold coins.*'
II. § 19, section 1, of the Bank Act shall read as
follows:
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The Reichsbank must accept in payment at their full
nominal value the notes of the banks designated by the
Imperial Chancellor according to the terms of § 45 of
this act, as long as the issuing bank punctually fulfills
its duty of redeeming its notes. The Reichsbank must
accept these notes in Berlin as well as at its branches
in cities of more than 80,000 inhabitants and also at the
branch office established in the place where the noteissuing bank is located.
Under the same assumption the Reichsbank is obliged
to give its notes in exchange for the notes of each of the
aforementioned banks at its branches within the state
that has authorized them to issue notes, as far as the
note reserves and needs of the branch offices will permit it.
The notes accepted or exchanged according to sections
1 and 2 may be presented by the Reichsbank only for
redemption or in payments to the bank that issued
them, or in payments in the place where the bank has
its principal seat.
ARTICLE V.
I. In § 8, section 2, of the Bank Act following the
word "drafts" in No. 2 are inserted the words "and
checks."
II. In § 13 of the Bank Act following the words "are
liable" in No. 2 are inserted the words "also checks,
for which at least two guarantors known to be solvent
are sureties."
III. In § 17 of the Bank Act following the words
"are surety" are inserted the words "or checks, for
which at least two persons known to be solvent are liable."
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IV. In § 32, section 1, of the Bank Act following the
words " relative to the purchase and sale of gold, bills"
is inserted "checks."
V. After § 47 of the Bank Act, the following amendment is inserted as § 47a:
§ 47a. For those private note banks to which the
restrictive provisions of § 43 do not apply the decrees
of § 17 are in force in regard to the covering for their
outstanding notes.
ARTICLE
VI.
I. Article 6 of the act of June 7, 1899 (Reichs-Gesetzbl.,
p. 311), is remodeled as follows:
To § 13 of the Bank Act No. 3 under (b) is added,
following the words "of the market value/' "on the
same footing with these mortgage bonds are the debentures of domestic incorporated mortgage institutions
made out to bearer, as well as those debentures made
out to bearer of the other aforementioned institutions
and banks which have been issued against loans made
to domestic municipal corporations, or against the acceptance of a guarantee by such corporations.''
II. In § 13 of the Bank Act the following provision is
inserted under No. 9: Interest-bearing loans for not
longer than three months may be made on the security of
claims which are entered in the imperial register of debts
or in the state register of a German state. The maximum
amount of such loans is to be three-fourths of the market
value of the government bonds for which such claims
may be exchanged.
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III. Following § 20 of the Bank Act are inserted the
following provisions as § § 20a and 20&:
§ 20a. If the lien on a claim entered in the imperial
register of debts or the state register of a German state
(§ 13, No. 9) is to be recorded in the public register of
debts in favor of the Reichsbank, it is sufficient to have
the motion certified to by the persons whose signature,
according to § 38, will render the Reichsbank liable.
Where § 38 demands the signatures of two members of
the Reichsbank Directorate, other officers of the Reichsbank, made known to the board of the register of debts
by the bank, will be permitted to certify.
The provisions of § 183 of the law relative to matters
of voluntary jurisdiction apply to the certification.
§ 20b. If a lien has been entered in the register of
debts in favor of the Reichsbank (§ 13, No. 9), the
bank acquires the lien even if a third party should have
a right to the claim, and the lien takes precedence over
the prior lien of a third party unless the claim of the
third party was registered at the time of the registration
of the lien in the register of debts, or was at that time
known to the Reichsbank or was not known through gross
negligence.
Should the debtor be dilatory in paying the debt
secured by the lien, the board of the register of debts is
empowered and bound to hand out to the Reichsbank,
even without proof of such delay, government bonds
payable to bearer, against cancellation of the registered
lien or part of the lien, unless there exist a legal order
prohibiting such delivery to the Reichsbank, or unless
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there are recorded in the register of debts rights of third
parties or restrictions in favor of third parties which
were registered prior to the lien of the Reichsbank. The
lien is,also liable for the expenses incurred in the delivery
of the bonds.
The board of the register of debts must inform the
Reichsbank of subsequent entries when the bonds are
handed out.
The provisions of § 20 apply to the satisfaction of the
claims of the Reichsbank through the bonds handed out
to it by the board of the register of debts.
ARTICLE
VII.
The following provision is substituted for § 22 of the
Bank Act:
The Reichsbank is obliged to take charge of the business
of the Imperial Treasury without compensation.
The Reichsbank is empowered to take charge in like
manner of the business of the treasuries of the federal
states.
ARTICLE VIII.
Articles 3, 4, 5, and 6 of this act become operative on
January 1, 1910; the remaining articles will take effect on
January 1, 1911.
Given under our own hand and imperial seal.
EXPLANATORY BRIEF.
In accordance with § 41 of the Bank Act of March 14,
1875 (Reichs-GesetzbL, p. 177), the Imperial Government
reserved to itself the right, after giving one year's notice,
either to liquidate the Reichsbank (the first date being
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January i, 1891, and after that every ten years) and
to acquire its real estate at its book value, or to acquire
all of the shares of the Reichsbank at their nominal value.
The consent of the Reichstag has to be obtained for an
extension of time.
The Imperial Government has not as yet exercised its
right to give notice of the termination of the existing
status. The current term of ten years will terminate on
December 31, 1910; the last day for notice to be given
is December 31, 1909.
There is as little reason now as there has been heretofore
to make any changes in the organization of the Reichsbank created by the Bank Act. The constitution of the
Reichsbank has effectually stood the test during its life
of more than thirty years, even in the face of the extraordinary strain to which the institution was subjected by
the great demand for capital and money which manifested itself in the years 1906 and 1907.
This bill therefore leaves unchanged the tried fundaments of the bank's constitution. While upholding the
existing banking system, it embodies provisions designed
to meet the increasing needs of business.
In the first place, the purpose of the bill is to enable
the Reichsbank to exert its activity on a larger scale.
This is to be accomplished through the reopening and
gradual increase of the surplus (art. 1) as well as through
the elevation of the limit of the tax-free note circulation
(art. 2). Furthermore, the bill looks to the stability of
the currency by making the notes of the Reichsbank legal
tender (art. 3). In connection therewith it gives a larger
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sphere of usefulness to the notes of the four private banks
of issue still in existence (art. 4). With reference to the
act of March 11, 1908, relative to checks (Reichs-Gesetzbl. y
1908, p. 71), the bill authorizes the Reichsbank and the
private banks of issue to purchase checks (art. 5). Finally,
it increases the kinds of collateral on which the Reichsbank may make loans (art. 6), and substitutes for § 22
of the Bank Act, in regard to the obligation of the Reichsbank to take charge of the business of the Imperial
Treasury, a new provision which removes any doubt
concerning the meaning of § 22 (art. 7).
I.
The Reichsbank's own resources consist of the capital
stock and the* surplus. The capital, which in the beginning was fixed at 120,000,000 marks, was increased by
Article I of the act of June 7, 1899 (Reichs-Gesetzbl.,
p. 311), to 180,000,000 marks. The surplus has, through
its reopening provided for in article 2 of that act, as well
as through the addition of the premium realized on the
issue of shares of the Reichsbank, been brought up to
64,814,000 marks. Thus the Reichsbank's own resources
amount at the present time to 244,814,000 marks. The
funds of the other largest European banks of issue compare as follows:
Bank of
France.
Francs.
Capital
Surplus
190,502,314
Bank of
England.
Pounds.
14,553.000
Bank of Austria-Hungary.
Bank of
Russia.
Crowns.
Rubles,
210,000,000
34.5I3.I94
3,000,000
15.305.349
__. 2 2 5 , 0 1 5 , 5 0 8
i7.553.ooo
225,305,349
In German, currency (marks) 1 8 2 , 2 6 2 , 5 6 1
358,607,790
191.509,547
Total
5,000,000
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Thus the resources of the Reichsbank are exceeded
only by those of the Bank of England. This bank, however, as well as the Bank of France, and the Bank of
Austria-Hungary to some extent, has invested its capital in loans to the State or in government bonds, while
the Reichsbank has its capital fully at its disposal for
the performance of its actual tasks.
In deciding the question as to whether nevertheless a
further increase of the resources of the Reichsbank is
desirable, it should be borne in mind that in the case of
a central bank of issue its own funds are of less importance than they are in the case of other banking institutions; they serve principally as a guaranty fund for the
creditors of the bank while the working capital is created
through the notes issued and the funds deposited in the
bank. The experience of all the banks of issue prove
this. As a guaranty fund for the creditors of the Reichsbank its present capital is fully sufficient. The bank
does not require an increase of its resources for the task
directly laid upon it as a bank of issue and for the sake
of the bulk of its business resulting from this capacity.
Such an increase would lead, however, to an improvement in its condition, although, considering the aggregate
of the liabilities of the Reichsbank, particularly in the matter of outstanding notes and outside funds, the condition of
the Reichsbank would not be greatly affected even by a considerable increase in the capital. The supposition that an
increase in the capital would find immediate expression in
an increase in the metallic stock of the Reichsbank is
erroneous. At any rate there is no guaranty that the
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shares disposed of within the country will be paid for in
gold. Very likely the payments would be made principally
through the medium of bank notes or by means of deductions from current accounts, which would for this purpose have been strengthened through the discounting of
bills or the obtaining of loans on collateral. Thus payments would either be made from the funds of the Reichsbank itself or the money be taken from the currency
in circulation, which latter withdrawal in turn would, in
part at least, have to be made good by recourse to the
Reichsbank. An increase in the capital of the Reichsbank would not therefore permanently increase its specie
reserves. An increase in capital will not influence the
rate of discount, at least not for any length of time. It
might have a temporary influence, but it would only tend
toward dearer money. The original capital of a bank of
issue is of no importance with respect to the rate of discount, which is governed by the state of the money
market at large. Considering the large sums circulating
in the money market, the capital of the Reichsbank can
not, even if increased considerably, have an important
influence on this market, the more so as it has no direct
connection with the metallic stock of the Reichsbank.
Neither does the Reichsbank need its own capital for
the foreign exchange business—the purchase of foreign
bills—the importance of which with respect to the discount policy of the bank is universally acknowledged.
This business can be done exclusively with its own notes.
From this point of view, therefore, an increase in the
capital is not necessary.
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The Reichsbank requires a working capital of its own
for investment in real estate or in securities which are
not a legal covering for notes, and especially for its loan
business, and the discounting of treasury bills, and for
no other purpose. For this branch of its activities, however, the deposits may be employed in addition to the
capital and surplus. Appendix I will show that even at
the times of the greatest strain the bank's own funds plus
the deposits have exceeded by far the aggregate of loans
and of the treasury bills discounted, while on an average
during the year the original capital alone sufficed for
these investments, so that the surplus was available for
the real estate account, whose development may be ascertained from Appendix II. Only for the remainder of
the assets (credits with foreign correspondents, noninterest-bearing advances in connection with gold importations) was it necessary to employ part of the deposits.
Although up to the present time the Reichsbank's own
funds have thus sufficed for the purposes for which they
are intended and the necessity of adding to them does
not make itself felt at present, it is of course impossible
to tell whether the operations of the bank will not develop
in future years to an extent which would render desirable
the existence of larger funds of its own. An increase in
the volume of loans, in particular, is quite possible, and
moreover, it can hardly be expected just now that the
demands upon the bank in connection with treasury
bills will decrease. It has happened repeatedly (see
Appendix I)—and this is a contingency that may of
course occur in future—that the maximum demands on
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the Reichsbank in both these connections have been
made at the same time and perhaps at a time when the
volume of deposits has been below the average. Furthermore an increase in the operations of the Reichsbank will
naturally result in an increase of the other assets, those
not available as covering for note circulation, particularly the real estate account, the credits with foreign
correspondents, and the noninterest-bearing advances in
connection with gold purchases. For these reasons it is
advisable to consider, even at the present time, an increase in the funds of the Reichsbank, based on these
possibilities.
For this purpose, on the one hand, the increase of the
original capital, on the other, the strengthening of the
surplus, must be considered. As regards the significance
of its own resources for the Reichsbank, it makes no
difference which of the two funds is increased; both have
the same tasks to accomplish. The only question is
whether the increase of the original capital or the strengthening of the surplus will be the best means of augmenting
the capital.
In view of the possibility of strengthening the surplus
by gradual additions and considering the status of the
surplus as distinguished from the original capital, it seems
advisable to choose the method of strengthening the
surplus. This would achieve for the Reichsbank the same
results that an increase of the original capital would bring
about, while presenting in a lesser degree the disadvantages
of the latter course.
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First of all it is impossible that an increase of the
surplus, effected through yearly assignments from the net
profits of the Reichsbank, should have a disadvantageous
effect upon the money market, such as might result from
the increase of the capital at one stroke. The enlargement of the resources of the Reichsbank through yearly
additions out of the net profits is better adapted to the
development of business than the augmentation of the
original capital by means even of several successive additions. While an enlargement of the capital makes it
more difficult for the Reichsbank to adjust its business to
general economic conditions increases the danger that the
capital could not be used profitably in times of redundant
money, this objection does not hold in the case of an
increase of the surplus, as no interest is paid on it. Although the management of the Reichsbank has never laid
particular stress on the obtaining of especially large
profits, it is, on the other hand, its duty to see to it that
the profits rise to their due level relatively to existing
conditions. It would be a mistake to assume that the
profits which the last annual statement shows as a result
of peculiar economic conditions will be permanently
realizable. On the contrary, periods of cheap money will
of themselves bring about a decrease in dividends. It is
not altogether impossible that at times when money is
very cheap the Reichsbank, whose sphere of operation will
become more limited with the growth of the national
wealth, the constant expansion of other credit institutions, etc., will be compelled to draw upon the surplus for
the distribution of the regular dividend of $% P e r cent.
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This possibility would be still greater in case of an enlargement of the actual capital and might result in a permanent
drop in the value of the shares of the Reichsbank below
their rate at the time of emission, possibly even below their
par value. Such a drop in the market value of the shares
would not only injure the credit of the Imperial Government, but would also shake the confidence of the nation
in the Reichsbank and thereby in the stability of the
German monetary standard, which would react unfavorably upon the entire economic life of Germany.
For these reasons the bill proposes to effect the increase
of the Reichsbank's own funds, which is acknowledged to
be desirable, by means of additions to the surplus.
II.
The system, created by § 9 of the bank act, of indirectly
limiting the volume of notes in circulation by imposing a
tax of 5 per cent on the amount of notes issued over and
above a sum which exceeds the cash reserve by a certain
amount (stipulated separately for each bank of issue), has
been shown to have worked perfectly well by the experience of the many years that* have elapsed since the
establishment of the Reichsbank. Although a certain
indirect connection between the limit of untaxed note
circulation and the action of the Reichsbank in regard to
the discount rate must be admitted in so far as the exceeding of the contingent and the raising of the discount rate
presuppose increased demands upon the Reichsbank, a
direct influence on the discount rate through the fixing of
the note contingent can not be expected. In fact, the
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management of the Reichsbank has never allowed the tax
imposed on the excess circulation to have any decisive
influence on its discount policies. As therefore the discount policies of the Reichsbank will not be favorably
affected by the elimination of the contingent, there is no
reason to abandon this system. On the other hand, it
seems altogether desirable to maintain the contingent
system, as the exceeding of the contingent has more and
more developed into a danger signal heeded by business
men.
The present amount of the tax-free note contingent can,
however, no longer be regarded as sufficient. As has
already been stated in giving the reasons for the draft of
the act relative to the amendment of the bank act of June
7, 1899 (Reichstag Documents, No. 95, tenth legislative
period, first session 1898-99, pp. 8, 9), the conditions on
which the adjustment of the tax-free note contingent of
the Reichsbank was originally based no longer exist, nor
could the increase of the contingent provided for in the
act mentioned above keep up with the development of
business. Appendix III shows how the amount by which
the contingent has been exceeded has been steadily growing since 1901. The figures for 1906 prove the inadequacy
of the present contingent, showing that it was exceeded
seventeen times with a maximum excess of 572,644,757
marks, but this is evinced above all by the events of the
year 1907. That year shows no less than twenty-five
instances, of which the excess reported on December 31
reached the amount of 625,974,363 marks, a maximum
never reached before. At the same time it happened for
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the first time in 1907, by reason of the large demands of
business, that the Reichsbank had a note circulation which
even in its yearly average exceeded the contingent, and
that by more than 58,000,000 marks. Although one can
not consider these two years as a general demonstration,
because they were periods of exceptional financial strain,
it has become evident that the present contingent of the
Reichsbank is insufficient for the increased demands of
business due to the increase of the population and the
accelerated economic development in Germany. Under
such conditions the present limitation of the Reichsbank's
note circulation ceases to have any value. The too
frequently resulting transgression of the normal limit
causes a useless disturbance of business.
The increase of the tax-free note contingent therefore
appears to be a measure the justification and necessity of
which are to be found in the increased development of our
national economy. In establishing this increase the fact
has to be reckoned with that the demands on the Reichsbank are regularly made to an especially large extent at
the quarter days. The condition, resulting from custom,
that at the beginning of a quarter large liabilities have to
be met—for instance, in regard to mortgages, rent, interest, and salaries—causes at those times an extraordinarily
heavy demand for instruments of payment, which it is the
Reichsbank's unavoidable obligation to meet. The present contingent has proved absolutely insufficient in view
of this increased demand, which has nothing to do with
the fluctuations in the general economic situation. It is
particularly on account of the periodical excess at the
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quarter days that the Reichsbank has had to pay considerable taxes on its notes.
Such restriction in the satisfying of legitimate needs is
unjustified and not in accordance with the intent of the
contingent system. It therefore appears necessary to
adapt the contingent to the demands of business by a
further increase operative at the quarter days only.
A corresponding increase of the tax-free note contingent of the private banks of issue can not be considered,
for reasons explained in detail in the draft of the act of
June 7, 1899 (Reichstag Documents, 1898-99, I, No. 95,
p. 9), on the occasion of the last increase of the note contingent of the Reichsbank.
III.
§ 2 of the Bank Act states expressly that there is no
obligation to accept bank notes for payments which
legally are to be made in currency. As can be seen from
the report of the eighth commission on the draft of a
bank act (No. 195 of the Documents, second period of
legislature, second session, 1874, P- 22)> when the Bank
Act was under discussion, the suggestion to make the
notes of the Reichsbank legal tender did not meet with
general approval. The report of the commission assigns
as a particular reason for this the circumstance that such
a measure could not be considered because shortly before,
at the time of the discussion of the bill regarding imperial
treasury notes, this quality had been denied the notes
issued directly by the Imperial Government. The disinclination shown here to making the notes of the Reichs83703—10
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bank legal tender can be explained principally by the
earnest desire then prevailing to do away with the existing
paper regime and to place the metallic currency on a firm
foundation. This aim has been realized to such an extent
that at the present time Germany's metallic circulation,
and particularly that of gold coin, is abundant and sufficient for all demands of trade. On the other hand, bank
notes also are regularly taken in payment, and for payments of large amounts they are used almost exclusively.
It can not be denied that the present legal status of this
mode of payment is somewhat uncertain. The legal disadvantage of the existing situation for the debtor is, in
the first place, that the creditor has the privilege to refuse
the acceptance of bank notes, which may put the debtor
into demur. Even if thus far there has been no trouble
of any consequence in this connection, nevertheless such
institutions which have to make numerous payments,
banks especially, generally feel obliged for precautionary
reasons to provide themselves with a considerable stock
of gold in order to be prepared for any demand for gold
that they may have to meet.
Although the situation as created by § 2 of the Bank
Act has not been such as to demonstrate the imperative
necessity of an amendment of this provision, still the fact
can not be overlooked that the present state of the law
makes it possible that, as a result of contingencies that
can not be foreseen, especially such as are connected with
financial crises, our monetary intercourse will be very
injuriously affected, in such a way as to threaten the
depletion of the stock of gold in the Reichsbank.
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The bill in making the notes of the Reichsbank legal
tender, is simply giving a firm legal basis to the existing
situation, i. e., the acceptance of notes as instruments of
payment in all monetary transactions. The obligation of
the Reichsbank to redeem its notes remains unchanged,
as a matter of course. The essential characteristics of
the bank note3—their security, the method of emission,
the possibility of adapting the amount of their circulation
to the fluctuating demands of the market—remain unchanged, as well as their legal character, which embodies a
claim on the Reichsbank. The investment of the notes of
the Reichsbank with the quality of a legal tender can not
possibly result in any harm to the currency system, while
it has the advantage of preventing trickish behavior on
the part of creditors and of securing for critical times a
discharge of pecuniary obligations in accordance with
existing methods.
In proposing this measure the bill follows the examples of England and France. In England the notes of the
Bank of England have been legal tender since January i,
1834. I n France the notes of the Bank of France were
invested with this quality by the acts of August 12, 1870,
and August 3, 1875.
The conferring of the legal-tender quality upon the
Reichsbank notes does not in any way affect the maintenance of the gold standard, as is proved by the example
of the Bank of England. In order to emphasize this more
strongly, the words " legally current German money " in
paragraph 18 have been replaced by "German gold coin."
This expresses beyond a doubt that even a single note of
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the denomination of 20 marks must be redeemed in gold,
although the amount of 20 marks comes still within the
limit up to which imperial silver coin is decreed a legal
tender in article 9 of the currency act of July 9, 1873.
(Reichs-GesetzbL, p. 233.) That on the presentation of a
number of 20-mark notes, the amount exceeding 20 marks
must on demand be paid in gold, would, as it is, follow
from the existing provisions pure and simple.
In view of the fact that the private banks of issue are
not permitted to issue any notes of the denomination of
20 marks, it seems unnecessary to enact a provision with
reference to them in accordance with the amendment of
paragraph 18. The provision, therefore, in regard to the
redemption of the notes of the private banks of issue
remains unchanged—that is, according to § 44, section 1,
No. 4, of the Bank Act, redemption has to be effected in
legally current German money. The unambiguous language used leaves no doubt but that " current German
money" means metallic coin solely, and not the notes of
the Reichsbank which are to be invested with the legaltender quality; this is, moreover, expressly confirmed by
the tenor of paragraph 8, section 2, of the bank act, which
mentions current German money as part of the metallic
stock.
Heretofore the Reichsbank has, indeed, as far as the
provisions of § 186 allowed it free action, complied without exception to all legitimate demands of business. The
necessity of maintaining unimpaired credit of the bank
notes and the absolute stability of the gold standard
demands that this remain unchanged. The management
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of the bank therefore will at all times earnestly endeavor
in the discharge of the obligations imposed upon it with
respect to redemption to act in accordance with the
wishes of business.
The action of the Bank of England is restricted by the
provision that in payments made by the bank itself its
own notes are not a legal tender. On account of the
peculiar nature of the giro business (the system of payments by means of transfers to, and deductions from,
accounts current) and the large number of branches of
the Reichsbank, there are serious objections to embodying
a like provision in the bank act. The Reichsbank might
otherwise be under the necessity, in the transfer of sums
from one account to another, to make gold payments at
its branches up to any amount, although it is altogether
impossible for the bank to keep at all times and in all
places gold reserves exceeding the regular demand in order
to provide for such emergencies. Furthermore, the organization of these branches, which are in most cases managed by a single official, necessarily limits the amount of
their gold reserves. Until now such demands have not
been made upon the Reichsbank; they may, however,
occur in future. Under these circumstances the clause,
which seems fair as regards the Bank of England, in view
of its different business methods and the small number
of branches, appears inapplicable in the case of the
Reichsbank, just as, for like reasons, it could not very
well be applied in the case of the Bank of France. Furthermore, the obligation of the Bank of England to redeem
its notes is limited in practice almost exclusively to Lon-
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don, the obligation of its branches to redeem the notes
issued by them being relatively of slight importance.
It goes without saying that the Reichsbank will continue in the future, as it has done heretofore, to endeavor
to make all payments as far as possible in the kind of
money desired by its clients.
The objection raised by the commission which drafted
the Bank Act against investing the notes of the Reichsbank with the quality of a legal tender on the ground that
this was denied to the imperial treasury notes can not be
sustained. At the present time the imperial treasury
notes, which, by the act of June 5, 1906 (Reichs-GesetzbL,
p. 730), have been limited to denominations of 5 and 10
marks, count for very little now in the circulation compared to the large issues of the Reichsbank notes. It
should be particularly noted in this connection that
already at the time of the debates relative to the draft
of the Bank Act in the year 1874, according to the
report of the commission (Reichstag Documents, 1874,
II, No. 195, p. 22), " a number of the members of the
commission declared themselves to be of the opinion that
it would be advisable to invest the notes of the Reichsbank with the legal-tender quality, and that such a step
would have great advantages and no disadvantages for
the public."
It is necessary in the interest of uniformity in the
German currency system that the quality of a legal
tender be reserved for the notes of the Reichsbank. If
these privileges were to be extended to the notes of the
private banks of issue, the result would be the creation
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of various kinds of money for Germany, and the uniformity of the German currency system, so laboriously
acquired, would be again destroyed. Regard for the
interests of the private banks of issue does not justify
such a measure. In order, however, to enable the private banks to exploit the privilege of issue more thoroughly, the bill provides that the Reichsbank shall not
only continue to accept in payment the notes of the private banks according to paragraph 19 of the Bank Act,
but shall also exchange them for Reichsbank notes within
their natural zone of circulation. By means of this provision, which insures to the holders of notes at all times
the possibility of exchanging their notes for legal tender
at all of the Reichsbank branches within their state
limits, the notes of the private banks will be rendered
much more available for the purposes of business than
they have been up to the present.
IV.
The bill authorizes the Reichsbank and the private
banks of issue to purchase checks. Since the act of March
11 of this year, in relation to checks, has made it possible
for the holder of a check to obtain legal protection for his
claim, just the same as the holder of a bill, the fundamental objections to the purchase of checks have been
removed. In view of the altered economic conditions,
the Reichsbank considers it desirable and even necessary
that it be empowered to engage in the business of purchasing checks. Whether or to what extent it will make
use of this authorization will depend mainly upon the
development of the economic situation, the question
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presenting some factors that have to be carefully considered.
. Such an arrangement would offer to the public the
advantage that the holder of a check payable in another
city could get cash for it at any moment by having it
discounted, whereas under the present method the
amount is paid only when the check has been collected—
that is, after a lapse of several days, and no liability is
accepted by the bank for the presentation of the check
for payment within the legal time limit. The discounted
check, in accordance with its intrinsic purpose, would be
presented for collection by the bank as quickly as possible and its equivalent put at the disposal of the party
presenting it by means of the giro (his account current
being credited with the amount), the necessity of a cash
remittance being thus avoided.
It is to be expected that the purchase of checks by the
Reichsbank will stimulate the use of checks and in general promote monetary intercourse without the employment of cash. In the interest of the public such an
extension is greatly to be desired. This new function
of the Reichsbank would be fully in line with the task
assigned to it in § 12 of the Bank Act to facilitate monetary settlements.
V.
According to article 6 of the act of June 7, 1899 (ReichsGesetzbl.y p. 311), debentures made out to bearer, issued
against loans made to domestic municipal corporations or
guaranteed by them, are placed on a level as regards
their availability as collateral for loans with the bonds
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of agricultural, municipal, or other institutions under government supervision, or of German mortgage banks.
This extension of the class of securities against which
loans may be made is based on the fact that these debentures offer fully the same measure of security as the bonds
do and, in the general opinion of business men, are held
to be their equal. (See Reichstag Documents, 1898-9, I,
No. 95, p. 15.) The same applies to other debentures
issued by agricultural, municipal, or other public mortgage institutions, for the security of such paper is eo ipso
established by the constitution of these institutions,
which are invested with a public character. It seems
advisable, therefore, to admit these debentures as collateral for loans, independent of the nature of the claims
which serve as security.
The bill makes, in addition, the claims registered in the
imperial and state registers of debts available as collateral.
The act of May 31, 1891 (Reichs-Gesetzbl., p. 321), makes
it possible for a holder of imperial bonds to convert
them into registered debt of the Empire made out in the
name of a particular creditor. The conversion is effected
by registration in the imperial register of debts against
delivery of the bonds. In case of cancellation of the
registered claim the creditor receives bonds bearing the
same rate of interest and of equal nominal value. A
number of federal states have made similar arrangements
in regard to their bonds.
While, according to § 13, No. 36, of the Bank Act
the holders of imperial and state bonds can secure loans
on them at the Reichsbank, the Bank Act in its present
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form does not permit of such loans against claims entered
in the government register of debts. This in a measure
places the holders of government bonds in a favored
position relatively to those having credits in the government register of debts. Such a preference is not justified
in view of the purely technical difference between the
two classes of creditors. This disadvantage will naturally be felt more and more with the extension of the use
of the public register of debts. Even now many financial
institutions, particularly the savings banks and provident societies, have invested a considerable part of their
resources in registered claims. In order to enable them
to utilize their registered claims for credit purposes
without losing time through their reconversion into
bonds, which loss of time might prove disastrous in times
of crisis, it is urgently to be desired that the Reichsbank
be authorized to loan on such claims. This will, at the
same time, enable those creditors of the Government
who are now in the habit of keeping large amounts of
government securities permanently with the Reichsbank, in order to borrow temporarily against them, to
have recorded in their stead for such purposes a claim
entered in the public register of debts, a remark being
duly inscribed regarding its serving as security. This
would relieve the Reichsbank of the custody of the
securities and the tasks it would impose, and would
simplify interest payments to the creditors of the state.
The carrying out of this measure makes it imperative
that the legal status of pledges of this kind be such that
they will absolutely guarantee the security and liquidity
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of the lien. The general ordinances of the Civil Code
re mortgage rights on claims are not sufficient for this.
They would not protect the Reichsbank in case of a
previous assignment of the claim to a third party, that
might not be recorded in the register of debts, nor
against a prior unrecorded proof of the right of third
parties to the claim. It is further not possible for the
Reichsbank, according to the existing laws governing
the register of debts, to demand the delivery of bonds,
particularly without the participation of the holder of
the claim in the transaction. For this reason, the bill,
after the pattern of the act of March 22, 1893 (ReichsGesetzbl.y p. 131), which at present is operative only with
regard to the official bond of the Reichsbank employees,
places the mortgaging of such a claim to the Reichsbank
on the same footing with a mortgage on movables, and
provides in case of tardiness on the part of the debtor
for the immediate payment to the Reichsbank out of the
amount of claim.
The privileged position of the Reichsbank resulting
from this is justified on the ground that the Reichsbank,
as the ultimate source of money and credit in the country,
must in critical times be the first to satisfy the demands
of credit and because this institution alone can have
anything to do with loans of the kind in question. For
the rest the Reichsbank enjoys even at the present time
through § 20 of the bank act certain privileges in the
matter of realizing on pledged property; it enjoys these
privileges in view of the importance which the liquidity
of its investments has for the entire economic life of
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Germany. At the same time the bill provides in the
interest of the creditor of the Government an easier
method of recording the mortgage by simplifying the
regulations which are in existence in the various laws
governing the register of debts, such as, for instance,
those of paragraph 10 of the imperial register of debts
and paragraph 10 of the Prussian law governing the
state register, dated July 20, 1883 (Preuss. Gesetzsamml.,
p. 120), which require an attestation of the motion by
a court or a notary, which is both laborious and costly.
REMARKS RELATIVE TO VARIOUS POINTS.
RE ARTICLE I.
According to the bill the increase in the surplus is to
be effected by the assignment to it of 10 per cent of the
annual profits, after payment of a dividend of 3% per cent.
Such a provision would mean a probable annual increase
in the surplus fund of the Reichsbank of about 1,800,000
marks, according to the estimate given in Appendix V,
based upon the actual results of business. This increment appears, on the one hand, to be sufficient; on the
other, it precludes an excessive increase in the Reichsbank's own funds for some time to come. The bill therefore does not fix a limit to the increase, especially as, on
the termination of the ten-years' period beginning January
1, 1911, an opportunity will be given—in accordance with
§ 41 of the Bank Act—to determine whether the fixing of
a maximum amount should prove necessary or advisable.
The bill provides further that the annual assignments to
the surplus are to be borne in equal shares by the share-
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holders and the Imperial Government. In the absence
of this provision three-fourths of the amount would have
to be borne by the Government and one-fourth by the
shareholders, while if, in accordance with § 41 of the Bank
Act, the reserve should be distributed, the Government
and shareholders would participate equally. Although
for this reason alone the provision would be fair and
reasonable, it is rendered still more so by the fact that, as
the bill provides for an increase in the amount of the taxfree note contingent, the Government will henceforth suffer
a considerable loss from the diminution in the amount of
the tax. This is of all the greater importance, as the Government is at present endeavoring to find additional
sources of revenue for its budget. We must remember
besides that out of the profit of the Reichsbank a dividend of 2>% per cent is guaranteed the shareholders by
law; in proportion, therefore, as an increase of the bank's
own funds tends to increase its sphere of activity and
strengthens the foundations on which it rests, the results
of such a measure will also be beneficial to the shareholders, particularly in regard to the market value of the
shares.
RE ARTICLE 2.
The act of June 7, 1899, increased the tax-free note
contingent of the Reichsbank to 450,000,000 marks, increasing at the same time the aggregate amount of the taxfree unsecured note circulation of all the banks of issue to
541,600,000 marks. In the meanwhile, in accordance
with § 9, section 2, of the Bank Act, the quotas of the
Frankfurter Bank, the Bank for Sliddeutschland, and the
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Braunschweigische (Brunswick) Bank (Nos. 12, 20, and
24 of the supplement to § 9 of the Bank Act) have been
added to that of the Reichsbank, whereby the share of the
Reichsbank in the total contingent has risen to 472,829,000
marks. The increase of the contingent of the Reichsbank
to 550,000,000 marks, as proposed by the bill, would make
it conform to the increased note circulation and suffice to
prevent a too frequent excess outside of the quarter days.
By reason of the great demands made regularly upon
the Reichsbank on the quarter days, a considerably larger
increase of the contingent is desirable. The tabulations
of the cash reserves and the note circulation, which according to § 10 of the Bank Act must be made on the 7th,
15th, 23d, and last of each month for the purpose of tax
calculating, show such a large increase in the amount of
the unsecured note circulation at the end of each quarter
that the present contingent is exceeded by much larger
amounts than that of the proposed regular increase in the
contingent. The statements for the last of March, June,
September, and December of each year show the highest
figures. For these reporting days, therefore, the need of
a further increase in the contingent is most urgent. As a
remedy the bill proposes a further increase in the contingent of 200,000,000 marks for the quarter days.
The increase in the tax-free unsecured note circulation
thus provided for will in all probability suffice to prevent
a too frequent and too large excess issue, which is to be
deprecated in the interest of sound business. On the
other hand, the increase is sufficiently moderate not to
render nugatory the policy of restricting bank-note circulation.
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RE ARTICLE 3.
Article 3 cancels, as far as the notes of the Reichsbank
are concerned, the present provision of § 2 of the Bank
Act, which prescribes that in the case of payments which
legally must be made in money bank notes need not be
accepted.
R E ARTICLE 4.
The provision given under No. 1 expresses the obligation
of the Reichsbank to redeem its notes at all times in
German gold coin.
While, furthermore, according to § 19 of the Bank
Act, the Reichsbank is merely bound to accept the notes
of the banks indicated by the Imperial Chancellor in conformity with § 45 of this act at their full face value, in
Berlin as well as at certain branches, as long as the issuing
bank punctually discharges its obligation to redeem notes,
the bill imposes the further obligation on the Reichsbank
to exchange these notes against its own within their
natural circulation territory, fixed by the Bank Act—
that is, in each case within the State that has authorized
the private bank to issue notes. This enables the holder
of the notes of a private bank who is not in debt to the
Reichsbank to hand them in at one of its offices and get
Reichsbank notes in exchange.
R E ARTICLE 5.
Article 5 authorizes the Reichsbank to purchase checks.
In view of the amendment of § 13, No. 2, of the Bank Act,
checks of the class mentioned in § 13, No. 2, may byreason of the provision embodied in § 44, section 1, No. 1,
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also be purchased by those private banks of issue which
are not subject to the restricting stipulations of § 43. In
connection therewith the bill makes further amendments
in some of the provisions of the Bank Act which are
rendered necessary by this authorization. Checks, particularly, will be permitted as cover for the notes under
the same conditions that goverji bills. In order to admit
checks for note covering in the case of the private banks,
a special provision has been inserted, § 47a.
R E ARTICLE 6.
Article 6, No. I, extends the class of securities available
for collateral in favor of the debentures of incorporated
mortgage institutions. This holds good also for the loan
business of the private banks of issue.
Article 6, No. II, authorizes the Reichsbank to grant
interest-bearing loans for not longer than three months
on the security of claims recorded in the imperial register
of debts, or in the register of a federal state. Heretofore
interest-bearing loans were limited to movable liens. The
limiting of the loan to three-fourths of the market value
of the bonds for which such a claim is exchangeable is in
accord with the loan limit stipulated in § 13, No. 36, of
the Bank Act.
In order to facilitate the recording in the imperial
register of debts, or the register of a federal state, of the
liens to be entered in favor of the Reichsbank, it is provided (§ 20a) that in place of the more rigorous form
demanded by the laws relating to the register of debts it
shall be sufficient to have the motion for registration of
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the lien in the register certified to by the persons whose
signature renders the Reichsbank liable. (§ 38 of the
Bank Act; ordinance of the Imperial Chancellor of December 27, 1875, Zentralblatt fur das Deutsche Reich, p. 820.)
In order to facilitate business the bill provides that in
place of the two members of the Reichsbank Direktorium,
other officers of the Reichsbank may be assigned by the
Reichsbank Direktorium for the task of certification;
they must be made known to the board of the register of
debts.
The provision in § 206 is designed to preclude the
possibility that a third party may enjoin the Reichsbank
on account of a prior assignment or mortgage which was
neither recorded in the register of debts nor known to the
Reichsbank or unknown through gross negligence.
The provision in § 206 further empowers the Reichsbank,
in case the debtor is dilatory, to apply to the board of the
register of debts for government bonds against partial or
total cancellation of the registered claim. For this the
written motion of the Reichsbank shall suffice, and it shall
not be necessary that any other person participate in it,
particularly the creditor of the register of debts, as would
be required by the laws relative to the register of debts.
When such a motion is presented, the board of the register
of debts shall not ask for evidence of any kind, particularly
no proof of the tardiness of the debtor, and the board can
decline such a motion only in so far as this is provided for
in § 20b; in particular, the board is not permitted to
decline to hand out the bonds on the score of liens which
were entered in the register of debts only after the mort83703—10
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gage in favor of the Reichsbank had been recorded, neither
may it make use of the right which it would otherwise have
of sequestering the bonds.
After having received the government bonds from the
board of the register of debts, the Reichsbank acquires, in
accordance with §§ 1287 and 1293 of the Civil Code, a lien
on them to which the provisions of the Code relative to
liens on movable property apply; as this is a case of a lien
on movable property in connection with the business of
loaning on security, the privileges accorded the Reichsbank by § 20 of the Bank Act in regard to the enforcement
of its claims in the matter of liens will naturally be extended to the bonds thus handed over to it.
RE ARTICLE 7.
Paragraph 22 imposes upon the Reichsbank the obligation to receive payments for account of the Imperial
Goverment and to make them up to the amount of the
government's balance without compensation for its
services. This obligation was extended in § 11 of the
acts relating to the Reichsbank of May 21, 1875 (Reichsgesetzbl., p. 203), which makes it part of the business of
the Reichsbank to take charge of the funds of the Empire
without compensation and keep records of the payments
accepted and made for account of the Empire. Doubts
have repeatedly arisen as to the extent of the obligations
which the Reichsbank has in this respect. The provisions
of the present bill prescribe in indubitable terms that
the Reichsbank shall transact the business of the Imperial Treasury without compensation. In view of the
business which naturally comes within the sphere of the
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Imperial Treasury, this can apply only to transactions
of the kind connected with the treasury system. The
words "business of the Imperial Treasury" will therefore in the meaning of the bill be understood to include
all fiscal transactions which the Imperial Chancellor
assigns to the Imperial Treasury. § 35 of the Bank Act
establishes beyond a doubt that payments are to be
made by the Reichsbank for the Imperial Treasury only
up to the amount of the balance in its favor in the bank.
Otherwise the Reichsbank would be making advances
to the Imperial Treasury, which is not permissible. Furthermore § 34 of the " Geschaftsanweisung fur die Reichshauptkasse," a issued by the Chancellor, fixes the minimum balance of the Imperial Treasury at 10,000,000
marks for the giro or current account by means of which
the entire business of the Imperial Treasury is to be
carried on. The bill renders superfluous § 11 of the
a This paragraph reads:
By means of the giro account of the Imperial Treasury at the Reichsbank the entire business of the former is done in such a way that the
balance at the close of each day represents the credit balance of the
government.
The giro account of the Imperial Treasury is subject to the general
regulations relative to the Reichsbank giro business; the minimum balance is fixed at 10,000,000 marks, and anybody may make payments
into the account at the Reichsbank and all its branches without having
to pay any dues. Should the credit balance of the Imperial Treasury
fall below the minimum limit, the Reichsbank Directorate may, in accordance with arrangements made, use Imperial Treasury notes whose equivalent is credited to the giro account.
The giro-account customers of the Reichsbank must use the giro account
exclusively as their medium for doing business with the Imperial Treasury.
The Imperial Treasury must be informed by the giro customer or the
payer who has no account at the Reichsbank of every transfer or every
remittance to its giro account; if necessary, the name of the debtor is
to be given.
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statutes of the Reichsbank, as the management of the
balance of the Imperial Government at the Reichsbank
and the bookkeeping and accounting for payments received and disbursements made for the Imperial Government are part of the functions of the Imperial Treasury.
The privilege of the Reichsbank to undertake business
for the treasuries of the federal states as long as such
business is of a central nature, as in the case of the Imperial Treasury, remains unaltered.
116
APPENDIX I. —Investments of the Reichshank in loans upon securities and in treasury bills as compared with its own and outside funds.
[In millions of marks.]
Year.
1
Outside
Capital, Surplus, funds.a
yearly
yearly
total
average average yearly
amount amount. average
amount.
2
3
4
i876___
1877--i878_._
1879--i88o_._
119. 1
12. 0
120. 0
12.8
120. 0
I88I___
120. 0
1882._.
1883--1884--1885--i886__.
1887--i888___
1889--1890
i89i___
1892---
120. 0
120. 0
13-9
15.0
IS-5
16. 2
17.4
19. 0
218.8
177.6
184.7
199-9
185. 5
181. 1
171.7
204. 0
120. 0
20. 1
223.0
120. 0
21. 1
120. 0
22. 2
120. 0
22.8
23.7
243
25-7
28.4
29.8
235-6
284.6
352.4
381.8
385.5
361.5
464. 1
5X1-9
120. 0
120. 0
120. 0
120. 0
120. 0
120. 0
120. 0
>3
Investments in both loans
Investments in treasury
Investments in loans upon
Total
and treasury bills.
bills
securities.
capital,
Outside
funds,
surplus,
total
outside
Maximum of the
Maximum of the
Maximum of the
on
day
funds,
year.
year.
year.
Yearly
Yearly
of colyearly Yearly
average
average
umn 13.
average average
amount.
amount.
amount. amount.
Date. Amount.
Date. Amount.
Date. Amount.
5
349-9
310.4
318.6
334-9
321.0
317-3
309. 1
343.o
363- 1
376. 7
426.8
495- 2
525.5
529.8
507.2
612. s
661.7
6
51.0
49-3
52.5
53-0
51-3
57-3
54-4
45-8
49.2
52.5
50. 1
51- 1
52.0
699
89.4
99.0
97-6
8
7
Jan.
Dec.
Dec.
Dec.
Sept.
Sept.
Sept.
Sept.
Dec.
Jan.
Dec.
Jan.
Dec.
Dec.
Dec.
June
June
7
31
31
31
30
30
30
30
31
7
31
7
31
31
31
30
30
9
11
10
62. 1
65.4
66. 2
85.4
51.0
49-3
52.5
53-o
81.2
8.8
18.5
8.6
8.6
140. 1
21.3
104. 6
126. 9
102. 8
May
Mar.
Jan.
Dec.
Dec.
Sept.
Sept.
Jan.
Dec.
Dec.
Sept.
Feb.
31
31
7
31
7
7
7
7
7
31
30
7
36.0
30. 0
H5-5
104. 6
13-5
1. 1
93- 1
186.2
0.6
146. 1
7.8
5-2
156.3
128.5
o This is the total of public and private balances.
102. 5
12
30. 1
60. 1
36.8
75-8
63. 0
54-4
70.5
88. s
80. 1
64.6
53- 1
70.5
97- 2
24. 0
28.0
53.o
72. 6
50. 0
45- 1
13.0
25.0
38.1
26. 1
04. 2
97-6
14
13
Jan.
Dec.
Dec.
Jan.
Dec.
Dec.
Sept.
Dec.
Dec.
Jan.
Dec.
Jan.
Dec.
Dec.
Dec.
June
June
7
31
31
31
31
31
30
31
31
7
31
7
31
31
31
30
30
62. 1
65.4
66.2
85.4
117.7
133-4
in.8
103.9
183. 1
143-5
162. 7
149-8
106. 1
211. 2
172. 1
156.3
128.5
15
170.5
167.0
161. 5
220. 0
174.1
166.6
145-5
210.8
267.5
221. 1
291. 1
274.8
302.8
348.2
347-7
501.0
536.9
safe
APPENDIX I.—Investments of the Reichshank in loans upon securities and in treasury bills as compared with its own and
outside funds—Continued.
[In millions of marks.]
Year.
1
Outside
Capital, Surplus, funds,
total
yearly
yearly
yearly
average a v e r a g e
amount. amount. average
amount.
2
3
4
1893--1894--1895--i896___
1897--i898___
i899___
120. 0
30- 0
120. 0
30. 0
120. 0
30. 0
120. 0
30. 0
120. 0
30. 0
120. 0
30. 0
120. 0
30. 0
452
492
499
484
47i
474
524
1900
120. 0
30. 0
512
1901
150. 0
40. S
1902
150- 0
1903---
150. 0
1904---
150. 0
1905---
180. 0
1906
180. 0
43- 9
47- 1
So. 9
64.8
64.8
64.8
64.8
596
576
553
534
585
575
579
649
1907---
180. 0
1908
180. 0
I n v e s t m e n t s i n treasury
I n v e s t m e n t s in loans u p o n
I n v e s t m e n t s i n b o t h loans
Total
bills.
a n d treasury bills.
securities
capital,
surplus,
outside
M a x i m u m of t h e
Maximum of the
M a x i m u m of t h e
funds,
year.
year
year
Yearly
Yearly
yearly Y e a r l y
average
average
a v e r a g e average
amount.
amount.
amount.
amount.
Amount.
Amount.
Date.
Amount.
Date.
Date.
5
4
3
5
3
4
7
7
8
6
6
7
8
3
6
3
3
602. 4
642.3
649-5
634-3
621. 4
624. 7
674. 7
662.8
787.1
770.5
750.8
735- 7
830.1
820. 4
824. 1
894. 1
6
93-8
1. 1
13- 2
06. 0
108*3
96.4
80. 7
80.0
72.8
74- 1
74-8
74- 2
72. 0
83.6
98. 1
91.4
8
7
Dec.
Jan.
Dec.
Dec.
June
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Mar.
31
7
31
31
30
31
31
31
31
31
31
31
30
31
31
31
149- 2
9
10
0.3
Apr. 15
11
5-o
211. 2
0. 2
D e c . 31
197- 2
0. 2
Jan.
178. 1
0. 7
5-8
D e c . 31
Mar. 31
215. 1
i-5
13- 4
51.8
70.9
77-9
89. 1
204.3
101. 7
284.5
364-3
255- 7
113- 6
141. 7
146. 2
161. 4
189.9
212.7
94. 1
81. 1
129.3
186. 1
12
96.8
146. 6
7
Jan.
7
Dec.
Apr.
Nov.
Apr.
Sept.
Apr.
Dec.
31
15
30
15
15
15
31
Jan.
7
D e c . 31
8.0
8.0
35-o
106. 2
26. 0
102. 2
25. 0
82. 2
81.0
127.8
190. 0
216. 0
196. 0
248.7
255-6
251.6
383.0
83.4
109. 0
93-4
124. 6
145-0
152. 7
163.3
173- 7
197. 2
194.9
238.0
14
13
Dec.
Jan.
Dec.
Dec.
Dec.
Sept.
Dec.
Dec.
Dec.
Dec.
Mar.
Sept.
Dec.
Dec.
Dec.
Dec.
31
7
31
31
31
30
31
31
31
31
31
30
31
31
31
31
149. 2
129.3
219. 2
197. 2
207. 6
198. 2
161.6
227. 2
284.4
372.9
334-8
394-6
404. 0
540. 1
475-8
558.9
Outside
funds,
total
on day
of column 13.
15
373-3
331-4
439-5
443-3
426.4
431- 7
475-6
497-o
563.2
544-0
535- 2
532. 7
630.8
652. 9
658.5
656.6
Renewal
of Reichshank
Charter
A P P E N D I X II.—Real estate and other assets oj the
Reichsbank.
Value of real
estate.
At the close of the year.
Marks.
13.278, 000
15,628, 600
17,704, 600
i7.95o, 600
18,622, 600
18,633. 000
19,244. 500
19,298, 500
19,493. 500
19,663, 500
19,888, 500
20,207, 500
21,113. 500
21,282, 500
21,517, 500
22,261, 500
22,913. 500
22,945, 500
24,293, 500
29,857, 700
33,196, 700
33.452, 700
35,493, 700
35,623, 700
36, 026,000
37, 267,200
40,552, 900
42,523, 800
45.4i6, 700
47.S09, 600
50,095. 400
54.787, 400
56,989, 000
I8T6_
187718781879-
1885i886_
18871888.
18891890.
1893189418951896.
18971899-i9oo__
I90i__
I902__
1903-1904-_
1905-1906-_
1907-1908..
a
These are the amounts given in the annual reports of December 31 of each year
sub " O t h e r assets" reduced by the value of the leal estate.
119
APPENDIX III.—Note circulation and metallic reserve on the days of an issue in excess of the contingent.
D a t e of excess.
A m o u n t of
contingent.
Metallic reserve.
Cash reserve.
N o t e circulation.
A m o u n t in
e x c e s s of
continsent.a
Note circulation
and other dem a n d liabilities.**
C a s h covering,
lin t h e m e a n i n g !
M e t a l l i c c o v - [of p a r a g r a p h 91
ering for—
of t h e b a n k
act, for—
Total
N o t e of d e - N o t e
circu- m a n d c i r c u lation.) liabil- l a t i o n .
ities.
10
Marks.
1.025,939,000
P.cU
59.9
P.ct.
26,092,168
841,533,000
19, 2 2 4 , 0 9 7
986,991,000
61. o
52.0
65.2
824,345,000
12,185,240
964,293,000
61.1
52.2
65.3
547. 586,000
854.137.000
32,678,704
1,121, 6 7 9 , 0 0 0
60.6
46. 2
64. 1
521,225,000
55o. 1 3 2 . 0 0 0
826,620,000
2,615,328
1,047, 6 8 6 , 0 0 0
63.1
66.5
274,834,000
669, 509.000
700,524,000
1,009, 523,000
34.161,339
1,300,665,000
66.3
69.4
Sept. 3 0
282,085,000
770,880,000
796,622,000
1,150,527,000
71,824,197
1,477,684,000
67.0
52.2
Oct.
7
286,585,000
754,964,000
781,279,000
1, 1 1 3 , 0 9 3 , 0 0 0
1,419,947,000
67.8
53-2
70. 2
D e c . 31
286,585,000
734.579.ooo
764,478,000
1, 1 6 0 , 5 3 6 , 0 0 0
45.225,933
109,477,598
i» 5 0 8 , 7 3 2 , 0 0 0
633
48.7
65-9
52.1
Marks.
Marks.
Marks.
Marks.
1881.C
Dec. 31
273.875.000
514,440,000
559,419,000
859,388,000
Sept. 3 0
273.875.000
513.198,000
548,432,000
Oct.
273.875,000
503,248,000
538,284,000
Dec. 3i_
273.875,000
517,828,000
Jan.
273.875.000
D e c . 3i_
7
Marks
50.1
P.cL
65.1
1886.
69.3
1890.
7
288,025,000
678,107,000
705,265,000
1,097,497,000
104,204,805
1.365, 5 4 4 . 0 0 0
IS
288,025,000
697.433.ooo
726,449,000
1,048,322,000
33.849,368
1.366, 5 5 6 , 0 0 0
31
288,025,000
718,804,000
745,872,000
1,052,835,000
18,930,925
1.35i.775.ooo
31
288,025,000
758,690,000
788,313,000
1,102,588,000
26,247,380
1.450,336,000
67.0
64.0
61.8
66.5
68.3
68.8
292,117,000
738,604,000
770,460,000
1,101,095,000
38,517.708
i.473.566,ooo
67. 1
Sept. 3 0
293.400,000
914,524,000
943,276,000
1,282,764,000
46,086,301
1.725,302,000
Oct.
293.400,000
900,310,000
930,824,000
1, 2 4 4 , 9 3 3 , 0 0 0
20,709,895
1.657,039,000
293,400,000
853.077,000
878,406,000
1,320,089,000
148,283,795
1. 7 5 9 , 6 3 8 , 0 0 0
7i.3
72.3
64.6
293,400,000
869,145,000
897,988,000
1,227,202,000
35,811,520
1,625,846,000
293,400,000
879,661,000
911,099,000
1,248,508,000
44,008,225
1, 6 6 7 , 3 9 8 , 0 0 0
7
286, 585,000
741,967,000
771,069,000
1,108,053,000
50,399,293
1.425,345,000
Sept. 3 0
288,025,000
724,721,000
752,260,000
1,131, 733,ooo
91,450,838
1,446,746,000
Oct.
Jan.
51.0
69.6
66.5
64-3
69.3
53-2
70.8
52.3
7i.5
53-o
48.5
73-5
74-8
66.5
70.8
70.5
70.9
64.9
66.6
64. o
53-5
52.8
50.6
48.0
49-3
47-3
73.2
72.9
73-3
67.1
69. 2
66.0
51.7
53-4
44-7
46. o
48.3
49-9
50.1
49-6
1893.
Sept. 3 0
1895-
Dec.
31
54-3
1896.
Jan.
Mar.
31
J u n e 30
293,400,000
871.733,ooo
902,267,000
1,229,996,000
34,328,672
i,720,646,000
Sept. 3 0
293,400,000
815,546,000
844,459,000
1,257,418,000
119,558,561
1.699,071,000
Oct.
293,400,000
804,190,000
835,344,ooo
1,207,093,000
78,352,771
1,630,443,000
293,400,000
804,576,000
830,378,000
1,257,925,000
134, 1 4 9 , 4 2 2
1,701,245,000
Dec.
31
1897.
7
293. 4 0 0 , 0 0 0
824,715,000
853,988,000
1, 1 7 8 , 6 8 2 , 0 0 0
31,291,117
1,594, 9 8 4 , 0 0 0
M a r . 31
293. 4 0 0 , 0 0 0
860,965,000
895,693,000
1, 2 0 1 , 2 8 3 , 0 0 0
12,189,540
1,612, 3 3 2 , 0 0 0
June 30
293. 4 0 0 , 0 0 0
864,717,000
899,729,000
1, 221, 3 2 6 ,0 0 0
28,197.149
1,721, 8 4 1 , 0 0 0
70. o
71.7
70.8
Sept. 3 0
293. 4 0 0 , 0 0 0
755,946,ooo
787,689,000
1,286,923, 0 0 0
205,829,552
1,691, 9 2 3 , 0 0 0
58.7
Oct.
Jan.
7
293, 4 0 0 , 0 0 0
748,188,000
777,670,000
1,242,109, 0 0 0
171,036,711
1, 6 2 7 ,6 8 9 , 0 0 0
60. 2
15
293. 4 0 0 , 0 0 0
771,653,000
804,745,000
1, 1 6 8 , 4 1 4 , 0 0 0
70,265,650
i,596, 9 0 1 , 0 0 0
31
293, 4 0 0 , 0 0 0
800,041,000
832,428,000
1,164,848, 0 0 0
39,024,022
1,604, 2 7 2 , 0 0 0
66.O
68.7
293, 400,000
811,954,000
840,361, 000
1,140,842, 0 0 0
7,083,688
1,557, 3 0 1 , 0 0 0
71. 2
52. 1
293. 4 0 0 , 0 0 0
826,556,000
854,295,000
1.319,972, 0 0 0
172,281,834
1,746, 3 7 6 , 0 0 0
62.6
47-3
64.7
293, 4 0 0 , 0 0 0
848,458,000
879,122, 000
1.233, 080,000
60,564,833
1.626, 5 3 8 , 0 0 0
68.8
52. 2
293. 4 0 0 , 0 0 0
882,833,000
917,336, 000
1,281, 217,000
70,478,234
1,734. 1 7 5 , 0 0 0
68.9
50.9
51.7
46.3
49.0
41.7
42. o
43-2
45-5
v44-o
45-4
46. 2
48.0
47-5
49-5
71.3
71.6
Nov.
Dec.
50. 2
31
1898.
Jan.
Mar.
31
Apr.
293. 4 0 0 , 0 0 0
86s,394,000
899,637, 000
1,213, 934,000
20,899,051
1, 6 7 2 ,5 7 2 , 0 0 0
June
293. 4 0 0 , 0 0 0
808,698,000
842,983, 000
1,265, 909,000
129,523,423
1,747, 9 5 5 , 0 0 0
293, 4 0 0 , 0 0 0
809,320,000
842,950, 000
1,202, 077,000
65.723,356
1,649, 7 3 2 , 0 0 0
293. 4 0 0 , 0 0 0
738,098,000
769,695, 000
1.339. 589,000
276,496,927
i,77i, 3 2 1 , 0 0 0
293. 4 0 0 , 0 0 0
726,129,000
758,413. 000
1.293. 658,000
241,841,460
1,729, 4 7 4 , 0 0 0
293. 4 0 0 , 0 0 0
733,142,000
769,077, 000
1,229, 516,000
167,037,390
1,695, 8 4 8 , 0 0 0
7i.3
63.9
67.3
55-1
56.1
59-6
22
293. 4 0 0 , 0 0 0
750,925,000
783,690, 000
1,178, 463,000
101,371,201
1,649, 1 9 4 , 0 0 0
63.7
31
293. 4 0 0 , 0 0 0
728,185,000
762,631, 000
1.211, 318,000
155,284,568
1,654, 8 2 7 , 0 0 0
60. 1
7
293, 4 0 0 , 0 0 0
729,312,000
762,204, 000
1,185, 969,000
130,369,434
1, 6 0 7 , 7 8 6 , 0 0 0
61
15
293. 4 0 0 , 0 0 0
75o,235,000
787,350, 000
i,i55, 215,000
74.459,9o6
1,622, 1 4 3 , 0 0 0
23
293. 4 0 0 , 0 0 0
780,569,000
814,200, 000
1,113, 662,000
6,062,750
1,625, 3 6 5 , 0 0 0
64
70
30
July
Sept.
Oct.
Dec.
30
7
IS
30
293. 4 0 0 , 0 0 0
772,964,000
808,268, 000
1,138,
333,ooo
36,654,865
1.627, 9 9 1 , 0 0 0
23
293. 4 0 0 , 0 0 0
814,398,000
843,689, 000
1,167, 674,000
30, 582,426
1,645, 0 1 0 , 0 0 0
31
293, 4 0 0 , 0 0 0
752,293,000
781,037. 000
1.337, 391,000
282,955,278
1,788, 3 i 5 . o o o
67
69
55
74-1
66.6
70.1
57-5
58.6
62.6
66.5
63.0
64-3
68.1
73- 1
71. o
72.3
42. 1
57-5
47-5
51.4
46.8
48.9
44.6
46.4
46. 7
36.8
38.7
40. 6
43- 2
41.4
43-2
43-5
44-5
43-o
44-2
44.0
64.8
1899.
Jan.
293. 4 0 0 , 0 0 0
779,846, 000
810,321, 000
1,250, 815,000
147,096,243
1,642, 7 7 2 , 0 0 0
15
293, 4 0 0 , 0 0 0
810,299, 000
844,233, 000
1,171, 718,000
34,083,149
i,576, 5 0 8 , 0 0 0
Mar. 31
293, 4 0 0 , 0 0 0
827,831, 000
861,735, 000
1,265, 040,000
1 0 9 , 9 0 5 , 732
1,768, 2 3 2 , 0 0 0
7
293. 4 0 0 , 0 0 0
831.346, 000
866,649, 000
1.212, 670,000
52,620,554
1,701, 5 1 5 . 0 0 0
June 30
293. 4 0 0 , 0 0 0
833,986, 000
868,135, 000
1,300, 241,000
138,704,569
1,870, 9 0 6 , 0 0 0
Apr.
62.3
69. 1
65.4
68.6
64. 1
66. 1
7
293. 4 0 0 , 0 0 0
827,130, 000
861,754, 000
1,250, 406,000
95,253,262
1,782, 6 1 2 , 0 0 0
Sept. 2 3
293. 4 0 0 , 0 0 0
801,865, 000
833,032, 000
1,126, 960,000
529,780
i,7i7, 1 8 4 , 0 0 0
71. 2
30
293. 4 0 0 , 0 0 0
686,691, 000
718,098, 000
1.382, 731,000
371,233.061
1,865, 7 4 1 , 0 0 0
July
Oct.
23
293. 4 0 0 . 0 0 0
729,904, 000
761,829, 000
1,180, 341,000
125,111,446
1,691, 6 0 7 , 0 0 0
31
293. 4 0 0 , 0 0 0
707,618, 000
740,069, 000
1, 2 2 1 , 1 5 3 . 0 0 0
187.683,462
1.709, 1 6 6 , 0 0 0
49- 7
53-3
57-o
61.8
57-9
7
293. 4 0 0 , 0 0 0
711,772, 000
743.373, 000
1.183. 041,000
146,267,057
1,648, 4 6 1 , 0 0 0
60. 2
15
293. 4 0 0 , 0 0 0
731,044, 000
766,794, 000
1.161, 377,000
101,185,206
1,680, 2 0 8 , 0 0 0
62. 9
23
293, 4 0 0 , 0 0 0
749,403, 000
782,763, 000
1,128, 557,000
52.393.473
1,683, 8 6 4 , 0 0 0
30
293, 4 0 0 , 0 0 0
729,755, 000
764,933, 000
1.147. 544,000
89,212,815
66.4
63.6
65. 2
66.6
61.8
51.6
7
293. 4 0 0 , 0 0 0
695,076, 000
726,043, 000
1.303. 052,000
283,610,564
1,794, 6 3 4 , 0 0 0
15
293. 4 0 0 , 0 0 0
704,078, 000
736,493, 000
1,234. 150,000
204,255,633
1,733, 5 3 5 . o o o
7
293. 4 0 0 , 0 0 0
741.276, 000
773,829, 000
1, 1 3 7 . 4 2 0 , 0 0 0
70,191,970
15
293. 4 0 0 , 0 0 0
762, 1 4 7 ,0 0 0
800, 342, 000
1,144, 113,000
50,372,058
23
293. 4 0 0 , 0 0 0
743,263, 000
772,639, 000
1, 2 0 2 , 1 1 5 , 0 0 0
30
293, 4 0 0 , 0 0 0
700,896, 000
727.9X7. 000
1.358,
933.ooo
1,697, 7 8 2 , 0 0 0
1,676, 3 8 1 , 0 0 0
136,076,334
1,733, 4 9 6 , 0 0 0
1,764, 8 6 9 , 0 0 0
337,6i5,993
1.834. 5 5 4 , 0 0 0
42. 1
38.2
72. 1
68.1
7i.5
66.8
68.9
73
5i
55
59
64
60
62.8
66.0
69
66
68
69
64
53
1900.
7
293. 4 0 0 , 0 0 0
730,761 , 000
763,019,000
1,265,
455,000
209,036,165
r.753. 3 5 5 . o o o
IS
293. 4 0 0 , 0 0 0
7 7 5 , 8 4 5 ,000
813,108,000
1,154, 208,000
47.700,377
1.657. 3 2 2 , 0 0 0
Mar. 31
293. 4 0 0 , 0 0 0
743,665 , 000
778,312,000
1,309, 970,000
238,259,329.
1.797. 7 6 7 , 0 0 0
7
293. 4 0 0 , 0 0 0
754,485 , 000
789,821,000
1.217, 642,000
134,419.833
1,732, 1 2 7 , 0 0 0
IS
293. 4 0 0 , 0 0 0
772,492 , 000
809,611,000
1,145, 226,000
42,215,214
1,654, 3 1 1 , 0 0 0
30
293. 4 0 0 , 0 0 0
800,737 , 000
838,036,000
1,164, 622,000
33.184,581
1.663, 3 1 0 , 0 0 0
293. 4 0 0 , 0 0 0
822,247 , 000
857,820,000
1,309, 865,000
158,643,308
1,805, 8 7 1 , 0 0 0
293. 4 0 0 , 0 0 0
841,043 , 000
877.650,000
1,212, 104,000
41,048,095
1,7ii, 6 2 4 , 0 0 0
Jan.
Apr.
June 30
July
7
Sept. 3 0
Oct.
7
293. 4 0 0 , 0 0 0
725,427 , 000
758,035,000
1.343. 962,000
292,531,250
1,800, 3 7 9 , 0 0 0
293. 4 0 0 , 0 0 0
717,775 , 000
751,014,000
1.293. 213,000
248,799,646
1,748, 9 6 1 , 0 0 0
15
293. 4 0 0 , 0 0 0
754,332 , 000
794.137,000
1,219, 281,000
131,739,013
1,716, 6 4 9 , 0 0 0
23
293. 4 0 0 , 0 0 0
791,892 , 000
826,119,000
1,186, 495.000
66,979,521
I,690, 6 4 8 , 0 0 0
57-7
67. 2
56.8
62. o
67-5
68.7
62.8
69.4
54-o
55-5
61. 9
66.7
41.7
46.8
41-4
43-6
46.7
48. 1
45-5
49- 1
40.3
41. o
43-9
46.8
60.3
70.5
59
64
7o
72
65
72.
56.
58.
65
69
a T h e c a l c u l a t i o n h a s n o t b e e n m a d e o n t h e b a s i s of t h e r o u n d s u m s p u b l i s h e d w e e k l y i n t h e R e i c h s a n z e i g e r , b u t o n t h e b a s i s of e x a c t s p e c i a l i n f o r m a tion r e g a r d i n g cash reserve a n d n o t e circulation, while metallic reserve, cash reserve, a n d note circulation in t h e a b o v e t a b l e are given according t o those
a p p r o x i m a t e w e e k l y figures.
* O t h e r d e m a n d liabilities a r e t h e p u b l i c a n d p r i v a t e giro b a l a n c e s , t h e d e p o s i t s of p e r s o n s a n d firms w h o h a v e n o g i r o a c c o u n t , t h e a m o u n t s r e c e i v e d
for d i s b u r s e m e n t t o p e r s o n s w h o h a v e n o a c c o u n t w h i c h h a v e n o t y e t b e e n p a i d , a s well a s g i r o t r a n s f e r s t h a t a r e e n r o u t e b u t will, o n a c c o u n t of t h e t i m e
r e q u i r e d for p o s t a l t r a n s m i s s i o n , b e c r e d i t e d t h e n e x t d a y o n l y .
c
P r i o r t o 1881 t h e r e w a s n o e x c e s s c i r c u l a t i o n a t a n y t i m e .
83703—10.
(To follow page 119.)
No. 1.
APPENDIX III.—Note circulation and metallic reserve on the days of an issue in excess of the
contingent—Continued.
Metallic covering for—
Date of excess.
Amount of
contingent.
Metallic reserve.
Cash reserve.
Note circulation.
A m o u n t in
excess of
contingent.
Note circulation
and other demand liabilities.
Total
Note of decircu- mand
lation. liabilities.
Cash covering,
-ie meaning
inith
9
lofrrparagraph
the bank
ofact, f o r —
Note
circulation.)
10
Marks
1900.
31
293,
Marks.
400,000
Marks.
766,566,000
Marks.
Marks.
P. ci.
62. 2
P.ct.
P.ct.
45.2
65.0
1,642,760,000
63-4
46.8
66.2
Marks.
800,718,000
1, 232, 792,0 0 0
138,674,040
1,696,066,000
116,142,019
293,400,000
768,664,000
8 0 2 , 4 2 4 , 000
1,211,965, 0 0 0
293,400,000
789,879,000
829,365,000
1.177,685, 0 0 0
54,922,497
1,663,026,000
67.1
47.5
70.5
30
293,400,000
814,165,000
8 4 9 , 6 7 4 , 000
1,166,141, 0 0 0
23,072,976
1,662,357,000
69.8
49.0
72.9
IS
---
7
293,400,000
809,503,000
844,706,000
1,140,318, 0 0 0
2,211,704
1.649,903,000
71.0
15
293,400,000
818,908,000
857,
1, 1 6 0 , 4 3 5 . 0 0 0
9.533.638
1.743.892,000
70. 6
23
293,400,000
805,507,000
835,738,000
1,201,249, 0 0 0
72,108,240
i,746,023,000
67. 1
31
293,400,000
729,830,000
760,628,000
1,409,945, 0 0 0
355.9i7.4i2
1.906,943,000
51.8
507,000
49.1
74-1
47-0
73-9
46. 1
69.6
38.3
53-9
1901.
7---
450,000,000
761,002,000
793,201,000
1.309.198,000
65.995.930
1,814,128,000
58.1
41.9
60.6
31---
450,000,000
811,663,000
845,076,000
i,321,420,000
16,347.335
1,826,520,000
61. 4
44-4
63-9
30.--
460,000,000
830,442,000
861,819,000
1,430,427,000
108, 6 0 1 , 148
1.953.568,000
58.1
42.5
60.3
7---
460,000,000
8 3 1 , 2 7 7 , 000
865,981,000
1.365. 1 5 3 . 0 0 0
39.176,396
1,865,886,000
60. 9
44.6
63-4
460,000,000
868,501,000
897,320,000
1,465,787,000
108,466,421
2,028,975,000
59.3
42.8
61. 2
151,015.199
2,034.572,000
56. 2
41.3
58.5
76.503.876
1.923. 737.ooo
59- 1
43-5
61. 4
231.638,836
2,060,433,000
Si-8
38.2
53-7
31--1902.
30
470,000,000
839,804,000
874.354.ooo
i,495.37o,ooo
7
470,000,000
836,834,000
869,559,000
1, 4 1 6 , 0 5 9 , 0 0 0
31
470,000,000
786,123,000
814,830,000
1,516,469,000
1903.
470,000,000
823,318,000
854,481,000
1.397,190,000
72,628,154
1,913,106,000
58.9
43.o
61. 2
31
470,000,000
818,482,000
854,025,000
1.449.540,000
125,514.615
1.984,74i.000
56.5
41. 2
58.9
7
470,000,000
817.385,000
853,010,000
I.350,081,000
27,068,533
1,844,625,000
60. 5
44-3
63. 2
30
470,000,000
884,259,000
9i9,973,ooo
1,434,565.000
44,587.5i8
2,000,675,000
61.6
44- 2
64. 1
30
470,000,000
858,015,000
891,593,ooo
1,515,581,000
153.987.512
2,066,179,000
56.6
41.5
58.8
7
470,000,000
851,100,000
885,019,000
1.429.343.000
1,905,894,000
59-5
44-7
61. 9
31
470,000,000
793.459.ooo
820,537,000
1.565.490,000
2,140,408,000
50.7
37- 1
52.4
74,321, 008
274.949,399
1904.
7
470,000,000
834,443,000
868,434,000
1,438, 2 9 5 , 0 0 0
99,861,153
1 , 9 4 9 . 4 2 3 , 000
58.0
60. 4
31
470,000,000
828,079,000
860,804,000
1,496,935,000
166,126,902
2,036,574,000
55-3
57-5
7
470,000,000
852,917,000
899,609,000
1,385,839,000
16,222,874
1,917,082,000
61.5
64.9
30
470,000,000
870,048,000
902,449,000
1, 4 7 7 , 8 5 2 , 0 0 0
105,400, 518
2,017,605,000
58.9
61.1
30
470,000,000
793,i43,ooo
824,023,000
1,599,067,000
305,038,527
2,131.775.ooo
49.6
5i-5
7
470,000,000
789,444,000
833,181,000
1,482,350, 0 0 0
179,169,568
1,978,479,000
53-3
56. 2
15
470,000,000
839,669,000
897,616,000
1,395,915.000
28,298,848
1,895,677,000
60. 2
64-3
31
470,000,000
927,060,000
956,261,000
1, 599. 7 8 4 , 0 0 0
173.519,879
2,180,081,000
57-9
31
470,000,000
1,015,884,000
:, 0 5 2 , 4 8 8 , 0 0 0
1,543. 5 0 5 , 0 0 0
21,016,649
2,134.506,000
65.8
47-6
68. 1
30
470,000,000
9So,791,000
985.875,000
1.554. 8 0 2 , 0 0 0
98,927,495
2,133.903,000
61. 2
44-6
63-4
30
470,000,000
732,215,000
762,361,000
1,682, 6 4 6 , 0 0 0
450,
282,987
2,239,021,000
43-5
32. 7
45-3
7
470,000,000
755.i75,ooo
797,785,000
i,536, 3 6 3 , 0 0 0
268,574,916
2,060,636,000
49- 2
36. 7
55-5
14
470,000,000
787,357.000
837,735,ooo
1,450, 2 5 1 , 0 0 0
142,517,347
1.967,907,000
54-3
40. o
57-8
25,593.86i
64-3
59-8
1905-
1,918,945,000
60. 1
43-5
547,804
1.929.565.000
55- 1
41. 2
1,385, 5 2 5 , 0 0 0
75,864,662
1,859,920,000
57-7
831,043,000
1,656, 6 7 9 , 0 0 0
352,808,324
2,287,486,000
48.5
854.032, 000
580,000
1,515, 3 0 6 , 0 0 0
149,898,446
2,039, 8 0 2 , 0 0 0
41.9
58.9
888,980, 000
922, 9 2 1 , 0 0 0
1,629, 0 9 8 , 0 0 0
233,348,738
2,218, 094,000
40. 1
56.6
64.9
23
470,000,000
834,409,000
892,607,000
1,388, 2 0 4 , 0 0 0
31
470,000,000
794,174,000
825,527,000
1,442, 0 7 2 , 0 0 0
7
470,000,000
798,992,000
839,658,000
30
472,829,000
803,525,000
6
472,829,000
31
472,829,000
146,
42.9
35- 1
57-2
60.6
50. 2
1906.
7
472,829,000
915,79i. 000
958 4 2 8 , 0 0 0
1,477, 2 8 7 , 0 0 0
46,028,548
2,021, 8 0 1 , 0 0 0
45-3
30
472,829,000
844,429, 000
892 9 7 1 , 0 0 0
1,647, 8 7 2 , 0 0 0
282,073,455
2,247, 5 1 1 , 0 0 0
37-6
54-2
7
472,829,000
879,012, 000
939 0 4 1 , 0 0 0
1,501, 1 1 2 , 0 0 0
89,242,180
2,062, 8 1 2 , 0 0 0
42. 6
62.5
29
472,829,000
675.301, 000
725 9 6 1 , 0 0 0
1,704, 1 3 1 , 0 0 0
505,339,503
2,293, 8 4 6 , 0 0 0
29.4
42. 6
6
472,829,000
676,140, 000
738; 5 2 1 , 0 0 0
1,609, 9 9 1 , 0 0 0
398,638,411
2,128, 738,000
31.8
45-9
15
472,829,000
721,901, 000
794 6 8 0 , 0 0 0
1,497, 5 2 4 , 0 0 0
230,015,817
2,089, 2 2 0 , O O O
34-6
53- 1
23
472,829,000
774,652, 000
855 2 8 0 , 0 0 0
1,444, 5 2 0 , 0 0 0
116,408,112
2,010, 4 5 7 , 0 0 0
38.5
59- 2
31
472,829,000
736,921, 000
790 0 8 7 , 0 0 0
1,485, 0 9 8 , 0 0 0
222,177,585
1,995. 5 9 1 , 0 0 0
36.9
53-2
7
472, 829,000
742,860, 000
804 2 0 9 , 0 0 0
i,430, 5 0 1 , 0 0 0
153,461,465
1.915. 8 3 8 , 0 0 0
38.7
56. 2
IS
472,829,000
777,926, 000
849 7 7 5 , 0 0 0
1,389, 8 0 3 , 0 0 0
67,199,067
I.940. 1 6 5 , 0 0 0
40. 1
61. 1
30
472,829,000
766, 3 1 6 , 0 0 0
824 1 2 4 , 0 0 0
1,395, 5 3 0 , 0 0 0
98,574,212
1.986, 7 3 0 , 0 0 0
39-6
59-1
7
472,829,000
746,435. 000
812 2 9 1 , 0 0 0
i,376, 5 6 4 , 0 0 0
91,443,268
1.94i. 3 7 6 , 0 0 0
38.4
59.o
IS
472,829,000
747.3oi. 000
822 670,000
1,394, 6 9 3 , 0 0 0
99,191,717
1.989. 5 1 7 , 0 0 0
37-6
59-o
22
472,829,000
735,673, 000
816 2 9 8 , 0 0 0
1,480, 9 3 1 , 0 0 0
191,799.292
2,085, 7 5 6 , 0 0 0
35-3
55- 1
31-
472,829,000
665,017, 000
730 4 2 2 , 0 0 0
1,775, 8 9 8 , 0 0 0
572,644.757
2,428, 781,000
27.4
41. 1
1907.
7
472,829,000
722,865, 000
800,081, 000
1,605, 5 3 0 , 0 0 0
3 3 2 , 6 1 8 , 913
2,152, 322,000
45-o
33-6
49-9
15
472,829,000
805,345, 000
896,781, 000
1,458. 5 7 1 , 0 0 0
8 8 , 9 6 1 , 275
2, 0 1 7 ,8 0 8 , 0 0 0
55-2
39.9
61.5
31
472,829,000
843,304, 000
9i6,397, 000
1,411. 8 1 8 , 0 0 0
2 2 , 5 8 8 , 939
1,926, 8 6 2 , 0 0 0
59-7
43-8
64.9
30
472,829,000
775.972, 000
858,428, 000
1, 73i.4 8 6 , 0 0 0
4 0 0 , 2 2 7 , 260
2,327. 4 4 4 , 0 0 0
44-8
33-3
49-6
6
472,829,000
820,315, 000
916,054, 000
1.595, 2 6 2 , 0 0 0
2 0 6 , 3 7 9 , 147
2,187, 009,000
5i-4
37-5
57-4
IS
472,829,000
884,009, 000
991,194, 000
1,474, 2 1 4 , 0 0 0
1 0 , 2 9 0 , 631
2,070, 0 4 6 , 0 0 0
60. o
42.7
67. 2
30
472,829,000
898,444, 000
990,415, 000
1,510, 3 2 0 , 0 0 0
4 7 , 0 8 0 , 525
2,095. 7 9 9 . 0 0 0
59.5
42.9
65.6
29
472,829,000
830,710, 000
925,908, 000
1,728, 7 6 4 , 0 0 0
3 3 0 , 0 2 3 , 078
2.355. 3 8 5 , 0 0 0
48. 1
35-3
53.6
6
472,829,000
84i,977, 000
9Si.So8, 000
1,625, 1 2 6 , 0 0 0
2 0 0 , 7 9 0 , 091
2,156. 0 4 8 , 0 0 0
5i.8
39-1
58.5
15
472,829,000
877,441, 000
998,341, 000
1,505. 7 9 1 , 0 0 0
3 4 , 6 2 1 , 418
2,079, 6 0 4 , 0 0 0
58
42. 2
66.3
31
427,829,000
878,064, 000
978,386, 000
1.478, 0 2 4 , 0 0 0
2 6 , 8 0 8 , 045
2,008, 5 6 0 , 0 0 0
59
43-7
66.2
31
472,829,000
860,813, 000
960,458, 000
1,452, 7 4 8 , 0 0 0
1 9 , 4 4 8 , 339
i,998, 2 6 3 , 0 0 0
59
43- 1
66.1
30
472,829,000
737,022, 000
838,333. 000
1,824, 5 4 6 , 0 0 0
5 1 3 . 3 8 4 . 283
2,434, 028,000
40
30.3
45-9
7
472,829,000
73o,5i5, 000
843.989. 000
1,712, 1 4 5 , 0 0 0
3 9 5 . 3 2 4 . 815
2,253, 0 0 0 , 0 0 0
42
32.4
49.3
15
472,829,000
768,496, 000
889,239, 000
i,596, 5 5 7 . 0 0 0
2 3 4 . 4 8 9 , 657
2, 175 , 6 2 0 , 0 0 0
48
35-3
55-7
23
472,829,000
808,382, 000
936,636, 000
1,538, 9 7 9 , 0 0 0
1 2 9 , 5 0 8 , 875
2, 137 4 4 4 , 0 0 0
52
37-8
60. 9
31
472,829,000
750,264, 000
852,377, 000
1,617, 0 3 4 , 0 0 0
2 9 1 , 8 2 5 , 808
2, 167 , 9 9 1 , 0 0 0
46
34-6
52.7
7
472,829,000
73o,437, 000
842,570, 000
1,562, 345.ooo
2 4 6 , 9 4 4 , 920
2, 101 , 8 0 4 , 0 0 0
46.8
34.8
53-9
15
472,829,000
729,805, 000
850,467, 000
1,497, 7 5 0 , 0 0 0
1 7 4 , 4 5 4 , 697
2,049 2 8 1 , 0 0 0
48.7
35.6
56.8
23
472,829,000
734,080, 000
858,373. 000
1,440, 5 3 8 , 0 0 0
1 0 9 , 3 3 3 . 199
1,983 , 3 7 0 , 0 0 0
51.0
37-0
59.6
30
472,829,000
678,520, 000
776,228, 000
1,510, 8 8 3 , 0 0 0
2 6 1 , 8 2 8 , 365
1,998 , 7 6 8 , 0 0 0
44
33-9
5i-4
7
472,829,000
681,760, 000
787,312, 000
1,468, 5 5 5 , 0 0 0
2 0 8 , 4 1 0 , 891
1,944 , 2 7 0 , 0 0 0
46
35- 1
53-6
14
472,829,000
700,565, 000
808,589, 000
i,476, 8 2 7 , 0 0 0
1 9 5 , 4 0 4 , 216
2, 0 2 0 , 1 8 4 , 0 0 0
47
34-7
54-8
23
472,829,000
714,836, 000
826,687, 000
1,569, 4 6 5 , 0 0 0
2 6 9 , 9 4 8 , 061
2,133, 4 6 9 , 0 0 0
45
33-5
52.7
31
472,829,000
704,179, 000
7 8 7 , n 7 , 000
922,000
6 2 5 , 9 7 4 , 363
2,544, 4 2 4 , 0 0 0
37
27.7
41. 7
1908.
7
472,829,000
758 6 8 2 , 0 0 0
856, 1 0 7 , 0 0 0
1,715. 7 1 7 , 0 0 0
3 8 6 , 7 8 1 , 134
2,242, 9 9 4 , 0 0 0
44- 2
49-9
15
472,829,000
838, 6 9 0 , 0 0 0
949, 652,000
i,540, 1 5 1 , 0 0 0
1 1 7 , 6 6 6 , 475
2,113, 6 2 5 , 0 0 0
54-5
61. 7
31
472,829,000
885, 9 5 9 , 0 0 0
972, 617,000
1,483. 9 3 3 , 0 0 0
3 8 , 4 8 6 , 282
1, 9 8 0 ,0 4 7 , 0 0 0
59-7
65.5
31
472,829,000
870 9 4 7 , 0 0 0
947, 295,000
1,781, 7 8 2 , 0 0 0
3 6 1 , 6 5 7 , 668
2,402, 6 5 8 , 0 0 0
48.9
53-2
7
472,829,000
880 1 1 7 , 0 0 0
97o, 748,000
1,643. 3 7 2 , 0 0 0
1 9 9 , 7 9 4 . 555
2, 178, 537,ooo
53-5
59- 1
15
472,829,000
1,015, 2 9 2 , 0 0 0
1,517, 7 4 5 , 0 0 0
2 9 . 6 2 4 , 868
2, 087, 8 2 6 , 0 0 0
60.
66.9
30
472,829,000
9i5, 4 8 8 , 0 0 0
946, 5 4 9 , 0 0 0
I,025, 347,ooo
i,54i, 5 7 8 , 0 0 0
4 3 . 4 o i , 069
2,157: 8 1 1 , 0 0 0
61.
66.5
30
472,829,000
,031, 7 9 9 , 0 0 0
1,103, 9 9 4 , 0 0 0
1,792, 6 2 3 , 0 0 0
2 1 5 , 8 0 0 , 33o
2,407 7 6 0 , 0 0 0
57.
61.6
7
472,829,000
,059, 5 0 5 , 0 0 0
1,144, 5 8 0 , 0 0 0
1,666, 8 8 6 , 0 0 0
4 9 . 4 7 7 . 014
2,310 9 1 3 , 0 0 0
63.
68.7
30
472,829,000
1,103, 4 3 9 , 0 0 0
1,896, 9 1 3 , c o o
320,647, 610
2,556 5 7 9 , 0 0 0
54
58.2
7
472,829,000
,033, 553,ooo
,039, 1 5 7 , 0 0 0
1, 119,6 2 0 , 0 0 0
1.759, 5 7 5 , 0 0 0
1 6 7 , 1 2 6 , 786
2, 4 2 1 4 5 9 , 0 0 0
59
63.6
15
472,829,000
1,159, 2 9 4 , 0 0 0
1,133, 6 3 0 , 0 0 0
8 , 6 6 3 , 955
080,000
65.
70. 7
472,829,000
, 0 6 9 ,3 7 7 , 0 0 0
, 0 6 4 ,4 9 1 , 0 0 0
1,640, 7 8 7 , 0 0 0
31
1,674, 4 0 0 , 0 0 0
67,939, 5i6
2,285 1 2 3 , 0 0 0
63
67.7
.6
31
472,829,000
980, 147,000
1,047, 7 6 5 , 0 0 0
1,975, 3 9 0 , 0 0 0
454,793. 55i
2,631 , 9 6 8 , 0 0 0
49
53.o
39-8
83703—10.
(To follow page 119.)
No. 2.
2,341
•5
APPENDIX IV.—Note reserve and excess of circulation over and above the contingent.
[Amounts in thousands of marks.]
Excess of circulation over and
above the contingent. 6
Tax-free note reserve.<*
Tax-free
contingent
at the end
of the
year, and
at the end
of every
five years.
Year.
1
1876
1877
1878
i879__
1880
_
1876-80
1881
1882
__
1883.__
1884
1885
1881-85
1886
1887--
i888___
1889
1886-90-_ _
1891
1892
1893.
1894.
1895
_
-
1891-95
1896
1897
1898
1899.
__
_ _
__
i896-i9oo__
1904
1905
1901—5
1906
1907
1908
Average
amount.
2
3
272,720
152,704
155.088
185,222
Percentage
of the figure
for the year
1876 and of
the figure for
the five
years
1876-1880.
195.358
167.639
100. 0
101. 5
121.3
127.9
109. 8
273,875
171,202
100. 0
2 3.075
273,875
273.875
273.875
273.875
148,443
121,817
176,123
168,786
168,640
97.2
H5-3
no. 5
no. 4
273.875
156,762
9i-5
196,583
128.7
144-4
181.4
127. 2
79.8
288,025
220,946
277, n o
194,200
i35,43i
288,025
204,795
119. 6
292,117
292,117
292,117
293,400
293,400
246,010
161. 1
283,444
185.6
183,302
243,237
120. 0
172. 0
159-2
293.400
243,751
142,4
293,400
293,400
293,400
293,400
293,400
135.209
113,026
8,689
88.5
74.0
35-8
8.0
5-7
293,400
64,777
37-8
262,761
54,691
12,271
Amount.
Date.
5
6
7
88.7
460,000
470,000
470,000
470,000
472,829
214.635
254,390
163,790
153,514
153.534
107. 2
100.5
100.5
472,829
187.973
109. 8
472,829
472,829
472,829
34,368
c—58,227
22. 5
57.5IO
37-7
140.5
166.5
Jan.
Mar.
June
Mar.
June
242,981
7
23
7
23
7
8
231.531
Jan.
7 30,519
Sept. 30 5 6 , 9 9 7
Jan.
7 74,173
Dec. 31 7 1 1 , 6 4 8
Dec. 31 4 8 . 9 7 5
fMar. 23,
[299,225
1 1879.
JJan.
7,
[30,519
1 1876.
Mar.
Mar.
Mar.
Mar.
June
222,422
241,643
299.225
7
23
15
15
7
260,499
221,532
269,793
268,549
Dec.
31
252,251
23
15
7
15
7
33o,763
332,665
446.715
367,662
276,468
Jan.
Dec.
7
31
23
23
23
23
23
359,147
431,678
350,404
366,795
471,164
Jan.
7
Dec.
31
32,328
16,764
Jan.
7
60,286
JFeb. 23,
[471.164
I 1895.
Feb.
Feb.
Feb.
Feb.
Feb.
23
23
23
23
23
[Feb.
23,
1
1898.
10
9
12
13
Dec. 31
Sept. 30
26,092
19,224
33
1
1
32,679
2, 615
Dec.
Jan.
32,679
2,615
34
3
5
92,795
JDec. 31,
J 32,679
1 1884.
97
1
34,161
Dec.
31
34,161
36
3
6
226,528
Dec.
31
Oct.
7
109,478
104,205
236
325,082
10
585,771
1
38,518
3
215,080
4
253,598
6
9
446,209
26,092
317.083
3i7,299
321,503
222,873
181,810
16
20
20
(-321,503
7i
737,199
1,850,325
2,733,402
2 , 4 1 7 , 139
8,184,274
J
1
JFeb. 23,
1 1905
508,971
32
4,229,393
346,693
224,587
323.939
17
25
14
3,547,485
5,376,670
2,461,861
23
23
23
11
31,409
416,426
501,388
367.994
358,796
508,971
Feb.
Feb.
Aug.
Amount.
1
2
15
23
23
23
23
June
Feb.
Feb.
Feb.
Feb.
Date.
27
31
7
II,526
66,143
fjune
7,
U46. 715
j 1888.
Aug.
Feb.
Feb.
Nov.
Feb.
Note
tax
paid.
36,180
fMar. 15,
[269.793
1 1883.
Feb.
June
June
Mar.
June
Maximum amount
of excess.
Number
of
times
the
bank
Sum
statetotal of
ment
excesses.
Amount. showed
an excess of
circulation.
Minimum.
Date.
4
273,875
273.875
273.875
273.875
274.834
276,085
276,085
286,585
_
Maximum.
338,577
5
459,158
3
773,057
7
8 1,073,638
9 1,584,963
JDec. 31,
[109,478
1 1889.
Sept. 30
Dec.
31
JDec. 31,
I
1895.
Dec.
Sept.
Dec.
Sept.
Dec.
31
30
31
30
31
38,518
40
148,283
[148,283
264
134,149
205,830
282,955
37L233
355,917
465
768
JSept. 30,
[371,233
1 1899.
Sept.
Dec.
Dec.
Sept.
Sept.
611
2,847
2,518
8,525
30
31
31
30
30
108,601
231,639
274,949
305,039
45o,283
JSept. 30,
1 1905.
450.283
4.405
572,645
3,692
625,974
454.794
5.6oi
Dec.
Dec.
Dec.
31
31
31
353
478
805
1,118
1,651
2,564
a This is the amount by which the note circulation which, in the meaning of paragraph 9 of the Bank Act, is not secured by cash reserves falls
below the tax-free contingent.
& An excess occurs if the note circulation which, in the meaning of paragraph 9 of the Bank Act, is not secured by cash exceeds the amount of the
tax-free note contingent.
c During the year 1907 there was an average note circulation subject to tax of 58,227,000 marks.
837 0 3—10.
(To follow page 119.)
No. 3.
Renew
a I of
Reichsb
ank
Charter
APPENDIX V.—Annual increase in the surplus of the Reichsbank calculated
on the basis of the net profits realized in the twenty years, 1888-1907, assuming an annual quota of 10 per cent.
N e t profit.
Marks.
8,104,669
12,900,244
20.740,773
18,665,816
11,989,872
17,584.397
11,404,427
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
190s
1906
1907
A v e r a g e of t h e 20 y e a r s , 1
t o 1907
3 lA p e r c e n t
dividend on
the capital.
Marks.
4,200,000
4,200,000
4,200,000
4,200,000
4,200,000
4, 200, 000
4,200,000
4,200,000
4,200,000
4,200,000
4,200,000
4,200,000
4,200,000
5,250,000
5.250,000
9,919,434
17, 409, 232
19,396.832
22,-277, 946
31. 711,379
33,965.457
25,946,284
i9.99i.3oo
25.381,035
26,459,555
25.406,367
40,262,908
52,313,652
5, 2 5 0 , 0 0 0
5,250,000
6,300,000
6.300,000
6,300,000
22,591,579
4,725,000
121
Ill
Excerpts from the Proceedings of the Third
German Bankers' Convention, held in
Hamburg in September, 1907
123
EXCERPTS FROM THE PROCEEDINGS OF THE
THIRD GERMAN BANKERS' CONVENTION,
HELD IN HAMBURG IN SEPTEMBER, 1907.
T H E DISCUSSION OF DEPOSIT BANKING.
The PRESIDENT. Gentlemen, before I give the principal
speaker the floor, I wish to inform the assembly of something which will perhaps interest them, namely, that the
Reichsgenossenschaftsbank at Darmstadt has kindly notified me that the agricultural cooperative institutions have
adopted resolutions concerning the question of check
legislation which are similar in content and in tendency
to our own, so that the Director of the Reichsgenossenschaftsbank felt justified in making the following addition to his communication: " I n this important question
of check business and check legislation, which will be
next dealt with by the Reichstag, commerce, industry,
and agriculture go hand in hand."
Privatdozent Doctor J A F F 6 . Gentlemen, I fear that
many of you shook your heads disapprovingly when you
learned from the programme of the Third German Bankers' Convention that a theorist was to be the first to
address you concerning the legal regulation of deposits.
Now, gentlemen, even I was not able to refrain from this
same head shaking when the flattering request of your
committee came to me to undertake this report, for I
am of the opinion that in the things of economic life the
theorist has far more to learn from the practical man
125
National
Monetary
Commission
than vice versa. I have complied with this request, and
indeed gladly, for these two reasons, to which even you
will perhaps allow some slight weight. In the first place,
the question which we would deal with to-day has been
opened for public discussion, not by practical men, but—
at least for the greater part—by scholars, and therefore
it is perhaps not inopportune if science takes a position
with regard to it. In the second place, however, I can
not regard myself, at least in this presence, as a pure
theorist, for I have, during fifteen years of mercantile
activity, acquired some sympathy with practical affairs.
This activity has brought me into especially close relations with English business life, and particularly with
English banking, and since the latter is represented to us
more and more as worthy of emulation and imitation,
especially in the line of deposit business, I should now
like to deal in somewhat more detail with the advantages
and disadvantages of this system.
First of all, I should like to make a few brief introductory remarks concerning the general principles of deposit
banking.
The task of modern banking is a threefold one.
First, the creation of a safe and convenient means of
circulation and credit transfer as the necessary complement of the money and coinage system established by
the State. This is effected through the issue of bank
notes, through the check and deposit system, and through
other means of facilitating payments.
With this part of banking activity the German Bankers' Convention has already concerned itself in its discus-
126
Renewal
of
Reichsbank
Charter
sion of the "ways and means for economizing metallic
currency" and the "renewal of the Reichsbank privilege." The other two functions of banking, which are
much more important, and which together form the
basis of the general system of credit organization, consist
of what I might call credit concentration on the one side
and credit distribution on the other. By credit concentration I mean the gathering of all the capital not in use
at a given moment, from the greatest to the smallest
portions, into a common reservoir; by credit distribution
I mean the loaning out again of the capital thus collected
to the men engaged in agriculture, commerce, and
manufactures.
From this double function there results the enormous
importance of banking for modern economic life. The
German nation particularly is compelled, because of its
growing population and the relatively unproductive soil
of its country, to develop industry, trade, and commerce,
as well as agriculture, in the most intensive manner, and
it is therefore more vitally interested than almost any
other nation in making the fullest use of all available
capital. This can be done, however, only if the available capital is made accessible to the business man
through concentration in the banks and if the banks
meet with no difficulties in the collection and distribution
of this capital.
The banks obtain the moneys necessary for their business in three different ways:
First, from their own capital; that is, in the case of
the great joint-stock banks, which are to-day of chief
127
National
Monetary
Commission
importance, through the sale of their own shares and the
accumulation of undivided profits in the form of surplus.
Second, through transacting the money affairs of business men and the bigger capitalists (deposits on current
account).
Third, through the attraction of the cash and the savings of the great public which are seeking investment
(deposit business in the narrower sense).
The first of these sources is limited in its extent by
quite definite bounds, which are fixed by banking policy
and which can not be overstepped (the level of the dividends and the fluctuations in surrounding conditions).
With increasing demand for capital on the part of business men, the capital of the banks is capable of increasing
only very slowly. The result is that, with the progressive
development of banking, the ratio of the banks' own capital to the capital coming from the other two sources
always falls. In England the paid-in capital of the
banks amounts to-day, on an average, to about 10 per
cent of outside money; with us, in Germany, the total of
outside money was, even in the year 1892, not greater
than that of the capital of the banks. To-day the ratio is
about as two to one—that is, the outside money amounts
to about double the bank capital itself, and, to be exact,
perhaps a little bit more.
How to attract these outside moneys is, accordingly,
a problem of continually increasing importance, for this
is essential in order that the daily increasing needs of
business may be satisfied. England affords us the
picture of an almost perfect concentration of all avail-
128
Renewal
of
Reichsbank
Charter
able money in the vaults of the banks. In England the
ideal is as good as attained, since not even the smallest
particle of capital lies unused, but is drawn to the great
reservoir of the London money market. It is one of the
chief factors of the economic greatness of England that
in London the necessary capital for every good business
is always to be had cheap. This has been attained by
the development of the check and clearing-house system on
the one hand, and on the other, above all, by the assiduous
nursing of the deposit business, by the extension of banking facilities over the whole country, and by the erection
of branches, deposit offices, and agencies, which are spread
over the whole land like a close-meshed net. Just as in
the large and medium sized cities, so in the small towns
and villages, everyone is afforded an opportunity to enjoy
the advantages of a bank connection. The number of
bank offices in Great Britain amounts to-day to far more
than eleven thousand, and is increasing rapidly. A single
bank controls more than five hundred such offices. The
outside money (savings and current-account deposits)
deposited with the banks amounts to between eighteen
and nineteen billion marks. Every little property
holder, every official, every shopkeeper and artisan—
and, indeed, even a great number of the more well-to-do
mechanics and farmers—are as much the customers of
the bank as are the manufacturers and the capitalists.
It is also the case that very many women have accounts
with the banks, from which, among other things, the
household expenses are settled. The public corporations,
too, set a good example for others to follow. The State,
83703—10
9
I2
9
National
Monetary
Commission
the county, the big corporations—these all deposit their
money with the Bank of England or with one of the big
banks, and all of their payments are transacted through
these accounts.
We in Germany are still very much behind this stage of
development—partly as a result of the bureaucratic spirit
of our public administrative bodies, partly as a result of
the lack of acquaintance with business and the world on
the part of the middle and lower strata in city and country,
but in no small measure because our banks and bankers
have not always given the proper attention to means of
attracting the smaller deposits. The outside money of
our banks amounted at the end of 1906 to 6,305,000,000
marks, of which 2,141,000,000 marks were deposits and
4,164,000,000 marks were other credits.
The great difficulty of the extension of the check and
transfer system is due in no small measure to the inadequate development of our deposit system. To be sure,
an ever-increasing number of deposit accounts have been
opened in the great cities in the last decade, and in recent
times the competition among the leading institutions has
led to the opening of similar accounts in many of our
secondary cities. But the small towns and the open
country are, for the most part, still outside the circle of
operations of the banks, and even in the cities the smaller
business men and shopkeepers, the officials and people
of private means, have not yet been attracted in large
numbers.
If our banks desire to fulfill properly their great economic functions, then further development must begin
130
Renewal
of
Reichsb
ank
Charter
here. The opportunities that offer themselves, if a shrewd
and far-seeing policy is maintained, are indeed enormous.
The field has, to be sure, already been occupied to some
extent by institutions of other kinds—by the savings banks
and by the Reichsgenossenschaftsbank—but it is large
enough to afford room for all.
In what way this extension of deposit business should
proceed, the practical man alone can decide. Either the
net can be extended on the English plan so that in every
important center a deposit bank is instituted, upon which
a more or less large number of agencies, and of bank
offices opened only on market days, are dependent; or
else an effort can be made to enter into closer relations
with the local institutions already existing.
A reorganization of deposit banking naturally can not
proceed without great difficulties. These will lie chiefly in
the increasing cost of the business and in the necessity
for a central supervision of the branches and agencies.
I may, however, express the conviction that our banks,
which have mastered quite different difficulties, would
solve even this problem in at least as satisfactory a way
as the English joint stock banks have done.
That the extension of the network of branches would
finally pay appears to me to follow from this, that the
English banks do not engage in a branch of business which
would greatly add to the profits of the German deposit
banks—the sale of investment paper to customers.
The forward movement of our economic life in recent
decades has been twice interrupted by temporary regressions, once at the beginning of the nineties, and again at
131
National
Monetary
Commission
the beginning of the new century. These regressions have
naturally caused the banking system to suffer sympathetically. Our German credit banking system as a whole,
however, has stood the test both times excellently well;
in each case better than the corresponding French and
English institutions in similar situations. Nevertheless,
on both occasions loud demands arose for legislative interference for the removal of real or apparent evilst
The agitation of the nineties gave us the deposit law
and the bourse law; that of the recent period of depression seems now to be restricted to a demand for a deposit
law.
In order to be able to judge rightly concerning the value
or worthlessness of these efforts we shall endeavor to
make clear what are the underlying motives of this demand. We can easily distinguish two tendencies, both of
which make toward this goal, but from very different motives and causes.
I would designate the first as the political. It arises
from the circles which have written on their banners the
protection of the so-called "middle class in city and
country." It proceeds from members of the parties
forming the right and a considerable part of the center,
and above all from the union of farmers and the other
representatives of agricultural interests—from those,
therefore, who look askance at the development of
Germany into an industrial state.
Being declared opponents of mobile capital, they lack,
for the most part, the understanding of the great economic
significance of banks and bourses, which appear to them
132
Renewal
of
Reichsb
ank
Charter
not as important factors of economic development, but
as morbid and dangerous excrescences, whose efficiency
must be restricted in every way.
In spite of the fact that the bourse law, which is now
recognized even by its framers as a complete failure, has
injured German economic life very deeply, not only are
all conceivable hindrances placed in the way of improving
it, but new means are sought of hindering the progress of
our industrial life; and for this purpose the legal regulation
of deposit banking is proposed.
It is very well known in those circles that the development of our industries is very closely connected with that
of banking, that the enormous development of the former
was possible only through the vigorous support of the
banks, which drew the means for this, for the most part,
from their deposit business. Under the pretense that the
association of regular banking business with commercial
activity, and the issue of notes which is characteristic of
our German banking system, endangers the safety of
deposits, it is proposed that the deposit business be subjected to legal limitations, which would correspond
approximately to those applied to note issue. These
proposals have recently been clothed in the formula
''legal regulation of the covering of the deposits of the
Reichsbank and of all other banks in accordance with
the increased importance of the transfer and deposit
business since 1875."
The intention is to prevent the banks which do a note
issue business from accepting deposits, apparently in the
secret hope of guiding these sums to their own mills, and
133
National
Monetary
Commission
of thus finally fulfilling to some extent the oft-repeated
demand for cheaper money for agriculture and handicrafts.
The second tendency that makes for a legal regulation
of deposit banking I would call the scientific. Its chief
advocate is the well-known economist, Prof. Adolph
Wagner, of Berlin, whom a number of other experts and
also some practical men have joined. Their opinion is
based upon the conviction that the system of joining
regular banking business with the so-called irregular
(promotion, flotation, and stock-brokering business) is full
of the greatest dangers for the solidity of our banking
system. They advocate, on the contrary, the English
system of division of labor, under which the large joint
stock deposit banks, it is alleged, carry on only the
regular banking business, while the promotion and flotation business lies in the hands of private individuals and
financial companies, which use no outside money in their
business, and therefore are not included in England
among the banks.
The followers of this line of thought aim at making the
attraction of money from outside—at least of savings
accounts—difficult or impossible for the joint-stock
banks and banks of issue. On the other hand, they
advocate the erection of pure deposit banks which would
be limited to the regular banking business in the investment of their funds, and forced to maintain a legally fixed
reserve against the deposits, and to publish regular statements concerning their investments and cash on hand.
In details the propositions are in marked disagreement;
some advocate the erection of an imperial deposit bank as
134
Renew
al
of
Reichsb
ank
Charter
a sister institution to the Reichsbank; others demand the
chartering of one or more joint-stock deposit banks established by private means, but subject to state supervision;
others advocate deposit banks established by the separate
states. Finally, there are some demands for a less radical
change—namely, that the regular publication of accounts
be required of the existing mixed banks, while at the
same time certain advantages shall be given to the pure
deposit banks.
The time at my disposal does not permit me to present
to you the different proposals in detail. You will find
everything more explicitly dealt with in the excellent
book by the president of the Centralverband, Geh. Justizrat
Dr. Riesser, "Zur Entwickelungsgeschichte der deutschen
Grossbanken," in which the particular points are subjected to a keen criticism, which, in my judgment, is
incontrovertible.
Quite recently it has been suggested that all banks be
forced to keep against their deposits a cash reserve of
about two per cent with the Reichsbank. The third
speaker will deal with this proposition in detail.
I shall confine myself to a general criticism, more especially because, in my judgment, the entire proof of the
advocates of these measures is built upon two wholly
erroneous assumptions, which I shall now endeavor to
correct.
In the first place it is no longer true that the English
joint-stock banks are pure deposit banks, or that they
carry on only so-called regular banking business. To be
sure, the present joint-stock banks have no direct share in
135
National
Monetary
Commission
flotations, promotions, and similar business. But indirectly, through the mediation of the bourse, most of them
place an increasing part of their available capital at the
disposal of speculation, and thus of promotion and flotation
business. The more strongly the movement toward concentration in English banking proceeds, and the more also
the administration of the provincial banks is transferred
to London, the closer will be the connection of the banks
with the bourse and the greater will be the sums regularly
loaned there. I have treated this more in detail in my
book, " Das Knglische Bankwesen," but even a very short
consideration of the subject must make it clear to us that
it can not be otherwise, according to the nature of things.
We know that the available resources of the English
people are almost wholly concentrated in the banks. If
there is only one such reservoir at hand, then the sums
which are necessary for flotation and stock business flow
from this reservoir. No one who knows the English stock
exchange will dare to assert that the business of speculation is carried on solely through the help of the professional speculators, the comparatively few and not very
powerful financial companies, and the great capitalists and
private bankers, like Rothschild. These afford only a
relatively small share of the necessary capital.
The absorbing capacity of the English stock exchange
rests on the institution of jobbers or dealers—that is, the
big stock dealers—who buy and sell on their own account
any desired amount of the securities especially handled
by them. They can only do this if behind them stand big
money-lenders, who are ready at any time to take the
136
Renewal
of
Reichsbank
Charter
securities in question as collateral, and these moneylenders are none other than the big English joint-stock
banks, which daily put their surplus money at the disposal
of the bill and stock brokers connected with them. The
big items which appear in the balances of these bankers
under " money at call and short notice " are just such sums.
The result of the division of labor is therefore simply
that the English banks furnish the money for the flotation
and stock business without thereby securing the slightest
control for themselves over the business of speculation.
Up to this time the English deposit banks have not suffered much from this, but it is well known that English
speculation is in a very bad way because no influence is
exerted upon it by the banks. Nowhere are so many
extravagant speculations launched as on the London
Stock Exchange; nowhere—not even in Germany—has
the public lost such enormous sums, and nowhere does the
constant enactment of more and more stringent bourse
laws help so little.
That is the first fallacy. The second is that the union
of speculative with regular banking business in Germany
has led, or must lead, to a jeopardizing of the banking
business. I am inclined to think that exactly the opposite is the case.
In the first place, an analysis of the balances of our leading institutions shows—and this is of chief importance—
that the covering of outside money by immediately available assets is throughout satisfactory; as regards the
amount of available cash reserve, we make a much better
showing than most English deposit banks, especially since,
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as above mentioned, the reserves of these banks consist in
part of advances to the bill brokers and stock jobbers,
which, in case of a collapse of the stock exchange, are not
realizable, while the other part is deposited with the Bank
of England, which uses these sums again, however, in its
own business. On the other hand, with us in Germany,
especially in times like the present, the holdings of stocks
of many of our large banks may be felt as a heavy weight;
but, in my opinion, they signify no danger whatever for
deposit creditors.
In the second place, scientific investigation of the
development of our banking system in the last decades
has shown that the greatest guaranty of a sound condition
of our credit system lies precisely in the union of the flotation banking with the regular banking business.
Institutions which carry on promotive business solely—
we have a few such in Germany—are interested solely in
effecting the quickest possible sale of the securities they
handle to the public. With the sale of the securities, all
connection between the promoter and the concern promoted ceases.
In our large banks, on the contrary, the flotation business is only one link in the chain of various relations
between the bank and the customers connected with it.
The starting or enlargement of an undertaking stands
always in the closest connection with relations that
extend over years through the current-account business.
The bank is, therefore, on the ground of longer connections, in the best position to judge whether an undertaking
is ripe for promotion or not. Our great banks, too, as a
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result of their varied connections with all branches of
industry, are much better informed concerning the factors
involved than mere promotion companies can be. The
banks can gauge the condition of the world market much
more accurately than can any such institutions. They
are, by their whole position, so closely bound up with the
well-being of the people that their self-interest and even
their instinct of self-preservation forces them to carry on
this promotion and flotation business as carefully as
possible. They have, therefore, the greatest interest not
only in the success of the flotation, but also in the permanent prosperity of the undertaking, which remains its
customer. Not only regard for their reputation as to
flotations, but in a much higher degree their desire to
enter into permanent connection with the enterprises
they launch, affords a guaranty of the solidity of promotion business carried on by our banks.
Our banks have been the pioneers of industrial development—a development which in speed and magnitude has
been equaled only in the United States. If this enormous
expansion of our economic strength and of our wealth has
occurred with much smaller disturbances than in any other
country (England certainly not excepted), then for this
our thanks are due chiefly to our system of mixed banks
and to the proper use of this system.
The organization of our banking system arose historically from force of circumstances, as clearly as did the
opposite system in England. Both have their national
justification, and both, of course, involve certain dangers.
But the German system is not only the proper one for our
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conditions, but it is also in itself the more successful and,
so far as we can judge, the safer.
No great economic organization attains an absolute
ideal through legal provisions. Abuses and disappointments are always possible. The safest system is, however,
that in which the legitimate self-interest of the parties
concerned coincides with the true interest of the community, and this is better attained by our system than
by the English.
We ought, therefore, to refrain from depriving this
system of its foundations by rendering it more difficult
for bankers to attract deposits. We ought to guard ourselves especially against seeking to import into Germany
through legal compulsion conditions that have arisen in
England through natural development and without legislative interference. The only country which has attempted to subject its deposit banks to that kind of legislative prescription, namely the United States of America,
has had very unsatisfactory experience as its result.
Obstacles placed in the way of the deposit business
would check and restrict the development of our banking
system without giving us anything better in its stead.
We must, therefore, combat such interference most
energetically.
But the more vehemently you object to attacks of this
kind, the more necessary it is to examine, in the most
critical manner, the proposals made by the other side,
and, for your own part, to devise the requisite—the necessary—measures for the maintenance and development of
deposit banking.
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The chief question is whether a separation of deposit
and current-account creditors on the books of the bank is
desirable and possible, and whether the publishing of
monthly statements demanded by so many—as is done in
England by the joint stock banks, and also by the great
private bankers, without legal compulsion—is to be
recommended for us also. Further, whether the funds of
the deposit department are to be managed separately;
whether those obligations are to be covered and guaranteed in other ways than are the other obligations of the
bank; and, finally, what course is to be advocated in the
interest of a further development of deposit banking.
These points and their bearings can be estimated
rightly in detail only by practical men, and I will therefore leave them to be handled by the other gentlemen to
whom the subject has been referred and in the general
discussion.
For my part, however, I will permit myself to warn
you against the repetition of a cardinal mistake which
has been made by those who were interested in the framing of the bourse law—namely, that of underestimating
the strength of the opponent. You were reminded again
yesterday how comparatively easy it is to bring about
legislative interference of the most peremptory kind, and
how difficult it is later to secure even a moderation of
measures of that nature.
Therefore the saying "principiis obsta" applies here—
resist the first attempt.
How this may best be done is no question for science,
but for politics. It is not my place to give you advice
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here, but if you will permit me to express my private
opinion, then I should like to point out that the German
merchant class has itself to blame if it does not occupy
the position in the political and economic life of the
nation to which its achievements and its importance
entitle it.
The German merchant has allowed his business to make
such heavy demands upon him that he has almost
renounced all share in the political life of the country.
So long as no change occurs in this state of affairs, he
need not be surprised if he does not receive the necessary
consideration on the part of the Government and the
political parties. From the parties there is not much to
be hoped for in the present political situation. This is
far from being the case, however, with the factor which
is, after all, the determining one in matters of legislation—that is, the Government.
The Government is supposed, of course, to look impartially upon conflicting interests, and it makes the effort
to be just to all parties. But it would be only human for
it to let itself be driven by the skillful and effective agitation of the agricultural classes and the middle class to
actions which run contrary to the interests of other
classes—at least if the latter allow this to happen without
a remonstrance.
What is necessary is, that these interests, above all the
merchant class, should strengthen the backbone of the
administration against the oft-repeated demand to bind
our economic life in restricting chains. The administration will be grateful for such support, and the fruits will
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not be long in coming. Should this assumption, however,
be an erroneous one, which I do not believe, then there
is always time yet to resort to those means which are
used by the opposition party on all occasions, and to
which Goethe's line applies—"Und bist du nicht willig,
so brauch' Ich Gewalt." For instance, in case of the
introduction of a deposit law, the idea could be hit upon
of recommending a bankers' strike when a new loan to
Prussia or to the Empire is being arranged. I believe
that, especially in the present state of our loan market,
the chance of attracting ''volunteer laborers" would not
be a very large one. But apart from weapons of this
sort—which I have of course mentioned only in j e s t there are plenty of other means by which further legislation injurious to the community may be prevented, if
only it were decided to make use of them. I should be
the last to recommend the attainment of special privileges through the use of pressure. But it is not a question
of special privileges, either for the German merchant class
in general or for the banking and exchange business in
particular, but simply a question of seeing them guaranteed the right to keep, without disobedience to law,
their rightful "share of the sunlight."
Trade and manufactures, as well as agriculture, have
the right to demand that they be estimated and treated
in accordance with their significance and their capacity
for rendering service, even that of bearing taxation.
The German merchant wishes to be treated in accordance with the motto of the Prussian royal house—Suum
cuique; to each his own, not more and not less! [Xoud
applause.]
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The PRESIDENT. I also thank the speaker for his especially clear and instructive remarks. As the masterly
book on English banking which he has written can not be
overlooked if this matter is to be studied, so no one can
pass over his present remarks. At only one point do I
disagree. If he intimated—only incidentally, indeed, and
without himself countenancing the plan—that there may be
even a possibility of bankers refusing their help in certain
national contingencies, especially in the flotation of consols, in order to repay "force with force," after the model
of labor strikes, then I say that this is a way which the
German banking class never could and never will follow.
If he has further intimated that we should busy ourselves
with making an outcry, I reply that we are convinced
that very many others are and always will be superior to
us in the art of bawling, and that we have therefore
decided to work through nothing but the inherent strength
of our own arguments. This course, however, will and
must lead us to victory, even if only in the future, and
after many vain struggles. Of this I am convinced.
Doctor DAMME. Gentlemen, the credit system of a
country is an organic whole, closely associated with the
economic needs and the customs of the people. One
part fits into the other, like the wheels of a machine, and
the task of maintaining the machine in the best possible
working order falls to the bankers. In the banks money
redundancy and money need balance each other. Over
against the money-gathering activity, the so-called liability business, stands the money-distributing activity,
the asset business proceeds in parallel lines, and it is a fun-
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damental law of science that the nature of the liability
business must determine the undertakings involved in
the asset business. If the management of but one of the
customary branches of the liability business receives a
check—whether on its own initiative or through legal
enforcement—then the results make themselves felt unavoidably on the asset businesses. If the State interferes,
for instance, in the legal regulation of banking deposits,
then that signifies nothing less than a revolution of the
whole credit system under which Germany has advanced
in recent decades to its present economic position—to the
position which has given the established masters of the
seas, the English, serious apprehensions. These apprehensions, as we all know, are not well founded, for the
world's trade opens up every year new and unsuspected
routes, on which the flags of all nations may meet each
other peaceably, and the commercial peoples of the world
may enter into competition for the best satisfaction of
old and new needs. The fact that Germany has become
so considerable a factor in this rivalry is to be attributed,
not only to the political strength of the Empire, but also
to the enterprise of our merchant class, which has been
able to rely upon the elasticity of our credit system.
Now, among the lessons which are always impressed
afresh upon every generation of business men is the fact
that credit is a tender plant, that it can indeed be planted
and nurtured in favorable soils, but that for its development to a strong-rooted tree the lapse of time is necessary.
" Credit can not be built according to plan, like a house/'
says Bagehot in his well-known book, " Lombard Street,"
83703—10
10
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and the warning which he, a severe critic of the English
single reserve system, gives is pertinent also for us.
" Whoever lives under a great and well-grounded credit
system must consider that if he destroys it he will not
immediately have another fully developed one. For it
requires years before the new system can attain the
strength of the old. ,, These words may be taken to heart
by those who regard the banking business as a proper
object for their legislative ambition—and, also another
saying of Bagehot's, a man who won distinction both as a
theorist and as a practical man of affairs: " The best thing
a government can do with the money market is to leave
it to itself."
If England is pronounced on many sides to be the land
of the ideally organized banking system, then, on the one
hand, this praise must be considered as very extravagant
in view of the criticisms made by the English themselves;
and, on the other hand, we should not forget that the
system existing in England to-day has behind it a century
of development and of the most far-reaching division of
labor in banking. It has all developed as an organic
whole, and legislation has been intelligently adjusted to
fit existing conditions. If we should seek to-day to
appropriate for ourselves the final result of such development in a foreign country, we might destroy our own vital
germs of strength without providing an equivalent substitute. Obviously Germany is not yet sufficiently supplied with capital to refer all those who desire to trust
their money to the banks to the small interest payments
of a pure deposit bank; and to enable commercial banks,
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which understand how to use great capital permanently,
to attract the easily obtainable medium from depositors.
All parties would be injured by restrictions. The depositor cannot live on low interest; the banker and the shareholder in the joint-stock bank see the income of their
undertakings growing less and much highly promising
work remaining undone.
Economically, however, it is in any case right that
unemployed capital be brought, so far as possible, to the
places where it will perform the greatest services. Where,
however, could it work in any greater degree directly for
the good of the whole than in the credit banks, which are
constantly redistributing it to money consumers in commerce, agriculture, and industry? Disregarding, perhaps,
the smallest amounts, which merely contribute to the
formation of capital in the form of savings, the available
money, otherwise condemned to unfruitful idleness,
becomes part of the great stream of money which is conducted over the whole sphere of business activity, vivifying
and fructifying it. Now, it will be said that the great
money stream is the very danger we must guard against;
that it is never known when and how it will overflow, and
that therefore it is better to guide it into different channels,
even from the source; or, in other words, to differentiate
more strongly the business of the banks. This argument
has something plausible about it, and is quite unanswerable for a country which is thoroughly saturated with
capital. Our natural development will lead us gradually
to follow the road indicated without external compulsion.
There is already a tendency in that direction. Even now,
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according to the mortgage bank law of 1899, no more
new banks can arise which carry on credit business of all
kinds and at the same time issue mortgage debentures.
The mortgage business has become a legally regulated
specialty. Thus banks have already arisen which according to the English usage would not be designated at all by
this name, but would belong in the class of the various
" companies," as the Bank for Mining and Industry, the
Bank for German Railroad Securities, the Central Bank
for Railroad Securities, the German Bank for Colonization, the Land Bank, and many others. They all follow
specialties. The process of differentiation is thus already
in existence, and is undoubtedly progressing. When the
creation of capital in Germany shall have reached a higher
stage, the justified desire, which is still predominant, to
increase capital rapidly by means of high interest rates
will gradually be replaced by the anxiety to obtain the
greatest possible security for what has already been
accumulated, even if at a sacrifice as regards the rate of
interest. Then the first-class investments with a fixed
rate of interest will rise permanently in general favor, and
it may be expected with confidence that then, out of the
growing need, groping cautiously at first, a pure deposit
bank will here and there detach itself from the general
business of a credit bank or of a large private bank, with
a prospect of success.
Science is pretty well agreed as to the character that
the business of such a pure deposit bank should have;
in practice there are still many hard nuts to crack. In
any scientific work on deposit banks we can read that
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good bills are among the best investments which a deposit
bank can make; value is attached in particular to the
certainty with which payment of the liabilities can be
counted on at fixed dates. In practice it is known,
however, that in most places one of the most difficult
tasks is to bring together in a big portfolio nothing but
first-class bills. The city of Hamburg, to be sure, has
no difficulty in this respect, as we heard yesterday from
authoritative sources. In practice it is also known that
many bills that are of perfectly legitimate origin and are
indorsed with good signatures must be renewed when
they fall due, because the business back of them can not
be wound up in three months, and that these bills must
encroach anew upon the money market, even if not on
the accounts of the temporary bill holders. Who would
not, a short time before the collapse of the Leipziger Bank,
have considered bills which bore its indorsement among
the best investment paper? The heavy loss, however,
that arises from the discounting of all bills which were
thought to be good but which are afterwards dishonored
can more easily be borne by a bank which has many
different irons in the fire than by an institution, which has
no possibility of substantial compensation through other
profitable business. The business of loans on collateral is
therefore recommended to the deposit banks, subject to
the proviso that a very low limit for loans be maintained.
Prof. Otto Warschauer would establish for the Imperial
Deposit Bank proposed by him the maximum limit for
loans on first-class stocks at 30 per cent of their market
value. This proposition will be approved by the other
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banks, because in that way the Imperial Deposit Bank
would not enter into serious competition with them in
collateral-loan business. With a loan to 30 per cent of the
value of the security, very few customers could be served,
for even the Reichsbank itself would go far above that
limit for first-class securities. A business of that kind, however, leaves nothing to be desired as to the safety for the
deposit banks, if only some one could be found to go into it.
Among the absolutely safe businesses which deposit
banks are recommended to undertake, scientific authorities
almost unanimously include the purchase of state securities
and others designated as available for trust funds; further,
commission business, and even flotation and syndicate
business in public funds. Since these proposals were
made new experiences have been gone through, which
ought to lead to other results. Commission business may
pass in any case, although it is well known that resourceful
people have used this form of the exchange law for speculation, and have later tried to claim the protection of section 764 of the Civil Code, the patron saint for dishonest
commission givers. The purchase of state paper has been
unfortunately for years a losing business—interrupted
only by the brief sunshine caused by the 4 per cent
bills—and in this hall hundreds are present who, as participators in the last 3% per cent imperial loan and Prussian consols, lost at least 7 per cent in the final settlement
of the loan. Such losses would have struck a pure deposit
bank especially heavily, not only through the reduction
of the yearly income, but also because the trust in the
absolute security of the deposit bank must be neces-
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sarily lessened. The history of English banking teaches
also that pure deposit banks are not immune from collapse.
To older business men the fall of the City of Glasgow
Bank is still an unpleasant memory. It is therefore evident how thoroughly the theoretically incontrovertible
propositions must be tested by practice; and, with all deference to abstract science, the fear can not be suppressed
that if such an exclusively practical question as this about
the character of the credit system is not settled chiefly
according to the dictates of practical experience, the
nation will have to lament the results very bitterly.
The greatest importance is attached by all theorists
to the most complete publicity of banks doing a deposit
business. The demand that he to whom the greatest trust
is given must prove on his part how he makes himself
worthy of this trust seems entirely natural. Now jointstock banks and the companies carrying on a banking business with limited liability are compelled to publish their
balance-sheet every year; and if the law should compel
them to publish monthly instead of yearly balance-sheets,
that would mean an expensive inconvenience, but no
change of principle for those banks. The value of publicity in this connection is enormously overstated. Thus,
for instance, Neumann-Hoffer, in his book, "Depositengeschafte und Depositenbanken," says (p. 214): " It
would be an excellent means of securing a rational conduct of business" (he is speaking of "the full and unqualified publicity of all bank operations"). Against
this we can cite the fact, corroborated by much experience, that there is only one really effective means of
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attaining the rational administration of business—namely,
the direction of business by sane, wise, and upright men.
The author cited says further (p. 216), that the bank
creditors would, with a similar form of statement for
all banks, compare the balance-sheets with each other,
and therefore draw conclusions regarding the solidity
of their banks. That is more than we have a right to
hope. The mercantile insight of our public is still far
behind this point in its development. Not only the
ordinary little man, not only the intelligent men and
women of the higher social circles of the official and
professional classes, but also the greater part of our
business men lack the information necessary for an
understanding of the banking business and of bankers'
balance-sheets.
This lack of understanding accounts for many a passionate invective against our banks, and many a radical
proposal based on generalizations from quite isolated
instances of abuses. Theory and practice, written exposition, and teaching by word of mouth must work
together for a long time before the general public is
educated up to an intelligent cooperation in economic
life, in so far as it is concentrated in the banks.
With the growing knowledge.of the essential character
of our banks and of their great national functions would
come a better understanding of how closely our bank
organization is adapted to the needs of our population
and its economic condition. Finally, we ought also to
ask ourselves whether the results attained in commerce,
industry, and agriculture in the last half century do not
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present significant proofs of the fitness of our institutions?
I think I am not making too bold an assertion when I
say that a revolution of our banking system, especially
deposit banking, would be felt at present as disadvantageous by all productive classes, and not least by those
who for weighty reasons have sometimes not been found
among the friends of the banking business—that is, by
agriculture and industry.
The customer can approach his bank in a twofold role—
as creditor, in current account or deposit account, or as
debtor in one of the many customary forms. In his role
as creditor the farmer and business man is now accustomed to enjoy the high interest which the banks can
afford to pay their customers as the result of the favorable
use of the money managed by them in all sorts of economic
undertakings. It is not a matter of indifference whether
the capital temporarily disposable brings an interest of
from one-half per cent to about 2 per cent, as in England,
or whether it participates, to a certain degree, in the
favorable opportunities of the money market. Industry
and agriculture are even more interested, however, in
finding in the banks ever-obliging money lenders, who
are always on hand for undertakings which are economically desirable and which promise to be successful.
A change in deposit banking would naturally considerably decrease the stock of foreign capital in the credit
banks, and the necessary consequence would be that
their investment business would also be reduced and
burdened with heavy conditions. The cheap credit which
is customary among us in normal times would at first
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not be maintained, though in time this condition might
be restored, and no one, I imagine, will have the courage
to predict when economic life, disturbed by such measures,
would begin to return to a condition of equilibrium. The
injury inflicted in the meantime would be most heavily
felt perhaps by those who are most inclined to rebel against
present conditions.
I sum up what I have said as follows:
First. The German banking system is essentially suited
to the present needs of our economic life as it has been to
those of the past. Naturally, it falls short of perfection,
just as do all other human institutions. But that is no
excuse for legislative interference in the German bank
organization.
Second. The banker class labors continually for the
perfecting of its organization, and does not fail to discuss
questions affecting this organization, as indeed the present
day teaches anew. The objection can not be made that
external pressure was needed before there was any public
discussion of the deposit system; for only since the foundation of the "Central Union" ("Centralverband") have
we been in a position to discuss freely questions of banking
before an expert audience. But it is to be hoped that
the whole nation will labor for the perfection of its economic insight, just as the banking class itself has done.
We have the same ideal for the banking class and for the
community—not tutelage, but independent judgment and
initiative. [Applause.]
Doctor JAFFIJ. Gentlemen, I should like to speak
briefly in reply to the remarks which Herr Geheimrat
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Riesser has made concerning m y address, in order t h a t
no misunderstanding m a y arise. Of course I did not
think of recommending a strike, but, as I indeed expressly
stated, I spoke of it only in a joke. If I remarked t h a t
t h e banker class, according to m y private judgment,
would do well t o p u t its influence more heavily in the
scale, I did not thereby mean t h a t it should make an
outcry—in t h a t I agree with t h e honorable chairman;
I meant simply this: Let them make up their minds as
to what they want, and let them give expression to their
wishes and say t h a t they are backed by t h e whole banking
class—in fact, t h e whole mercantile class. If they do this
quietly b u t energetically, it will perhaps be even more
effective t h a n a great deal of noise from other quarters.
Geheimer Oberfinanzrat MuEUvER, director of the
Dresden Bank. Gentlemen, the committee was in doubt
whether it was fitting, while we are in the present stage of
foggy suggestions of legislative action with regard to
deposits, to burden t h e Bankers' Convention with this
question. W e decided to do so because we wished not
to expose the banking profession a second time to t h e
reproach t h a t was made against it after the promulgation
of t h e unsuccessful bourse law—that it h a d been deficient
in p r o m p t and energetic opposition.
The result of the bourse law may be designated as an
effective paralysis of an arm of our economic body.
Whether t h e course recognized by our legislators as necessary will be followed—that of repairing t h e injury and of
giving back to a paralyzed arm the necessary mobility and
elasticity—the future will show. The experiment which
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is recommended for the banking system by surgeons unskilled in this sphere is an operation on the bowels of the
body politic; if thereby the inner organs are injured the
injury will be incurable. The contemplated step should
at least proceed on the basis of a clear conception of the
position and function of these inner organs. Instead
of this, I see even in the preliminary list the question,
"What is the economic nature of the deposits managed
by banks and bankers? From what sources do they
flow?"—a question involving a fundamental error on the
part of the politicians and scholars who feel called upon
to solve the problem they have themselves constructed.
They desire to protect the savings of the smaller depositors
and those unfamiliar with business against irrational use
and resultant danger, and assume that the deposits
figuring in the balance sheets of the banks and bankers
are, for the most part, composed of savings.
In opposition to this, I assert, on the ground of my
practical and pretty comprehensive experience—and I
believe that all the practical men in this assembly will
bear me out—that the sums listed in the balance sheets
as deposits are only in a very small part really savings.
These deposits are collected chiefly from the business
reserves of business men, who allow their other banking
transactions also to be handled by their banks, and from
the temporarily disposable capital of the larger capitalists,
which is soon to be invested in securities, mortgages, etc.
For the proof of this statement I must go somewhat
further into the development of German savings banks.
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The deposits of the Prussian savings banks alone, which
amounted in 1870 to only 495,000,000 marks, have
increased, until by the end of 1905 they were not less
than 8,293,000,000 marks; during the years 1901 to 1905
the increase averaged 500,000,000 marks a year. The
savings banks of the Kingdom of Saxony had in the year
1905 deposits amounting to 1,331,000,000 marks; these
were distributed among 2,753,000 depositors, so that there
was a savings bank book to every 1.62 inhabitants. The
deposits of all the German savings banks amounted to
13,000,000,000 or 14,000,000,000 marks at the end of 1905.
The savings banks invest their money chiefly in mortgages. According to the statistics of the Prussian savings
banks, which are available in complete form only for 1904,
there were invested at the end of that year 7,761,000,000
marks, as follows:
Marks.
In mortgages
Securities (for most part not state, but communal paper).
In other ways (bills, bonds, deposits with the communes,
etc.) _._
4,703.000,000
2,188,000,000
Per cent.
61
28
833,000,000
As a result of the high interest on mortgages the savings
banks afford their depositors relatively high interest,
which varies between 3 per cent and 4 per cent, rates with
which the credit banks, at least the larger ones, cannot
compete in times of normal money conditions.
In addition to the savings banks the producing middle
classes—especially the artisans, and more recently, the
farmers—use the cooperative institutions (Genossenschaften), for interest-bearing investment of savings and
of disposable working capital. According to the statistics
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of the union of the Schultze-Delitzsch Genossenschaften,
1,020 Genossenschaften belonging to this union had at
the end of 1905, besides their own property (including
surplus) of 256,000,000 marks, outside moneys coming
from private individuals to the amount of 893,000,000
marks, or three and a half times their own capital, which
was generally used for credits to the members. The outside moneys have doubled in these institutions since 1895.
The statistics compiled by the Prussian Centralgenossenschaftskasse comprised the returns from 13,912 associations which were attached to it; at the end of 1905, 5,685
of these associations, with a capital of only 54,000,000
marks, had not less than 758,000,000 marks of deposits—
that is, almost fourteen times their own capital. The
assets of 811,000,000 marks balanced against the obligations of these societies included 16,800,000 marks of
securities and 29,600,000 marks of mortgages, and the
remainder, 765,000,000 marks, was evidently invested in
credits to the members, mostly loans on security.
The total yearly increase of property in Germany is estimated, on the basis of the returns of the Prussian supplementary tax, to have averaged for the last few years about
three and three-fourths billions of marks. But with reference to this increase we must not forget that a considerable
part of it results from the increase in value of land holdings
and industrial investments, especially the real estate of the
big cities, and that industry, including agriculture, has
plainly not, as is well known, divided all of its surplus
profits, but has used them for the extension and improvement of its plants.
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It is to be observed, further, that the flotations of securities in Germany in the last decade require on the average
about two or three billions of money yearly, and that of
this there are about one and a half billions yearly of domestic securities paying a fixed interest—state and communal
loans, mortgages, and bonds—which are reckoned in the
investment of savings.
From these figures it appears that there is such an exhaustive absorption of yearly savings (though we set the
highest possible figure for these savings) as to leave small
chance for the credit banks to compete for savings deposits
with the savings banks and cooperative associations. For
the greater part of the population in the small cities and
in the open country there exist no institutions at all for this
purpose; the credit banks have until now not thought
about it at all, and can not for a considerable time think
about extending their network of branches so far, since
the results would be entirely disproportionate to the
expense of establishing and maintaining them. I shall
discuss later the peculiar conditions in Mecklenburg and
Oldenburg, where pure deposit banks find a field of activity.
In general the deposit business of the banks is limited to a
few large cities, and so far Berlin is really the only place
in which a system of deposit banking has developed on a
large scale. The deposit banks and the deposit departments of the branch banks undertake the management of
the financial affairs of the business men and capitalists who
turn over to them their available stock of securities and
cash, and leave to them the care of all their banking transactions. The business men have a credit or a debit excess
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according as the receipts from the sale of their products
and goods or the payments due by them in their business
are the greater. Since they generally need temporary
credits, discount their customer's bills, pay foreign bills,
etc., a connection with a pure deposit bank with a limited
range of business could be of no use to them. The real
estate owner who turns over his rents to the bank, and
makes his payments of mortgage interest and other
expenses through it, is in the same position. The interest
has frequently to be paid before the rents are collected.
The capitalist who invests in stocks changes his investments, accumulates money gradually for new investments,
waits after the sale of securities or after the payment of
mortagages and other outstanding dues for a favorable
opportunity for investments, and until that time lets his
money stand at interest. On the other hand, he uses an
opportunity which seems favorable to him for purchases
before the necessary cash is in his hands, and applies for
a loan on collateral. For this capitalist also the connection with a pure deposit bank, standing aloof from the
stock and flotation business, would not serve.
Since with the great number of accounts, and the diversity of the periods of money-need and money-surplus in the
various branches of business a regular balance of deposits
remains, the bank can pay an acceptable rate of interest
for the latter, and out of the difference in rates, interest, and
other profitable relations with its customers it can draw a
profit exceeding the expenses of the business. The expenses of deposit banking are, however, so heavy that the
mere interest-difference without the other transactions
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would suffice for covering them only with those banks that
have a great many customers and very large deposit balances. The business margin of a pure deposit bank would
be unprofitable for many deposit banks, even in Berlin.
The representation of business here given is not affected
by the fact that the opening of an account is not made
dependent on the proof of the prospect of profitable transactions—that, on the contrary, every respectable private
citizen is provided with an account on making a deposit.
The depositors of small savings, who in many places like
Hamburg are not insignificant in number, and who, in
Berlin, for example, find the deposit banks more convenient because the receiving offices of the city savings
banks are so far away, are of no importance in relation to
the total amount of deposits. Only in the last few quarters,
during which money has been high, and deposit banks were
able to pay higher interest than savings banks, were a few
accounts drawn from the savings banks and taken to deposit
banks. As soon as money conditions become normal again,
this money will probably flow back into the savings banks.
I now proceed to the various assertions which are circulating abroad concerning the use of deposits and the
cover provided for them by German banks. The first
error, which might almost be called malicious, because it
is contrary to the clear facts of the case, is the objection
that the banks use their deposits for syndicate business
and speculations in stocks. This is disproved by the published accounts furnished by the banks. The Frankfurter
Zeitung has compiled very accurate statistics from the
accounts rendered by the 45 joint-stock banks existing in
83703—10
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Germany that have a share capital of 10,000,000 marks or
more. According to these statistics, the 45 banks had at
the end of 1906, with a paid-up capital of 2,198,000,000
marks, and a surplus of 542,000,000 marks—that is, with
property to the amount of 2,740,000,000 marks—a total
of 949,000,000 marks invested in syndicated shares and
stocks owned by themselves; that is, only 34.6 per cent,
or a little more than one-third of their capital and surplus.
For none of the listed banks did the investment amount
to more than 51 per cent of its capital and surplus.
I will assume, for the sake of argument—though the
generalization is far from being universally valid—that
syndicated shares are to be characterized as nonliquid or
risky investments; and I will further accept the theories
of the expert critics according to which only bills, reports,
loans on collateral, and half of stocks owned by the bank
itself are to be considered as liquid capital; while the other
half of the latter and all deposits on current account may
be considered as less liquid, although with the foresight
practiced especially by the banks that work with a great
deal of outside money, the percentage of short-time loans
is to be rated very high. It goes without saying that the
most liquid investments correspond to liabilities demanding the quickest satisfaction, the next most liquid to the
other liabilities, and the least liquid to the capital permanently belonging to the bank. It is incontrovertibly
proved by the above statistics that none of the banks in
question have placed more than about one-half of their
own property, and not a penny of deposits, in syndicated
business and holdings of stocks.
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The statistics that follow afford a view of the cover
existing for the banks' liabilities. Before proceeding to
them, however, I wish to point out that in the normal
course of business the duty of keeping a reserve against
the circulating bank acceptances rests not upon the accepting banks, but upon the customers enjoying this form of
credit. The major part of the bank acceptances arises from
domestic and foreign trade. The purchaser of the goods
desires to pay for them only on receipt, or a certain time
after receipt, but the seller is empowered to draw on his
bank at the time of sending the goods and to pay himself
by discounting the draft. The purchaser of the goods is
required to furnish to the accepting bank the cover for the
draft before it falls due. Only in the abnormal case of the
unfulfillment of this duty, therefore, need the bank provide
for the cover out of its own capital, and it ought to be
sufficient if the banks were required to keep a certain percentage of their acceptance liabilities as security for this
case. As the critics have been accustomed, however, to
take all the acceptances into consideration, I will place
opposite each other the statements with and without
acceptances.
The 45 banks given in the statistics of the Frankfurter
Zeitung (second page of the morning edition of April 4,
1907) had, at the end of 1906:
Liquid resources:
Cash and bank credits
BillsReports and loans on collateral
One-half of the stocks and other securities
Total
Marks.
694, 450, 000
2, 087, 340, 000
1,227, 370, 000
303, 660, 000
4, 312, 820,000
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Liabilities:
Deposits
Balances due on current accounts
1,810, 920, 000
3> 453, 820, 000
Total
Acceptances
5, 264, 740, 000
1, 606, 670,000
Total
6, 871, 410,000
The total of outside moneys was covered to the extent
of 81.92 per cent, and the total liabilities, including acceptances, to the extent of 62.76 per cent. The table
shows further that the amount of bills alone was considerably greater than the amount of deposits.
If we take the four banks with the greatest deposit
business (the Deutsche, Dresdener, Diskonto, and
Darmstadter), the following figures result:
Liquid resources:
Cash and bank credits
Bills
Reports and loans on collateral
One-half of the stocks and other securities
Total
Marks.
358, 070, 000
1, 066, 960, 000
578, 060, 000
133, 810, 000
-—
2, 136, 900,000
Obligations:
Deposits
Balances due on current accounts-_
900, 570, 000
_ - 1, 663, 810, 000
Total
Acceptances
__ 2, 564, 380, 000
706, 490, 000
Total
_
-_ 3, 270, 870,000
The total of outside moneys was covered to the extent
of 83.33 P e r cent; the total liabilities, including the acceptances, to the extent of 65.33 per cent.
When one considers that it was not thought necessary
in the Reichsbank act to provide for the theoretically
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possible case of a presentation of more than one-third of
the bank notes, since it requires a minimum cash reserve
of only 3 3 ^ per cent, the credit banks can not fairly be
required to arrange their business so as always to be ready
to pay ioo per cent of their liabilities. The covering of
outside moneys by liquid resources, which, as is proved by
the statistics, amounts to over 80 per cent of the total
liabilities, or over 60 per cent if we include acceptances—
and this in a year of such great tension on the money
market as 1906—this cover is so entirely sufficient that it
is in no way inferior to that of the famous English deposit
banks, quite apart from the fact that with the German
credit banks the ratio of capital to outside moneys is much
more favorable than with the English banks. The classification of liquidity is with us clearly the same as in
England, for, as the preceding speaker has already aptly
shown, the items figuring in the English balance sheets as
money at call and short notice are practically no other
than what we call reports and loans on collateral. With
full assurance, therefore, we can assert that the solvency
of our credit banks carrying on deposit business fulfills
throughout the strictest requirements dictated by the
experiences of critical times, and that our credit banks
are prepared to cope, if necessary, with a run on the
banks.
Whether the same thing can also be said of the communal savings banks is a question more difficult to
decide, and one that is not to be answered directly from
the experience of the last decade, in which the great
increase of their deposits occurred, since we have not had
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during this time a general collapse of confidence. The
solvency of the savings banks, which have invested 61
per cent of their deposits in mortgages and 28 per cent
in securities, and have been compelled even in these quiet
times to write off half their surplus as a result of the fall
in the market price of stocks, is certainly far inferior to
the solvency of the credit banks. We are concerned here
not merely with the certainty, guaranteed by the communes, that the deposits will be paid back at some time
or other, but also with the question whether prompt
payment in time of need is assured to the depositor, and
whether the taxpayers of the communes are not made to
suffer in consequence of their responsibility.
Even less assured is the solvency of the Genossenschaften, working with the "Centralgenossenschaftskasse."
I have already stated, on the basis of official statistics,
that the balance sheets of 5,685 associations show liabilities to the extent of 758,000,000 marks, or fourteen times
the amount of their own means, and that their 811,000,000
marks of assets comprise 16,800,000 marks in securities
and 29,600,000 in mortgages, the remainder being in the
form of secured loans. Even if (though it is not apparent
from the statistics) a part of the assets is deposited with
the Verbandskassen, and the " interest in the deposits
with the Verbandskassen of the union banks," given at
92,000,000 marks, is included in this, that makes the case
no better, because the Verbandskassen, according to official statistics, work with outside moneys to the amount
of nine times their own means, and have invested their
capital in the same nonliquid fashion as the individual
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associations. The outstanding claims of these many
associations with weak capital are obviously, both in
quiet and in critical times, collected much more slowly
and with greater difficulty than those of the credit banks.
The Schultze-Delitzsch Genossenschaften, which have
already withstood several crises and have learned by
experience, keep within much narrower limits. If the
Centralgenossenschaftskasse desires to maintain the extremely artificial structure of its credit organization in
times of crisis, it faces an extremely difficult task, since
the capital of 50,000,000 marks assigned to it by the
Prussian State is insufficient, even in ordinary times, for
its business. The Centralgenossenschaftskasse had, according to its statement of March 31, 1907, besides
32,000,000 marks of deposits, 57,000,000 marks of loans
from banks and bankers, and it is known that it has
frequently borrowed on security, not only on the Berlin
Bourse, but also from foreign banks, at higher interest
than it obtains from its own debtors, a course of action
which I will not criticise in view of the usefulness of the
institution to the community.
It is a remarkable fact that the same political agencies
which further with all their might the colossal credit
tension of the associations at the cost of liquidity, and
which neglect the reform of the communal savings banks
(an urgent matter, and one with which they are more
closely concerned) because they are loath to interfere in
the interests of the classes that claim credit from the
savings banks—it is indeed a strange phenomenon that
these same agencies should go out of their way to attack
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the deposit business of the banks. While we admit that
there are objectionable features in the use made of
deposits by the banks, the excitement over the matter is an
illustration of the saying about the beam in one's own eye
and the mote in the eye of another.
Cui bono? The depositors are perfectly satisfied with
present conditions. They have the choice between the
savings banks, and in the larger cities a number of competing banks. They receive regular interest and have
faith in the bank which they have chosen for themselves,
and can change if they so desire. I am not aware that
the depositors have demanded a change of existing conditions. In truth, our politicians and writers are rerum
novarum cupidi; they are especially infected with the
modern animus against great capital and great banks,
and they believe that they have found the most sensitive
point in the heaping up of outside moneys. Their
attacks would receive less attention if they did not hold
forth the prospect that certain minor popular aims
would be attained as a result of their reforms—first, a
better market for German state paper, and the maintenance of a higher level for the quotations of such paper;
and second, a lowering of interest rates, and a moderation
of the discount rate of the Reichsbank.
The most radical reform proposed—and the one which
its advocates pretend would be most effective in furthering these two secondary ends—would put up with the
deposit business of the credit banks as an unavoidable
evil, but would regulate their business through compulsory provisions, and prescribe for them the obligation of
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keeping a certain fixed part of their deposits permanently
invested in state paper. This is contrary to the A B C
of the banking business, which consists in selling acquired
securities in the quickest possible way, and having the
utmost freedom in the prompt purchase of new securities.
A finance minister who possessed some understanding and
experience in the matter of flotations would never desire
to have the syndicate, whose cooperation he wishes in a
new state loan, already crammed with old stocks of state
paper. The more this is the case the more anxious must
the syndicate be, both with regard to the magnitude of
the undertaking and its conditions. Vice versa, the freer
it has hitherto been the quicker and the more cheaply
will it be able to accept the risk of floating the new loan.
The greatest danger of new flotations, however, is that
the banks, already weighted down with earlier compulsory investments, would throw on the market from their
older stocks as much as they undertook of the new loan.
That would be sure death for the market price of the new
loan. Furthermore, the compulsory acquisition of state
paper appears to me justified at most in so far as it
applies to purchasers for whom permanent investments
as such are economically rational, and who, therefore, in
the choice between state paper and lower class securities
or mortgages merely are directed toward the former. In
this sense compulsory acquisition for savings banks and
insurance companies is debatable, and in other countries
is brought about legally or administratively. In Prussia,
however, as I have already remarked, we have not even
decided on any such measure with regard to the savings
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banks. The introduction of a compulsory obligation for
purchasers with whom, as with the credit banks, the
fixing of capital in permanent or even long-time investments is contrary to the nature of their business, would
be about the greatest injury that could be inflicted on
state credit at home and abroad. We should be reminded
of the procedure of some eighteenth century princes who,
being unable to sell the porcelain of their manufacturers,
imposed on the Jews the obligation of buying a set when
they married. The single practical method which can
lead to a better rating of state paper, and to the elevation
of the exchange level, is the progressive rise of the national
prosperity and an intelligent observation of the actual
condition of the money market with regard to the production of state and communal loans, the excessive quantity of which—particularly of the latter—is responsible
for the present bad conditions. Everything else is
quackery.
Just as illusory is the hope of effecting a decrease in
the rate of interest by such or similar means. The high
price of money is indubitably the result of the fact that the
capital devoted to the supplying of credit, in spite of the
accumulation of all available capital, does not suffice for
the satisfaction of the need for credit. In so far, therefore, as the need can not in the judgment of the borrower
be postponed, high interest must be paid; or if this can
not be borne, the loan must be rejected. How, then, can
one expect that a lowering of the interest rates will
result if we withdraw from the reservoir of ready capital
a part of the supply which affords credit, and use it for
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other purposes? The opposite would certainly occur.
And not only that, but such a measure would certainly
cause an earlier rise of the money rate. For this it is not
necessary that the means of granting credit be wholly
withdrawn from the reservoir. Any limitation of free
movement, any removal of credit from the place at which
it was formerly sought to another place, with which the
customer does not stand in the same relation, must operate toward a higher rate. Under this head falls the
proposal, hardly meriting serious criticism, forcibly to
transfer a part of the capital from the banks which had
been managing it to the Reichsbank, and to give the latter
the task of using it. There is one view, to be sure, according to which this effect of premature dearness of money
is expressly regarded as desirable. This recently revived
idea was upheld as early as 1892 by the late banker,
Caesar Strauss, who maintained that the scarcity of
money which generally occurs at the climax of a period
of prosperity, and which ushers in the reaction, should
be shoved forward to the beginning of the period of prosperity in order to guard against overspeculation and
crises. Herr Strauss proposed to withdraw a great part
of the interest-bearing deposits from the credit banks by
means of an imperial deposit bank, whose direction he
was ready to assume, under the protection of the Empire
and of the Reichsbank. He proposed to check each
developing period,of prosperity with forethought, even
if without due consideration. Had this theory been put
in practice since 1870, perhaps one crisis would have
been avoided, but the preceding and following impetus
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to development would still more certainly have been
avoided, and patient Germany would have remained a
poor country to this day. It is true that the economic
progress of Germany since 1870 has not been regular,
but has been interrupted every few years by retrogressions which partook more or less of the character of crises,
and which involved considerable losses. But these were
only temporary interruptions, and each retrogression was
followed by a new extension of industrial activity which
surpassed the earlier one and further increased the
national wealth and the ability of the country to bear
taxes. If we now stand on an equal footing with the
other old civilized nations in commerce and shipping,
agriculture and industry, if our ability to bear taxes has
so greatly increased that there is hardly any complaint
about the great expenses for army and navy, which
seemed to many, even long after 1870, more than we
could permanently bear, our credit banks may claim with
pride that they, through their initiative, their participation in industrial undertakings, and above all, through
their courageous and at the same time careful supplying
of credit, have contributed not a little to this happy
development. This granting of credit has been profitable
for creditor, debtor, and the whole country.
The reformers assume the increase of national property
at the rate of 3,000,000,000 to 4,000,000,000 marks yearly
to be a statistically established fact; they assume further
that this increase is bound to continue automatically, as
though it were entirely independent of the present system of labor—that is, of the close connection subsisting
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between industrial enterprise and free mercantile movement—and as though this system could be replaced by
a new one without danger. They seem to conceive of the
accruing billions as like the cream on a jar of milk, which
can be skimmed off and divided at will into regular portions
between deposit banks, savings banks, cooperative associations, trade, agriculture, and manufactures, without letting
the big capitalists get so much as a taste of it. I only
fear that the recipe of these alchemists might cause a
watery decomposition of the milk.
One of the most amusing schemes with regard to the
money system is the programme now submitted to our
consideration. It consists of two parts: First, we are
bidden to economize metallic currency by means of an
extension of the check system, and thus to strengthen
the Reichsbank's stock of gold and facilitate a moderation of the discount rate; and, in the second place, at the
very same time we are told to render it difficult for the
credit banks to attract and utilize deposits. Banks and
bankers have not the smallest personal interest in accepting for others the care of their business without charging
a commission. Check business imposes upon them only
sacrifices, great labor, increase of personal and business
expenses, responsibility, and the unavoidable danger of
loss in case of the smallest oversight of a subordinate.
The sole and absolutely necessary compensation for these
sacrifices is the attraction of low-interest deposits on check
or deposit accounts, and the possibility of an extensive
and profitable use of this money. If this chance is taken
from them or made more difficult, the instinct of self-
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preservation will force the banks to oppose vigorously
their utilization for check business, and thus the whole
movement for an improvement of the means of payment
and an easing of the money market collapses utterly.
Thus, as frequently happens, one horse is hitched before
and the other behind the wagon.
The other propositions for legislative regulation are as
yet so obscurely formulated that it would not, I think, be
worth while for us to concern ourselves further with them
in the Bankers' Convention.
No one has yet succeeded in finding a definition for
deposit credits, or in setting forth serviceable distinctions
between current account credits, report moneys and deposits, or between deposits in the broader sense and savings. And we may, for the present, well leave to scientific inquiry the question whether it would be possible to
establish a right to the preferential payment of savings
deposits.
I should like to add a few further remarks concerning
the proposed pure deposit banks. The above-mentioned
Herr Caesar Strauss had shown the results of his labors
to the Reichsbank and to Doctor Miquel, at that time
Minister of Finance, in 1892; and he afterwards published
them in a brochure. According to his plan, an imperial
deposit bank, with private capital but under the protection
and supervision of the Empire and the Reichsbank, was to
be organized. The capital was fixed at 60,000,000 marks,
with 25 per cent paid in. The institution was to have
branches in the larger cities, while in all other banking
cities the Reichsbank establishments would have to
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undertake gratis the acceptance of deposits and their
repayment. Although the idea of responsibility on the
part of the Empire—which has not even undertaken the
guaranty of the obligations of the Reichsbank—or on
the part of the Reichsbank was not included in the
scheme, the project broke down under the objection that
the name " Imperial Deposit Bank," and the cooperation
required of the Reichsbank in the acceptance and repayment of deposits would be likely to awaken in the public
the false notion that the Empire and the Reichsbank
would have to bear the responsibility for the conduct of
business. This reason will also prevent the execution
of such a project in the future, and I believe, therefore,
that the brief article recently published in the Tag by
one of the provincial directors of the Reichsbank, in which
the proposal of Strauss is again taken up, was written
without consultation of the views of the Reichsbank
management.
In the year 1894, Herr Professor Doctor Warschauer
proposed an imperial deposit bank with the same title,
but with the modification that there should be supervision
by the Empire but no cooperation with the Reichsbank;
that it should have its own organization and numerous
branches. He urged the scheme with fantastic representations of the extent of business soon to be expected—a
billion marks of deposits—and the profit to be expected—
21 per cent to 22 per cent dividends. The professor was
so confident of these high profits that he contemplated the
immediate placing of shares of stock to the face value of
50,000,000 marks, with 50 per cent paid in, at an average
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price of 150; that is, at a premium of 100 per cent on the
amount paid in, directly after the promotion. If high
finance should take up with such a plan, the reproach of
wanton stockjobbing would not be inapplicable.
There is naturally no objection from any standpoint to
the establishment of a pure deposit bank if it is established with private capital and without the false colors
of an apparent imperial guaranty. The credit banks need
not fear the competition of such new institutions. It
would not, in any case, be worse than the competition
which they have among themselves. But the ability of a
new deposit bank set up in the grand style to earn profits,
must, under the conditions that prevail in Germany, be
regarded as highly doubtful. The business of such a bank
does not generally become great at one stride, like a newly
created central note bank, provided with the monopoly
of issue. A deposit bank, if it does not take over a business
already created, must begin small, and gradually move
forward. The conclusion based on the ability of the
English joint-stock banks to earn profits is incorrect for
several reasons. The joint-stock banks do not have to
compete for their deposits with a highly developed
savings-bank system, nor for their stock business with
joint-stock credit banks carrying on general business.
They are, besides, not pure deposit banks, but at the
same time the check and clearing banks of the country,
and they demand from their current-account customers
large balances, for which they pay either no interest
whatever or only a very low rate. A fundamental
difference arises, further, from the greater wealth and
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more conservative customs of English depositors, in contrast to our own, who demand higher interest, and, as
shown above, are mostly business men with temporary
need for credit. This being the case, the need for deposit
banks has arisen only in a few places, as, for example, in
Mecklenburg and Oldenburg, where, on the one hand,
the moneyed public prefer the permanent possession of
interest-paying bank deposits to the acquisition of securities or mortgages, and where, on the other hand, the communal savings banks are less extensively developed.
Here there are several banks, with branches in cities and
villages, with relatively small capital and large deposits,
whose business, with some variations, corresponds approximately to the plan for deposit banks. In Frankforton-the-Main the Frankfurter Bank was transformed a
few years ago into a deposit bank on surrender of the
note-issue privilege. Its deposit business has not so far
amounted to very much, since, with 18,000,000 marks of
share capital, it has a yearly average of only 20,000,000
marks of deposits. It is important chiefly as the deposit
and transfer bank for the rich Frankfort families and as
the administrator to whose management they intrust large
quantities of stocks. Its income arises less from the
difference in interest on deposits than from the large
commissions derived from its other business.
If, in consequence of a failure to recognize these facts,
a deposit bank were to be instituted on a great scale in
accordance with the suggestions of Strauss and Warschauer, with an extensive network of branches, it would
be sure to end in grievous disappointment, since it would
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be loaded down in the first few years by the expenses of
the business. A change may occur in the future if, with
the further increase of national prosperity, the surplus
profits of producers are no longer, as at present, used for
increasing and consolidating their business, and the number of capitalists becomes greater who, having no need
to obtain credit, wish to have on hand in a bank large
sums in the form of interest-bearing deposits. When we
shall have arrived at this stage, pure deposit banks will
arise of their own accord without legislative stimulus—
partly through the transformation of existing institutions, partly through the establishment of new ones; and
competition will bring it about that they voluntarily submit themselves in their own interest to the limitations of
business customary in other countries.
I sum up my remarks by saying that the existing condition of the German banking system is throughout a
satisfactory one, that the interests of the creditors of
banks, as well as of the business requiring credit and the
economic interests of the country, have obtained their
full rights, and that legal or administrative interference,
which might result in dangerous disturbances of our
economic life, should be resolutely opposed.
I have taken the liberty, as a supplement to the foregoing and to the remarks of the other speakers, to draw
up a number of formal declarations. I am sure no one
will object if I do not read them again; if necessary,
they can be read out just before the vote is taken. I
merely wish to remark that if No. 3 should not be regarded as correct by individuals present—that is, if it is
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thought that the banks of Mecklenburg and Oldenburg
do not justify characterization as pure deposit banks to
the extent which I have indicated—I should have no
objection to the striking out of the middle passage or to
a change in its wording. Personally, I hold the wording
to be satisfactory and not open to misconstruction, and
I shall wait to see whether a motion for a change comes
from the assembly.
Doctor SAI,OMONSOHN. Gentlemen, I wish to declare, at
the beginning of my remarks, that I am in perfect agreement with the last speaker in all points. I am, with Herr
Doctor Jaffe, of the opinion that English conditions are
entirely different from our own, and that a transference
of English institutions to Germany should not be
attempted without careful consideration. I am also, on
the basis of my studies and the experience of many years,
of the opinion that our German banking system, as it has
developed, is much better than the English. I have
taken the floor in order to discuss a few points which
have not been raised in the main speeches.
I turn, first of all, to the suggestions which Herr Doctor Jaffe gave at the close of his presentation. He asked
us to consider whether it would not be advisable, in view
of the further extension of deposit banking in Germany,
to separate the deposits from the current-account credits
on the books of the banks; secondly, to publish the
balance-sheets of the banks monthly; thirdly, to separate
the management of deposits from other moneys; and,
fourthly, to introduce special securities for deposits. I
should like to take up these questions from the stand-
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point of the banker. Herr Geheimrat Mueller has
already reminded us that the attempt to find a comprehensive definition for deposits has not yet been successful.
Therefore, the question answers itself—a separation of
deposit accounts from the other accounts is not possible.
We can not determine whether the money paid in is from
surplus working capital or savings. Nor do I believe
that the attempt to make such a distinction will succeed
in the future.
As for the question of the publication of monthly
statements, Herr Doctor Damme has already shown that
it would be an expensive and inconvenient affair. I am,
however, of the opinion that in addition to this another
disadvantage would be connected with it. In the first
place, gentlemen, I take it for granted that those who
make this proposal do not have in mind the publication
of a complete and correct balance-sheet at the end of each
month. That would be impossible at the end of the
month. You yourselves know that the preparation of a
bank statement requires at least two months. If we close
on the 31st of December it is not possible, in spite of all our
efforts, to present the completed balance-sheet earlier than
about the beginning of March. It can, therefore, be only a
rough balance. Such a rough balance gives no proper idea
of the facts, and the greater the business is the less clear
would it be. If the true condition of the bank is to be
worked out from such a rough balance, then, as you all
know, very large transfers must be made among the individual accounts. I will only remind you that the credits
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and debits must be equalized, whenever anyone has both
a credit and a debit, so that these accounts will compensate e$,ch other. Credits and debits will always give,
therefore, a false picture in the crude balance. The stock
account will also give a false notion, because large amounts
entered first on the securities account must be transferred
to the interest and commission account, just as, on the
other hand, the interest must be charged to the securities
account. The publication of the crude statement at
monthly intervals is in itself practicable, as is shown by
the example of the Hamburg deposit and transfer banks,
which publish their statements regularly every month.
This plan has its objectionable side, however, especially
in the case of banks that engage in the note-issue business on a large scale. Great business secrets might be
betrayed through the publication of figures and the
changes which occur from one month to another. Suppose, for example, that state loans have been undertaken, and that it is to the interest of the State that
these operations remain secret for a time. The operation
would forthwith become known if the securities account
of the bank or banks connected with the State should
rise suddenly to a great height. Let me further recall to
your minds the Hibernian incident. People had become
excited on the bourse over the continued purchase of
Irish stocks, and they suspected that something was
brewing. Suppose, now, that the Dresdener Bank and
the Schaffhausen Bankverein had had to publish their
balance sheets and reveal the increase of their securities
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accounts by these enormous sums. I believe that the
interest of the State, as well as of the banks, would be
injured through such publications.
With regard to the separation of deposit business from
the other branches of business, I believe that every bank
that carries on deposit business has really worked out
this separation already. I believe that in every bank
that devotes itself to deposit business on a large scale
each deposit branch is treated as a separate business
concern, which has its own bookkeeping, draws up its
own balance sheet, and with regard to the main business
stands in the position of an outside customer.
The aggregate of the deposit branches is also placed,
as a rule, under a distinct management. This demand is
thus fulfilled; it is fulfilled, as a matter of course, from
considerations of convenience and orderly management.
In the same way the fourth question—that concerning
security for deposits—is easily answered. It is a matter
of course for a bank director to make sure every morning
of what there is in the vaults and of what obligations he
has incurred. These obligations include the liabilities
that fall due each day, and, of course, also the deposits.
These are demands which are fulfilled spontaneously.
Now, I should like to discuss still another point which,
strange to say, has not yet been mentioned at all. We
are always talking as if deposit business lay only in the
hands of the banks. But do not the private bankers also
carry on a deposit business ? Is the demand to be made
in all seriousness that the private banker publish his
accounts monthly, or would you forbid the private
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bankers to carry on deposit business? Certainly not the
latter, I believe, and the former would be the death of
the private banker's business. The confidence which the
private banker inspires in his section of the public would
very often be destroyed if he were compelled to set forth
his sometimes limited property qualifications. His business does not rest so much on the strength of his capital
as on his personal abilities, on his knowledge of banking
and the bourse, on his character, and on the confidence
which he has won for himself in the city and the province.
This confidence, however, arises also largely from the
belief of the public that the discretion with which it
wishes its business transacted is better afforded by the
private banker than by the joint-stock banks, supposedly
more subject to public control and more exposed to state
interference. This belief would be destroyed if the private
banker were compelled to expose his business affairs.
I should like now to add a little to what was said by
Herr Geheimrat Mueller. Herr Geheimrat Mueller has
pointed out that the Genossenschaft banks maintain a
relation between their deposits and their own resources
that is very different from that maintained by the big
banks. In the case of 1,020 Schultze-Delitzsch associations the deposits amount to three and a half times their
own property, and in the case of 5,685 associations connected with the Prussian Centralgenossenschaftskasse
about fourteen times their own property. I should like
to compare in like manner the great, the medium, and
the small joint-stock banks. The Frankfurter Zeitung
has recently earned our gratitude by investigating the
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smaller joint-stock banks, and has shown that there is
one joint-stock bank which has 250,000 marks of paid-up
capital and at the same time deposits to the amount of
1,800,000 marks. I believe that the Frankfurter Zeitung
deserves great credit for calling attention to these conditions. For this reason I have made a compilation of
figures which is in many respects instructive. I have
grouped together all joint-stock banks with a capital of
less than 300,000 marks. In this class we find 52 banks
with a total capital of 5,000,000 marks, a surplus of
3,485,000 marks, and deposits of 69,000,000 marks. The
same banks show 2,150,000 marks of cash and bank
credits. Hence it appears that these banks have deposits
to the extent of eight times their capital and surplus, and
that their cash resources amount to 3 % per cent of their
deposits. A similar collection of statistics for banks
with a share capital of from 300,000 marks to 1,000,000
marks shows that we have 62 banks with a total share
capital of 52,099,000 marks, a surplus of 10,427,000
marks, and deposits of 174,800,000 marks; these banks
held 16,395,000 marks in cash and bank credits. The
situation here is, then, that the deposits are three and a
half times the capital and surplus, and that the cash
resources amount to about 9% per cent of the deposits.
If we compare with these the 45 banks of the Frankfurter
Zeitung, referred to by Herr Geheimrat Mueller, we find
that the latter, with a responsible capital of 2,740,000,000
marks, held 1,810,000,000 marks of deposits, and 694,000,000 marks of cash and bank credits. The relation
here is a very different one. The cash resources amount
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to 30 per cent of the deposits, and the latter do not form
a multiple of the capital, but only 66 per cent of the responsible capital.
Gentlemen, it must be said at once that these conditions existing among the smaller banks are worthy of
consideration, of observation, and of study; and indeed
they furnish some ground for those who say that legal
regulation is necessary. But in this matter, too, I urge
you to be cautious. There is, for example, among these
banks one which has 30,000,000 marks deposits, with a
share capital of 1,200,000 marks. By chance I was
asked once, years ago, whether it was advisable for a
lady who had inherited some shares in this bank to keep
them. I examined the statement of the bank in question
and found that at that time it held about 25,000,000
marks of deposits, while its share capital amounted to
only 1,200,000 marks, and of these deposits 22,000,000
marks were invested in mortgages. I was shocked, and
said that it was no investment. I collected information,
however, and investigated this bank somewhat more
carefully. I then saw that it was a bank which ten or
fifteen years before had risen out of a Genossenschaft,
and that it had paid high dividends for years; and the
information which I received from expert authority was
to the effect that in spite of this immobile investment the
bank was entirely sound, and that it was not likely that
its deposits would be withdrawn in such a manner as to
put it in danger. This latter assertion was based on the
fact that the bank had its customers in local business,
that very close relations existed between the directors
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and the customers, that the depositors were also for the
greater part shareholders, and that, as experience had
shown, there was such a relation of mutual trust that
apparently no sound objection could be raised against
this bank. I received these facts from expert authority.
We are thus warned that these questions must be handled
with great caution.
The statistics presented by me show, further, that these
banks, in spite of the fact that they are joint-stock banks,
have really preserved the character of the cooperative
institutions out of which they sprang, and that people
should beware of drawing general conclusions from these
small joint-stock banks, and of considering principles and
policies which may properly be applied to Genossenschaft
banks as generally applicable to all joint-stock banks.
I wish to say, in conclusion, that all the discussions,
including my own, suffer from one great mistake. Not
a single speaker has raised the question, " Where are the
abuses ?" Is there any practical reason for resorting to
the bridle of legislation? If this question is raised, it is
sure to be met with cries of "Leipziger Bank!" I have
made a compilation for the last thirteen years, in order to
establish what losses have really occurred to deposit
creditors from 1894 until 1907. The Marienburg Private
Bank is the last one in this list. If the joint-stock banks
which have gone into bankruptcy during this period
are selected, and if the quotas are considered which the
depositors received, or will receive, in the liquidation,
then there have been lost 24,000,000 marks in these
thirteen years, including losses through the Leipziger
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Bank, the Marienburg Privatbank, and the Spar- und
Vorschussbank in Dresden. This figure is large. If you
consider, however, that, as the other speakers have convincingly set forth, these deposits are in reality not savings, but in greater part working reserves of business
men; if you further consider that the period under consideration includes not only a period of business prosperity, but also one of depression, and, above all, a period
of great bank failures, then you will agree that, though
this figure in itself is large, the amount is hardly worth
considering when compared with the enormous advantages
for the national prosperity that have grown up through
free movement in banking activity; and you will conclude
that there is no necessity for legislative interference.
I wish to express my full and entire approval of the
declarations that have been proposed by Herr Geheimrat
Mueller.
Mr. BuECK, general secretary of the Centralverband
Deutscher Industrieller. Gentlemen, do not fear that I,
a mere layman, will attempt in this presence to add anything to the accurate, clear, and exhaustive contributions
of the previous speakers, particularly the main speakers,
or to supplement their remarks. I am not qualified for
that, but I have had the honor of representing for thirtyfour years not the economic interests of a single district
or State, but those of the greatest and most important
part of all German industry. I have, in this long period,
passed through many changes from deep depression to
high prosperity and back again, and have had an opportunity of observing the extraordinary importance which
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German banking has for industry. And so I thought
that it might perhaps be to the point if, from the standpoint of a representative of the industrial interests, I
were to confirm, only in bare outline to be sure, what has
been said here so explicitly and so convincingly.
Since the extraordinary scarcity and dearness of money
coincided with a period of the greatest industrial development, I could not join in the laments over the situation.
All industries were piled up to the utmost with orders
which they could hardly fulfill. Many have, on that
account, been strongly blamed, particularly the industries
that supply raw material and half-finished products.
They all naturally made the effort to expand themselves
by enlarging their plants and by making new investments,
so that these demands could be satisfied. This effort was
somewhat checked by the increasing dearness of money.
Though I do not by any means adopt the position of
Caesar Strauss, yet I believe that this check has really
operated favorably on our economic development. If a
period of regression should again occur in our industries,
then, as a result of these checks which have been in
operation, the disadvantages and injuries for our whole
economic life will not be nearly as noticeably destructive
as if the justified efforts for extension had been given
full play. But, gentlemen, a continuation of this condition would operate injuriously on our economic life;
and hence the efforts, which were discussed in the main yesterday as well as to-day, to improve the money situation
and to encourage it as far as possible, are explained. The
chief means to this end lies in getting command of the
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newly created capital which has arisen in so many places,
and in such different amounts—a process which, I believe,
has been somewhat overestimated in recent years in
point of the rapidity of its accomplishment and the permanence of its effect. I believe that the first task is to
bring together this newly created capital and to convey
it again to the productive activities of the people. This
is the task of our banking system. The first main speaker
has characterized it as credit-concentrating activity. I
should call it capital-concentrating and capital-distributing
activity, and, gentlemen, it is of the greatest importance
to our industries that banks and banking in Germany be
not disturbed in this prosperous and fruitful activity.
A disturbance would occur, however, if the goal sought
by malicious persons and by theorists—that is, the separation of banking into the two categories above mentioned—
should he attained.
The rapid development of our economic life has astonished the world. But we still stand far behind another
modern state, which has not, as has our poor Fatherland
in its time, been thrown centuries behind in the march
of civilization. If we do not wish to stand still, if we
wish, as we all do, to hasten and overtake the nations
which have gone on ahead of us, then we must constantly
convey the new capital which we create to the productive
activities of the people. In other words, I point out only
what has already been said, that we are not yet rich
enough for this separation in our banking system. We
have not as yet a million people, as in England, who pay
their tailor bills and household expenses by check, and
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who have, according to our standards, great amounts
lying in the bank, and are satisfied with a minimum rate
of interest, or even no interest at all. Therefore it is
clear that one of our most important duties is not to let
the sources from which capital flows to our banks be
disturbed or drained off. As has been repeatedly said
with perfect truth by different speakers, these sources
consist chiefly of working capital that is lying idle. It is
necessary that this capital be conveyed to business through
the banks without hindrance. And in this delicate matter
it is proposed that legislation should interfere, though
it would certainly cause a most lamentable disturbance.
Gentlemen, with my scant stock of expert knowledge, I
can form no conception of how it is possible for a manufacturer, when he has surplus money, to give it to a deposit bank, and when he needs money, to go to a so-called
credit bank. I do not know whether such a banking
system could maintain itself. Judging from the remarks
of the third main speaker, I take it that it would be impossible. It is also a question with me whether, even if
such a law is passed, a sharp separation is at all possible
with us—that is, whether the so-called credit banks will
not enter as current accounts the sums brought to them as
deposits. In all these matters our present tendency to
interfere by means of legal regulation with the natural
course of development is sure to work more harm than
good. It has been said many times, by others as well as
by the advocates of this complete separation, that abuses
and injuries to the public are liable to occur. As the
previous speaker has already explained to you, in this
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respect the case is really not so bad. In this connection I
should like to call attention to a certain tendency to look
in all directions for the economically weak, who must be
protected against the supposedly strong. In this instance,
the public, as the weaker part, is to be protected against
the stronger banking world. This is the social tendency,
and everything that is touched by it is rendered holy and
inviolable. But, gentlemen, even the last secretary of
the interior, Count von Posadowsky, frequently declared
in the Reichstag that we must be careful not to weaken
the self-reliance of the people by too much supervision
and too much protection. If I am not mistaken, he used
the expression once that we should be careful not to place
a guardian at the side of each man, and that every one
should be brought up to self-reliance and to a recognition
of his own responsibility for the actions of his economic
life. If a banker offers a customer 6 or 8 per cent, while
the large banks will give only 3 per cent, he is a very
foolish man and lacking in good judgment who trusts his
money to the former in order to reach the golden mountain. No law can protect the stupid; to limit banks in
their important operations for their sake would be a
foolish proceeding. This would be especially regretted
by industry, which recognizes the importance of a fully
developed banking system. I would not go as far as the
first main speaker, who says that the banks have been the
pioneers of industry. I would reckon among these
pioneers the enterprise of the manufacturers themselves
and the great technical skill of those associated with
them. But there is no doubt that industry is thoroughly
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convinced of the importance to be attached to the banks
in connection with all their undertakings. My esteemed
friend and colleague, Doctor Beumer, intimated in the
introduction to his remarks of yesterday that there has
not always been harmony between banking and industry.
It is the well-known case where the one must ask and the
other should give. Gentlemen, there is perpetual ebb and
flow in the business between the banks and industry, and
it goes without saying that harmony can not always prevail. But, gentlemen, I can establish the truth of what I
have already said, that industry fully recognizes the importance of banking, both in good and in bad times.
Whoever recalls the times of the seventies and the terrible
crisis—I see here some gentlemen whose hair has become
gray as my own, and who know what times those were—
will remember how the banks, themselves in great trouble,
pulled a great many of our industries through, when for
years prices stood below actual cost. It was the German
banking system, not nearly as developed at that time as
it is to-day, that stood faithfully by the side of industry.
Industry will not forget that. It will also stand by you
to-day when legislative measures are proposed which
would be injurious to you. I believe I can vouch for your
finding in industry—at least in the most important industries, those from which support would count for most—a
faithful confederate
Mr. MAX SCHINCKEL. Gentlemen, I promise not to
make large demands upon your patience. I can declare
myself in harmony throughout with the remarks of the
main speakers, especially with Herr Doctor Jaffe's re-
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minder that if we wish to object, we should do so in time—
that is, before the bills are introduced in the Reichstag.
I can further declare myself also all the more in agreement with the address of Herr Geheimrat Mueller, since
he took upon himself the unpleasant task of speaking the
truth very plainly. That is good, even if not always
welcome. But my very agreement with all this makes
me the less able to subscribe to the third section of the
resolution. To this I ask your attention for a few moments.
It is the purpose of the resolution, no doubt, and, as I
take it, of the whole Bankers' Assembly, to declare openly
and absolutely that there is no occasion for legislation.
I see in section 3, however, a weakening which seems to
me out of place. The last sentence of this section indulges in prophecies as to what may happen in the future.
I am a decided enemy of prophecies when there is any
question of their being put on record by publication.
Whenever I have had a hand in them, they have always
gone wrong. And it would be very gratifying to me if
the author of the resolution would decide to strike out
this part of section 3. The words are printed spaced.
They read: "Spontaneously without legislative instigation/ ' Gentlemen, if it is expressly stated in the first
sentence that there are already parts of the country where
pure deposit banks are necessary, those who are bent on
blessing us with a deposit bank law might hit upon the idea
that before permitting pure deposit banks to be established, we should make legal regulations governing such
permission. I am afraid this is not as it should be. I
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hope the author of the resolution will pardon me for
saying so. I am not so well acquainted with Oldenburg,
but I know that the Oldenburg banks can not by any
means claim to be called pure deposit banks in the usual
sense of the term. They are interested in syndicate
business, and also give blank credits. That should not
be permitted to the pure deposit bank, according to the
view of the legislators. In the case of the Mecklenburg
banks—for I am not only a citizen of Hamburg, but also
of Mecklenburg—I assert emphatically that they are
very slightly differentiated from most other banks by
their business. They have the single peculiarity that
they have an amount of deposits seldom attained by the
commercial banks. The cause of this is natural, and
does not lie in the fact that the Mecklenburg citizen
refrains from investing his money in mortgages. On the
contrary, he makes such investments with an astonishing
confidence. I know properties—the alphabet has not as
many letters as these properties have mortgages in
amounts of from 2,000 to 3,000 marks for widows and
orphans. However, there is in Mecklenburg a great
need for investments, in spite of the fact that the people
earn but little money, as they are mostly only small
agriculturists. But if they only deposit as savings the
amount by which Mecklenburg taxes fall below those
paid in other parts of Germany, there must be a very
considerable total. Furthermore, Mecklenburg—I am
proud of being able to defend Mecklenburg—is ahead of
all our other states in that it has issued no state loans since
time immemorial. As a result, the public has no oppor-
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tunity to invest money in Mecklenburg consols. Finally,
the people in Mecklenburg- have had very bad experience
with the Sterlitz Bank. What is more natural than that
they should go to the two well-established banks which
offer them comfortable interest, and which are enabled
to do this not because they are pure deposit banks, but
because they are in the fortunate position of standing in
most highly favorable relations with some great banks
in Berlin. The banks have half their money deposited
with the Berlin banks. How are they different from
any other bank if they deposit their money in other
banks? They can not, therefore, call themselves deposit
banks, and they would labor under the same disadvantage as the pure deposit banks if they did not find favorable use for their money among their business friends in
Berlin. I believe that we ought to put it to the main
speakers—Herr Geheimrat Mueller has already half-way
assented—whether it would not be well to drop this
allusion to Oldenburg and Mecklenburg, partly because
it can not be said that they are pure deposit banks, and
partly on tactical grounds. I should not like to see the
need of pure deposit banks recognized as yet. I do not
care to make a motion, however, and I merely leave it to
the main speakers whether and how far they will propose
amending section 3.
Geheimer Oberfinanzrat MUELLER: I have already indicated that I will gladly strike out the parenthetical passage in two places in so far as it relates to Mecklenburg
and Oldenburg. As Herr President Schinkel has come
forward as a Mecklenburger, I must defer to his greater
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local knowledge. I have, however, already explained
that these banks are not at all to be considered as pure
deposit banks, and I must still maintain that of the
existing banks in Germany they bear the closest resemblance to one's idea of pure deposit banks.
On the other hand, I am not in favor of any further
elisions. To my mind what we are here giving expression
to is not prophecies, for which I also have no inclination,
but the desire to meet a present need on the basis of present
conditions, the consequent decision to wait for the future
to show whether a greater need will arise, and finally the
assertion that even if a greater need should arise, legal
interference would not be necessary. It is therefore, I
believe, quite proper to reply to those who now demand
action from the legislator that at this time there is no
economic need, and if later such a need should occur,
legislative interference will not be necessary even then.
The PRESIDENT. Gentlemen, I regret that a motion has
been put to close the debate, which is signed by not less
than seven gentlemen, while seven still remain on the list of
speakers. Is a motion to close supported? (Cries of
" Yes.") Will the gentlemen rise who are for closing the
debate? There seems, unfortunately, to be a very great
majority for closing it. Therefore, I close the debate.
Justizrat CRUGER. I can, unfortunately, only express
my regret at being unable, because of the close of the
debate, to correct some misconceptions in the address of
Herr Geheimrat Mueller, concerning the financial condition
of the credit associations.
The PRESIDENT. I suppose, gentlemen, that you forego
the second reading of the resolution. (Agreement.)
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Number 3 is changed so that the first sentence now reads:
"A need * * * has not yet arisen in Germany/' All
the rest remains, except that in the last sentence the reference to Oldenburg and Mecklenburg is struck out. Will
the assembly accept the resolution as a whole with these
changes? (Agreement.) Will those who are opposed
raise their hands? (None vote.) I declare, therefore,
that this resolution of the German Bankers' Convention
has been unanimously accepted.
The resolution above referred to is as follows:
ON THE QUESTION, IS THERE NEED OF LEGAI, REGULATION
OF DEPOSIT BANKING IN GERMANY?
i. The organization of banking and of credit existing
in Germany, the peculiarity of which consists, on the one
hand, in the union of general banking business with the
management of outside moneys, and, on the other hand,
in the intimate relation of banking to commerce and
industry, has grown out of the economic development of
Germany and has greatly contributed to the extraordinary
growth of industry and the resultant increase of national
prosperity.
2. Since the communal savings banks, developed in
Germany more than in other countries, attract the savings
of the laboring classes and the middle classes and afford to
these a regular interest, the deposits flowing to the banks
and banking houses are only in the smallest degree savings
deposits properly so called; they are generally working
reserves of business men, who also have their other financial affairs transacted by their banks; or temporarily
available capital of capitalists, destined to later invest-
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ment in securities, mortgages, etc. These two categories
of depositors attach great importance to the fact that the
same bank to which they give their money for interest
serves them for all kinds of banking transactions, especially the granting of temporary credits.
3. A need for the establishment of pure deposit banks
has not yet arisen in Germany. Such a need may arise
in the future if, with further increase of national prosperity, the surplus profits of business men are no longer
used, as they have been hitherto, for the enlargement
and consolidation of plants, and if, as is even now the case
in France and England, the number of those becomes very
great who have considerable capital to put out at interest.
In this stage pure deposit banks will arise spontaneously
without legislative instigation, partly through the transformation of existing institutions and partly through the
establishment of new ones; and competition will of itself
result in their voluntary submission to the limitations of
business customary in other countries, because it is to
their own interest to do so.
4. According to the experience of other countries, a
pure deposit bank can yield a profit and pay its depositors
an acceptable rate of interest, only if the amount of deposits is many times greater than that of the paid-in capital. The conditions for this do not yet exist in Germany,
apart from the exceptions mentioned in 3.® The overwhelming majority of depositors who now hold deposits
with the credit banks could not be afforded the service by
<*As appears from the discussion, the mention of these exceptions was
stricken out from section 3 before the resolution was adopted; the fact that
they were referred to in section 4 was evidently overlooked.—Translator.
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a pure deposit bank which they expect from their banking connection. A pure deposit bank, which must maintain a network of deposit offices in great cities and with
branches in the provinces, would, in view of the narrow
bounds within which its profit-bearing use of its funds is
confined, be overwhelmed by the expenses of the business.
5. The fact that the business of credit banks that manage deposits is not subject to control must be taken into
connection with the fact that the ratio of their own capital
to the amount of deposits, and to the total of outside
moneys, is decidedly higher than in the pure deposit banks
of other countries. The statistics of the balance-sheets
of all joint-stock banks of any importance that take part
in deposit business show that the resources held as cover
have satisfied the heaviest demands made upon them by
critical times, both in point of their ratio to obligations
incurred and in point of fluidity (bills, reports, loans on
collateral and their own stocks, the latter calculated at
one-half). The fact that the cover consists chiefly of
bills and reports enables these institutions to be much
more prompt in repayment of outside moneys than are
the communal savings banks, which invest more than
three-fifths of their deposits in mortgages.
6. Legislative experiments which proceed, out of theoretical considerations, to transplant forcibly from a wholly
different historical background the best institutions of
other countries to our banking system—which has had a
very healthy development of its own—might easily cause
dangerous disturbances of our economic life, and should
therefore be resolutely opposed.
199
IV
Credit at the Reichsbank
By D R . R. KOCH
Former President of the Reichsbank
(Article from the Zeitschrift fur Handelswissenschaft
und Handelspraxis, July, 1908)
IV. CREDIT AT THE REICHSBANK.
Dr. R. K O C H , former president of the Reichsbank.
(Article from the Zeitschrift fur Handelswissenschaft
und Handelspraxis,
July, 1908.)
In the general discussion anent the impending extension of the note privilege of the Reichsbank but little is
heard now of the demand, made occasionally in former
times, that the State take over the Bank and operate it
as a state institution. It has become an almost undisputed axiom that special bank credit—distinct from the
credit dependent on the Imperial or State Government—
is useful and indispensable, particularly during a crisis.
Elasticity of circulation would soon cease, the note would
soon degenerate and assume the character of common
paper money, were the issues regulated by considerations
other than those of business requirements.
This idea was expressed with great precision in the
reports of the committees both of the French Chamber of
Deputies and of the Senate on the occasion of the latest
renewal of the charter of the Bank of France.
" A state bank," said the report of the chamber committee, " means the power granted to the Government of
issuing unsecured paper currency and induces the temptation of creating notes secured not by known resources
(mainly short-term securities) in liquid shape, but by the
general resources of the State; in a word, of issuing f a t
money, which at the slightest crisis would meet with the
same fate as the assignats of the Revolution/'
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The senate committee report contains the following
statement:
" In the first place, the danger to any bank of this type
(i. e., a state bank) lies in this, that it is subject to the State
and exposes the latter, as proved by experience, to the constant temptation to use the Bank to settle its own financial
difficulties at the risk of the credit of the Bank, and thereby
causing harm to the credit of commerce and industry.''
But equally imminent would be another danger. The
note banks, as is well known, grant as well as receive
credit. They discount short-time bills and grant loans
upon the pledge of certain classes of securities (Banking
Act, par. 13); the bills, together with national currency,
gold bullion, or foreign gold coin, and Imperial Treasury
notes, serve as reserve for the bank notes (Banking Act,
par. 17). In the case of a pure state bank there would
be the particular danger that the granting of bank credit
would be determined not by pure business principles, but
by considerations of a more or less political nature.
"The state bank," says the report of the French chamber committee, "means business mixed with politics."
And the senate committee points out further consequences.
"Then there would be the danger of mixing questions of
finance with political discussion, of considering, for example, discount rates in the same spirit as matters of taxation and of injecting political passion into the solution of
these most delicate, complex, and oftentimes almost imponderable questions.''
The debates in the Reichstag have demonstrated that
this danger exists even with our present "mixed" bank-
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ing organization, notwithstanding the compliments and
praises bestowed on it by the leaders of French bimetallism, such as Meline. Complaints were heard about an
excessively high discount rate even in years in which for
months the rate was low (as for instance in 1905, when
the average rate was as low as 3.82 per cent), although
this rate depends essentially upon supply and demand in
the money market. It was charged that artisans without
property and small tradesmen are given no credit or but
little credit, and that other industrial groups which are
compelled to tie up for a long term their otherwise ample
capital are but little able to avail themselves of the advantages of dealings with the bank. a
The expert perceives at once the utter groundlessness
of such complaints. The Reichsbank has never been
operated otherwise than upon pure business principles.
It gives bill credit as a rule only against merchandise bills
whose value must be extant either in goods sold or in the
proceeds of such sales, or against bankable credit bills—
i. e., bills presented by bankers who make a business of
furnishing credit on commission.
It does not give credit against finance bills. In other
words, the bill presented for discount must represent a
real transaction, terminating at the maturity of the bill,
a The French report containing the argument of the government bill
expresses similar apprehensions, though only with reference to a pure state
bank:
" I t is not merely that a state administration would not possess the
necessary suppleness required to estimate commercial solvency and to
adopt the terms of credit to market conditions, but above all because
it would be assailed by all sorts of demands and propositions, all tending to make it depart from the rules of prudence which a bank of issue
ought to observe."
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as was insisted on in the instructions to the branches of
the Bank as late as 1906. For agriculturists, indeed, the
Bank has always made considerable concessions at certain
times. Thus, for example, the Bank allows them a single
extension in view of the slow turnover of their circulating
capitals In general, however, the extension of the bill
credit granted, especially in case of a previous promise to
that effect, has always been prohibited. It is possible
that younger managers of the numerous subbranches
may have erred at times in this respect, being misled
either by an excess of business zeal or by a misconception
of the true state of things. They surely have not done
so with the view of increasing their commissions, for such
commissions, in the shape of small shares in the profits,
are allowed only to the managers of the so-called independent branches (about 80 in number), but not to the
managers of the subbranches. Moreover, these allowances are merely credited and not paid in cash, and
against them are charged, without recourse to legal action,
all losses which may result during the tenure of the
respective officials from obligations assumed by the
branch. This practice has stood the test of time as a
sufficient means of security and a satisfactory though not
excessive stimulus of business activity. To abolish this
practice would be not only unwise but even risky. Since
the earliest period means of control have been used to
prevent as much as possible extensions of loans of the
above kind. It is true that the monthly reports of commercial credit granted do not always reveal loan extena
Regulation of the year 1856; see Jubildumsdenkschrift,
206
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sions as such. A change in the amount and parties may
easily cover up the transaction. On the other hand,
however, a discounting of a bill oftentimes assumes the
aspect of a mere loan extension, when as a matter of fact
it is a bona fide short-term commercial credit transaction, in case, for instance, the seller of goods continuously
draws in round sums on account of the buyer upon the
latter's bank. This practice is quite frequent in case of
bank acceptances. There may also be a gradual withdrawal of a deposit, representing the original proceeds of
goods sold. Abuses arising from these incidents of business life are counteracted by the fairly frequent inspection tours of members of the central administration. But
inasmuch as abuses have been discovered on such occasions, it would be well to insist that in case of larger bills
all parties to the bill as well as its origin should be specified and clearly indicated.
To demand more would be impracticable. Any headlong move in doing away with the objectionable credit
bills would merely tend to increase similar engagements
on the part of the large private banks.
The rule that the Reichsbank shall not grant credit for
a period longer than three months must be adhered to
strictly. For only such short-time notes are sufficient
legal security for the notes and guarantee their continuous redemption as well as the repayment of the girodeposits.
With the view of facilitating the business opportunities
of the less-favored classes the Reichsbank as early as 1878
reduced considerably the minimum amount of capital
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required for direct discount operations with the Bank.
In spite of this the business with the smaller tradesmen's
class continued to be limited. In view of the obligation
of the Bank to redeem daily many millions of bank notes
presented to it, besides disbursing many millions on giroaccounts, no further favor could be shown to this class,
all the more because the small trader as a rule is unable to
present the requisite discount material. In most cases
the bills originating from small dealings lack the proper
second signature (Bank Act, par. 13; No. 2, par. 17), and
are therefore unfit for discount. This industrial class
must therefore make use of other banking agencies.
Foremost among the latter are the cooperative societies. In view of the joint liability of their members a
much larger share of the societies' property could be used
all along as a basis for credit transactions. However, the
law of May 1, 1889, having permitted also the operation
of societies with limited liability, and the experience with
these societies having been favorable, the limited liability
principle has since 1896 been extended to all larger cooperative societies.
Through these societies the small tradesmen in an indirect way may also obtain credit from the Reichsbank.
Further facilities for the discount business are afforded
by the continuous extension of the network of branches,
especially that of suboffices,** and by the enlargement of
the collection districts of the various Reichsbank offices.
a In 1907 the number of branches, subbranches, etc., was 478. Of this
total 4 suboffices were in t h a t year changed into Reichsbank offices, while
9 suboffices were opened. In 1906 the number of newly opened suboffices
was 26.
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In this manner the Reichsbank continuously becomes
possessed of large amounts of bills, in which the fluctuations of business conditions find their clear expression.
The amounts of bills purchased show an almost uninterrupted increase. For the last two years the amounts represented by discounted bills were as follows:
[In millions of marks.]
1906.
Local bills
Drafts on outside places
Total bills within Germany
1907.
4.360
5.853
4.997
6,885
10,213
11,882
The Reichsbank gathers among its holdings a very considerable portion of all the bills drawn and put in circulation in Germany. In the memorial volume describing its
experience during the first twenty-five years of its existence, the Reichsbank was able to point out that the proportion which its average yearly domestic bill holdings
bore to its total capital investments varied between 79.5
per cent for the year 1881 and 88.3 per cent in 1876.a
Accordingly, the Bank purchased almost two-fifths of all
German bills (in 1899, 39 per cent). The ratio of its
average bill holdings to the total bill circulation is smaller
because of the shorter time its bills run (between 11.3 per
cent and 15.8 per cent). 6 Generally speaking, the Bank
attracts a larger share of the bill circulation in times of
business expansion than in times of business stagnation
or depression. The fact that since its foundation its
share of the entire bill circulation of the country has ina Jubildumsdenkschrift,
83703—10
14
p. 88.
& Jubildumsdenkschrift,
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creased rather than diminished is explained by the
growing demand for credit and for instruments of payment
due to the growing business activity of the country. The
Bank was able to satisfy this demand by means of the
giro (transfer) deposits, which have been flowing to it in
large amounts, though not to the extent that might have
been expected in view of the increase in the facilities and
of the advantages of the giro business.
The bill business is by far the leading asset business of
the central bank of issue. The economic strength of the
Bank rests primarily upon this class of business, especially upon the great liquidity of its bill holdings. The
Bank is thus enabled to withstand successfully even severe
crises. It can enlarge the circulation of its notes without hesitation, since it knows that the ensuing return
current will bring back to it the means required for their
redemptions
The other class of the Bank's business—loans on collateral—are of much smaller relative importance, though
far from insignificant when taken by themselves. Loans
on merchandise have indeed gradually become less
important as compared with loans on securities. Thus
at the end of 1907, outstanding loans on hypothecated
merchandise amounted to only 5,486,400 marks, while
o During recent years there has been an increase in the amounts of foreign
bills purchased by the Bank with the view of strengthening the gold reserves
and preventing an outflow of gold from the country which might necessitate an increase in the discount rate. These purchases, it is needless to
state, are much below the purchases of domestic bills. They averaged
44,461,000 marks in 1907, as against 43,244,000 in 1906, and amounted to
71 million marks under date of May 7, 1908. These totals do not include
the deposits with foreign correspondents.
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the total loans on securities were 358,802,350 marks. In
the western part of Germany this form of loans is not
customary, nay, almost of ill repute, while in the eastern
and northeastern provinces of Prussia, with their relatively
sparse and mainly agricultural population, there is still a
certain demand for loans on merchandise. a
The total of loans on collateral has increased almost
uninterruptedly, notwithstanding the limitations to be
presently mentioned.
Loans on collateral during the last four years were as
follows:
Year.
Total amount.
Average
amount outstanding during the year.
Marks.
Marks.
1,957.411,820
2,093,427,625
2, 773, I 9 L 4 7 5
3-293,301,200
1904
1905
1906
1907
74,180,000
72,033,000
83,631,000
98,140,000
The law (Bank Act, par. 17) prohibits the use of collateral as security for note issues, and this fact of itself
prevents the undue increase of the collateral loan business. There is good reason for the discrimination. " I n
point of quick and safe realization," the jubilee memorial
of the Reichsbank rightly remarks (p. 105), "the investments in loans on collateral are in no way to be compared
a
Certain facilities in the collateral loan business are accorded mainly for
the benefit of agriculture. Thus, since 1887 the Bank has loaned on spirit
in bond stored in private warehouses without specification, appraisement,
taking possession, or revision; since 1895 on bonded sugar on similar terms;
and since 1896 on grain stored on the estates without regard to the legal
difficulties involved in this particular class of transactions.
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with bill holdings, carefully selected in accord with banking principles/' For a loan on collateral is always far
less transparent than a bill. As a rule, it affords no criterion to judge of the kind of credit sought. In many cases
the loan is intended to supply the need of working capital,
a fact which is more easily recognized in the case of bills
offered. Granting even that a painstaking selection of
the pledges may render the security beyond doubt, yet
the quickness and even the possibility of realization
remains dependent upon the absorbing power of the
market. Experience has proved that in times of severe
crises even the most solid securities can not be disposed of
at all or only at great loss. The provision of a maximum
limit of loans on collateral, to be determined after consultation with the central executive board (Banking Act,
par. 32(f), had proved altogether ineffective long ago for
technical reasons.
The best means of keeping these loans within the necessary limits is the interest rate. Instead of other restrictions which might injuriously affect the borrower, the
Reichsbank has for a long time kept the interest rate of
loans on collateral uniformly higher than the discount
rate, the difference for the recent period amounting, as
is well known, to i per cent.® But for this policy, the
temporary increases of this class of loans—especially at
the end of the quarter—due to the ease with which money
can be borrowed from the Bank for a few days—would
a The administration of the Bank upon mature deliberation refused to
follow the Reichsbank resolution of 1899, which recommended the lowering
of the rate by one-half per cent (Report of committee, p. 31 and following,
56 and following; stenographic report, p. 1892).
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have become even more noticeable than they now are. a
In 1884, when money was relatively abundant, a preferential interest rate, exceeding the discount rate only by
one-half per cent, was accorded exclusively on loans
secured by Imperial and State bonds. The purpose of
this measure was to raise these bonds to the position of
standard securities for the well-to-do classes. This purpose was fully attained, though as a result the loans on
collateral grew out of all proportions and far more rapidly
than the bill holdings.6 The lower rate could not be
maintained indefinitely and was abolished July 1, 1897.
The liquid character of the Bank's assets, and hence its
power of resistance, had been notably diminished. When
next all classes of collateral securities were placed on the
same level with regard to the interest rate, the situation
was reversed immediately. The average amount of loans
on collateral declined considerably, due mainly to the
decline of loans on the favored bonds named, while the
bill holdings showed an increases Whether the change
a Compare weekly review, for example, page 67 of the report of 1907.
Marks.
September 7
69, 800,000
September 30
204, 100, 000
December 7
78, 500, 000
December 21
364, 300, 000
b The average for 1896 was 131.28 per cent higher than the average for
1883, constituting 14 per cent of the total investments of the Reichsbank,
as against 11 per cent in the earlier year.
c
The annual averages were as follows:
Loans on collateral.
Bills held.
Marks.
Marks.
1896-
106,000,000
72,000,000
83,000,000
98,000,000
190519061907 -
213
646,000,000
908,000,000
989,000,000
1,060,000,000
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affected the quotations of these bonds is very doubtful.
As a matter of fact, immediately after the abolition of
the preferential interest rate quotations rose slightly. In
the course of time (though for different reasons) there was
a decline in all security values. It was seen, however,
that the old differences between the formerly preferred
securities and other investment securities, as for instance,
mortgage bonds—because of the wider market of the
former—remained unchanged.
The privileged treatment as collateral by the Bank did
not prove sufficient to raise the quotation of the favored
securities. An argument against the often suggested
reintroduction of this preference is also derived from the
fact that, so long as the preference lasted, demands were
constantly made for its extension to other classes of securities, and that these demands ceased with the abolition
of the preference." The Bank can not afford to grant
these demands, since a reversal of its policy would result
in an increase of loans on collateral even beyond the
figures reached in 1906, with all the disadvantages attaching to excessive investments in this class of loans from
the point of view of sound banking principles. Moreover,
there would be a renewal of the old struggle on the one
hand between the Bank administration and the advocates of a preferential rate of interest, and on the other
between the Bank and the various interests which formerly clamored for the extension of the preferential rate,
such as the cooperative land credit associations (Landschaften), mortgage banks, provinces, communes, dis0 Even the Reichstag passed without debate a resolution to this effect.
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tricts, etc., as well as a renewal of the struggle among
these various interests. a While these struggles were not
the motive that led to the abolition of the preference,
yet their cessation is an undoubted advantage, which
may be lost with the renewal of the privilege.
So much for the loans on collateral, which for that
matter are limited by law to certain well-defined and
specially secure objects of hypothecation.
The purchase of domestic bonds—acceptable as collateral—constitutes another kind of credit (granted to the
debtors on said bonds). Since this form of credit implies
to a certain extent the tying up of operating capital, the
Bank is permitted to grant it only under certain precautionary restrictions. (Bank Act, par. 13, No. 4; par. 32,
sec. 2d.)
The Bank is not permitted to grant credit in other
forms, particularly blank credit. No credit can be
granted for outside account without previous security.
(Bank Act, par. 13, Nos. 5, 6; par. 40, No. 11; Reichsbank charter, par. 10.)
a
I n 1906 an extension of the privilege to mortgage bonds issued by
the Landschaften was demanded by a deputy, who happens to be also an
officer of a Landschaft.
215
V
Concerning the Collateral Loan Business of
the Reichsbank, Especially the Loaning
on Imperial and State Securities
By DR. R. KOCH
Former President of the Reichsbank
(From the Deutsche Revue, July, 1908)
217
V—CONCERNING THE COLLATERAL LOAN BUSINESS
OF THE REICHSBANK, ESPECIALLY THE LOANING
ON IMPERIAL AND STATE SECURITIES.
Dr. R. KOCH, former president of the Reichsbank.
[From the Deutsche Revue, July, 1908.]
The credit of the Reichsbank is, as is known, frequently
demanded not in the form of the discounting of bills, but
in that of loans on collateral—that is, interest-bearing
loans on negotiable securities of definite kinds. (Bank
act, sec. 13, No. 3.) The rate of interest is to be publicly
announced in the same way as the discount rate. (Sec. 15,
ibid.) This rate, as well as changes in the principles on
which and in the period for which credit is granted, is
passed upon by the central committee, as is the case in
the discount business. (Sec. 322, ibid.) There is, however, a comprehensive and important difference. Loans
on securities are not adapted as reserve against notes.
(Sec. 17, ibid.) This provision, which is incomparably
more important than the more or less insignificant one
which prescribes that the central committee is to decide
concerning the maximum amount to which the funds of
the bank may be invested in loans on securities (sec. 32^,
ibid.), is very expressive of the fact that credit granted on
collateral is not of the same value for the central bank
of issue as credit allowed on the security of bills of exchange,
but is subject to certain objections inherent to it in its
relation to the general policy of the bank. Now, it may
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appear strange on a superficial examination that the bank
law should express such a lack of faith in resources represented by loans on collateral, which are (theoretically at
least) of undoubted security. In this respect they are at
times superior to bills, which rest purely on personal credit;
and, as experience has shown, they have resulted in
extremely small losses to the Reichsbank. a Yet there
is a good reason for the restriction of their volume. For
a bank of issue the aggregate of whose investments must
always be on a level with that of its obligations, it is not
merely a question of safety, but fundamentally of the
liquidity of the investments. No person who has any
acquaintance with such matters will believe that loans
on securities can be compared with discounts represented
by bills carefully chosen according to sound principles
of banking—with respect to the possibility of quick
realization. Loans on security are always lacking in the
quality of transparency, it being often not easy to see
what is behind them. They do not rest in all cases on
a basis of substantial business dealings like commercial
bills, and in particular bills drawn against the delivery
of merchandise, which always presuppose the existence
of the equivalent in commodities, or as the net proceeds
of a sale. Often they serve rather for the creation of
operating capital that has been lacking, without one's
being able to judge clearly, as with many classes of bills,
how far this is the case. In general, there are no indications as to how the credit sought is going to be used, while
the probability of punctual repayment depends upon
a Jubildumdenkschrift, p. 122.
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ank
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just this factor. It is thus possible that the bank may
be compelled in time of crisis, when its own customers
are falling into arrears, to proceed to realize on securities
in great quantities, in order to protect its 2,000,000,000
marks and more of demand liabilities. Experience has
taught that there is not at all times a ready market for
pledged securities. There are times when it is impossible to
realize on them, or at least not practicable without great
losses. That such losses have not hitherto occurred is
only explicable by the careful and conservative policy that
has been pursued in the business of loaning on collateral.
The lending of money on securities is only an incidental
part of the business of a bank of issue. Since there is less
of a periodical return current than in the discount business,
this department of the bank's activity has not so much
to do with the regulation of the monetary circulation.
For this very reason it is much easier to limit operations
in this sphere. On the other hand, the danger of immobilizing the capital invested in loans on securities exists
even with the safest securities. Therefore the demand
to enlarge the capital of the Reichsbauk in order to provide for the extension of its loan business should be
opposed.a
«Adolph Wagner (Zettelbankpolitik):
" I t is easy to perceive t h a t this
branch of the business (loans on securities) is rather to be entirely avoided."
In another place: "Special care should therefore be exercised in granting
loans on securities, and only a moderate extension should be given to this
branch of the business in general."
Michaelis (Volkswirtschaftliche Schriften): "Loans on securities are an
unhealthy source and basis of note issues. They create new means of
payment, while the function of notes, properly considered, is to take the
place of instruments of payment previously created (commercial bills)."
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Naturally the business could only be extended by lowering the rate of interest on such loans, since the bank
does not now reject any legally permissible application
for a loan, and an increase of such applications could
only be called forth by cheaper rates. This rate of interest is always kept at i per cent higher than the rate
of discount on bills as a matter of principle. Efforts
have been repeatedly made to lower the rate of interest
on loans and to bring it closer to the bill rate. The
practice of some of the German private banks of issue
seems to speak for this plan. They have made it their
custom to evade the limitations in the matter of the
discount rate imposed* by the supplementary bank act
of the 7th of June, 1899, by loaning liberally on promissory notes. The practice of individual foreign banks
which have made much of the loan business by reason
of the small volume of bills brought to them for discount
points in the same direction. But the Reichsbank, in
its capacity as the regulator of the monetary conditions
in the country, could not, in view of its own experiences,
after repeated consideration of the course pursued by
other institutions, be induced to yield in the face even of
In the French bank investigation of 1865, which, as is known, was
practically fruitless, only a few bankers (including Pereire) declared themselves in favor of a large extension of the loan business. The majority of
the chambers of commerce desired that the bank limit these loans still
further, if it did not altogether suppress them, since they favored speculation more than substantial business.
In the German bank investigation of 1908, the subject of lending on
securities is taken up only with respect to a secondary point in the question
sheet: " Is an advance in the price of loans on securities a t the Reichsbank
at the quarter days through the increase of the number of days for which
interest is reckoned to be recommended?"
222
Renewal
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Charter
the desire of the Reichstag. a Other restrictions, such
as were formerly practiced at times by the Prussian
Bank, are more or less arbitrary and in any case deal
harshly with the borrower. The efforts made in years of
quiet banking to put life into the loan business by means
of fixed loans for six weeks and three months at a moderate
rate of interest were fruitless. An unfavorable aspect of
this kind of business, which the bank could not help
realizing is the circumstance that the volume of loans on
collateral is subject to great fluctuations. It is sometimes quite large, notwithstanding the high rate of
interest. 6 A variation from the discount rate of less
than i per cent would undoubtedly increase it further
and add to the disadvantages which a large investment
in loans on securities brings with it. c
The unfavorable experiences which the Reichsbank
has had with the establishment of a reduced (preferential)
rate of interest for certain securities are also to be cited.
Not that this arrangement in itself was opposed in many
circles—a lower rate is always welcome to those seeking
o Report of the Reichstag Commission of 1899, pp. 31 ff., and 56 ff.;
Stenographic Report, p. 1992.
& In the year 1906 the maximum investment in such loans was
284,520,000 marks (31st of December); the minimum, 50,899,000 marks
(22d of September); average, 83,631,000 marks. In the year 1907 the
maximum was 364,297,000 marks (31st of December); the minimum,
54,090,000 marks (23d 6r January); average, 98,140,000 marks.
c Adolph Wagner (Zettelbankpolitik): " T h e higher rate of interest for
loans on collateral is wholly justified in banking. It maintains in the first
place a higher insurance premium as compared with the discount rate,
since the security is often inferior to that of bills; furthermore, as everyone
knows, the ability to realize on the investment is better assured in the
case of discounts by the strictness of the legal provisions regarding bills
of exchange.
223
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Monetary
Commission
credit. It was the compass of the plan, the steadfast
refusal of the Reichsbank management to extend it to
other securities, which many desired, that brought violent
attacks upon it; and even if these attacks were in no
way decisive, they contributed to a removal of the
differential. In 1884, when money was very cheap, the
Reichsbank decided to lower the rate of interest by onehalf of one per cent on loans secured exclusively by bonds
of the Empire or of the German states, particularly in
order to favor investment in these securities (as so-called
standard securities). This purpose was indeed attained,
and the loan business showed immediately increased
activity. The average volume of loans on securities
increased from 45,800,000 marks in 1883 to 49,200,000
marks in 1884, in spite of an easier money market.^
But at the same time there was a serious displacement
or shifting of the component of the bank's investments.
While the bill portfolio increased-by 76.4 per cent from
1883 to 1896, the volume of loans on securities increased
by 131.3 per cent, rising to an annual average of
106,000,000 marks, of which 71,800,000 marks was at
the preferential rate. The loans on securities, which in
1883 had amounted to only 11 per cent of the average
total investments, reached 14 per cent in 1896. The
situation changed unfavorably relatively to the really
normal investments, namely bills, which through their
greater liquidity assure the stability of the bank in
times of crisis. Such a development could not be permitted to go on.
a
Jubildumsdenkschrift, p. 117.
224
Renewal
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Charter
The preferential rate was suspended, therefore, after
the ist of July, 1897, with the consent of the Imperial
Chancellor. All securities on which loans could be
made were thereby placed on a level as far as the rate
of interest was concerned. The selection of securities
on which a favorable rate might be allowed—a very
dubious operation—was done away with. The desired
effect was not lacking. The average investment in bills,
which in 1896 had amounted to only 646,300,000 marks,
rose in the year 1906 to 989,400,000 marks, and in 1907
to 1,104,500,000 marks. The average aggregate of loans
on securities fell from 106,000,000 marks in 1896 to
83,600,000 marks in 1906. By the year 1900 it had gradually fallen to 80,000,000 marks—that is, in a time
in which the economic development of the country
occasioned large drafts on bank credit. A feature of this
retrogression was that it involved mainly the imperial and
state securities, and was scarcely felt at all in the case of
the other securities. In 1896 there was an average of
71,800,000 marks invested in loans on the former, or 67.7
per cent of the total loans on securities, while the loans on
other securities aggregated 27,900,000 marks, or 26 per
cent of the total. By the 15th of August, 1907, the
amount of loans made on the favored securities had fallen
to 39,200,000 marks, which was only 49.3 per cent of the
total loans on securities.
The amount of loans on the securities not included
among the favored obligations has not greatly changed.**
a The Jubilaumsdenkschrift, p. 119, indicates the shifting of the risk
in loans on securities which has thus been effected. All central note
banks make it a point to adhere closely to a proper apportionment.
83703—10
15
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Commission
I t was 22,800,000 marks on the 7th of September, 1900,
or 32.7 per cent of the aggregate amount of loans on
securities, and 25,800,000 marks on the 15th of August,
1907, or 32.5 per cent of the total.
In view of these striking results, the reintroduction of
the favorable rate for imperial and state paper, which is
desired by some business men, especially bankers, can not
be considered. The liquidity of the total investments
would thereby be seriously influenced, and the ability of
the Reichsbank to withstand all dangers would be materially weakened.
The difference in the quality of securities is expressed
in another manner by the practice of some banks of issue
of making the percentage of the market value up to which
they are willing to lend money smaller in the case of
some kinds of securities than in the case of others.05 This
would hardly be in accord with the bank act, which permits loaning on domestic securities in general only up to
three-fourths, and on foreign securities only up to onehalf of the price quoted at the exchange. (Sec. 13, No.
3 b, c.) The former practice of the Reichsbank of placing the various kinds of securities in different classes—
at times a very perplexing operation—did not work well
and had to be given up many years ago. Only a uniform
treatment of all securities capable of serving as collateral,
enabling the bank to dispense with the necessity of
a For example, the Bank of France makes loans on French rentes and
treasury bills up to 80 per cent; on other securities up to 75 per cent.
The Russian Bank loans on imperial securities and those guaranteed by
the Government up to 90 per cent; on other securities up to 75 per cent or
80 per cent.
226
Renewal
of
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Charter
selection, is in accord with that broad and sound policy of
maintaining a moderately large volume of loans on
collateral and assuring the utmost liquidity of the securities pledged.
The maximum limit set by the bank act, which has
gradually been extended from 90,000,000 marks to
120,000,000, 150,000,000, and in the year 1890, to
180,000,000 marks, has long since proved impracticable.
The volume of loans on securities is very fluctuating.
The demand for credit at the end of the month is usually
very large, as is indicated by the interrogatory relative
to the quarter days in the question sheet submitted to
the Bank Inquiry Commission of 1908. The banker obtains the means of supplying further credit at such times
by getting loans on securities at the Reichsbank as the
last source of credit in the country. The ability of the
banker to help himself for a few days with the advances
received is for the good of business in general, and is of
special significance at the quarter days because of the
strain in the money market. A few days before their
advent the aggregate of loans on securities increases very
rapidly, only to decrease as rapidly again in the ensuing
periods This difference is revealed as well in the individual branch institutions. Some have lesser, others
larger, temporary demands upon them. There is no
telling in advance, especially in the case of loans on
securities. The needs of individual industries and other
branches of business change very rapidly. Just on this
account such loans can not be limited for the individual
a
Jnbildumdenkschrift,
227
p. 117.
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Monetary
Commission
branches of the Reichsbank (numbering 486 in June,
1908). The technical difficulties which such a course
would encounter are insurmountable. The restriction
has therefore been more and more in abeyance. There
would have been no sense in trying to exact a penalty for
each of the numerous transgressions. The rate of interest
remains the only efficient instrument for keeping this
business within limits consistent with liquidity.
The constant decline in the prices of our government
bonds, which are so splendidly secured, is certainly a
lamentable phenomenon. Whether, however, the reintroduction of a preferential rate of interest would afford
a means of effecting a change is very questionable. The
previous experiences of the Reichsbank do not warrant it.
In the year 1884 a gradual improvement in the quotations manifested itself, the indications of which had already
been visible some time before. But in 1897, after the
suppression of the preferential rate, no tendency toward
a decline in the quotations showed itself. Throughout
July there was rather a slight advance. From 1896 to
1900 there was indeed a great decline in these securities,
traceable to general economic conditions, and in recent
years the downward tendency has been even more marked.®
a
The following are the quotations for the first of February in the years
1906, 1907, and 1908:
1906.
3 per cent imperial loan
3 K per cent imperial loan
3 per cent Prussian consolidated loan. _
3 K per cent Prussian consolidated loan
89. 20
101.10
89. 20
IOI.20
228
1908.
87- 30
98. 20
87.30
98.25
8 2 . 90
94- 00
82.80
94.5o
Renewal
of
Reichsbank
Charter
The reasons for this hardly admit of dispute. Chief
among them are the great and almost regular increase
in the volume of imperial and Prussian loans and the
opportunities afforded the public of obtaining larger
returns from industrial investments. There has been a
similar decline in the case of other German investment
securities paying a fixed rate of interest. No tendency on
the part of the favored securities to come down to the level
of the unfavored has ever been noticeable. Where such
a distinction exists and has always existed, the greater
market for the former class of securities is to be regarded
as the cause, and not the exceptional position accorded
them in the matter of collateral. This plays hardly any
role whatever for the simple reason that those who benefit
by the preference get the profit—and that only a moderate one—for a short time only. It can no longer offer
a special inducement for the continued creation of this
class of securities. A better rating of these securities
is to be expected from them as a permanent investment
in which only the rate of interest is considered than from
the former policy of increasing their availability as
collateral.
In view of all this, the expected advantage of the
reintroduction of the practice of giving preference to
certain securities for borrowing purposes is so questionable that it does not justify us in endangering an important principle of bank policy or of abandoning it altogether. To this is to be added, finally, the certainty
that the old demands would immediately arise again to
extend this advantage to other securities. Not only
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Commission
would it have to be given to the bonds of all the federal
states,® but likewise to the debentures of the Prussian
agricultural credit associations a and those of the mortgage banks (which help to support municipal credit),
to provincial and municipal bonds, fresh issues of which
are continually burdening the market, as well as to other
obligations. The struggle began immediately on the part
of the agricultural interests when the Reichstag incidentally recommended the reintroduction of the preferential
rate. 6 This apprehension is therefore surely not unfounded. If the Reichsbank should resist any such
demands, as it can not help doing, the old attacks upon
it would be renewed in a way that would seriously and
unjustly injure its credit.
a See Debates of the Reichstag, 2d of March, 24th of March, and 18th
of June, 1896.
& See Debates of the Reichstag, 28th of May, 1906.
230
VI
Concerning the Renewal of the Reichsbank
Privilege
By PROF. W. LEXIS
Of the University of Gottingen
(Article from the Bank-Archzv,
231
1907, page 309)
VI—CONCERNING THE RENEWAL OF THE
REICHSBANK PRIVILEGE.
PROF. W. LEXIS, OF THE UNIVERSITY OF GOTTINGEN.
[Article from the Bank-Archiv,
1907, page 309.]
The renewal of the Reichsbank privilege signifies, in the
first place, that the Imperial Government thereby renounces the right reserved by it in section 41 of the law
of the 14th of March, 1875. The suppression of the Reichsbank, permissible according to point (A)a of this paragraph, is practically considered; it is only a question of
point (B), according to which the Imperial Government
is authorized to acquire the total stock of the bank. In
either case one-half of the available surplus would go to
the shareholders. The question that has to be decided is
as to whether the Reichsbank shall have its privilege renewed or become wholly a state institution. State ownership, as is well known, finds numerous advocates, whose
contention is based on an argument which is undoubtedly
very weighty. The shareholders received in the year 1906
a dividend of 8.22 per cent, or a total amount of 14,790,724
marks. A significantly higher share went to the Empire,
namely, 25,472,181 marks, but this share would have been
increased by about 8,000,000 marks if the Empire itself
had owned the bank capital of 180,000,000 marks. This
capital could have been acquired without difficulty by the
issue of 2>% per cent bonds, even at the unfavorable rate
of 93. The objection is frequently made against state
ownership of the Reichsbank that in the very improbable
°Cf.—German Imperial Banking Laws, p. 52.
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Commission
event of a foreign invasion the metallic cash and other
property of the bank—if these belonged to the State—
would fall into the hands of the enemy. But undoubtedly
an enemy invading Germany would not proceed otherwise
than did the Germans in the invasion of France in 1870.
The Bank of France does not stand in nearly so close a
relation to the State as does the Reichsbank, for it is not
wholly managed by state officials; only its governor and
two subgovernors are appointed by the Government.
Nevertheless, the cash in the branch offices which could
not be removed to a place of safety in time—for example,
several million francs in Strassburg—was seized by the
advancing German troops, and the legal questions involved remained undecided until the end of the war.
At that time consideration was undoubtedly taken of the
fact that the notes of the bank had possessed forced circulation (Zwangkurs) since the n t h of August; but we
should not delude ourselves into thinking that the Reichsbank notes would not also be invested with the quality
of a forced currency in the unfortunate event of war.
Other arguments, however, really speak in favor of the
system of a central bank of issue, run by private capital,
and in more or less close relations to the State. It is interesting to note that this system occurs in almost all of the
large states of Europe—in England (the Government has
no direct share in the management of the Bank of England, but its notes have legal tender power), in France,
in Austria-Hungary, and in Italy. Russia alone has a
pure state bank, with state-owned capital, but it can not
be said that this example is especially worthy of imitation.
234
Renew
aI
of
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ank
Charter
It is not well for a great bank of issue to be actually
merged in the state financial system, even if it appears
externally independent. It is likewise undesirable that
it be subjected, as a pure state institution, to political and
party influences. In Germany attempts to impose demands on the Reichsbank contrary to its purpose and its
real duty have not been wanting. Its duty is, according to
the law, " t o regulate the monetary circulation of the
whole Empire; to facilitate payments; and to promote the
utilization of available capital;" but not to create cheap
credit which is not warranted by the conditions of the
money market. It may not grant long-time credit, such as
the agriculturists, who have to reckon upon an annual
period of settlement, demand. This agricultural need for
credit must be relieved in other ways. For reserves against
bank-note circulation only short-time bills—or loans on
collateral—can be used. These involve a quick, automatic return of the notes, which makes it possible for the
bank to regulate their emission at any time in accordance
with the needs of business and the requirements of public
welfare. Therefore, when the bank discounts mercantile
bills by preference, it does not do so because it desires
especially to favor commerce and industry, but because it
can not do otherwise, according to the nature of its task,
inasmuch as it is only in these bills that it finds the proper
covering for its notes. It is very important for the general interest that the bank does not exceed the limits to
which it may grant credit, as the Russian Imperial Bank
has done. These limits are conditioned by its nature as a
bank of issue. The officials of a pure state bank have
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Monetary
Commission
merely to adapt themselves to the regulations coming to
them from above; but a bank of issue with private capital,
even when entirely managed by the State, has a sort of
independence as regards the State—an independence
which protects it against interference with the vital
conditions of its existence. For the former, the interference of legislation is always needed; but the latter
must always keep in mind the fact that a great private
capital is in its charge. The central committee of the
Reichsbank has undoubtedly only a very moderate
authority, but its influence, nevertheless, is far greater
than that of the advisory board of a state railroad company, because it represents the owners of the bank capital.
If the Imperial Government should take over the bank,
the shareholders would receive the capital and half of the
surplus, a total of 212,400,000 marks; that is, their shares
would be redeemed at the rate of 118, while they now
stand at 154, and have generally fluctuated between 150
and 160. The shareholders could not complain of this, as
the law provides for the possibility of the state ownership
of the bank under these conditions, and this fact has
exerted a certain constantly depressive influence upon
the rate. Since the shareholders are generally bankers or
other moneyed people, the opinion will prevail in many
circles that they deserve no consideration whatever.
Nevertheless, it should be recalled that they did not
acquire the shares originally at par. At the foundation of
the Reichsbank half the capital was created by taking
shares of the Prussian Bank, which at that time stood at
155, in exchange for shares of the new bank. The other
236
Renew
aI
of
Reichsb
ank
Charter
half was obtained by subscription at the rate of 130.
When the capital was increased on the basis of the law of
the 7th of June, 1899, 30,000,000 marks were issued in
1900 at 135 and 30,000,000 marks in 1904 at 144. The
latter emission would hardly have succeeded if the subscribers had considered it a serious possibility that they
would be repaid at the end of 1910 at 118. They would
then have lost 18 per cent in six years, or an average of 3
per cent of their capital yearly; and even if they had
drawn during all this time an 8 per cent dividend on their
nominal capital the real interest on their investment
would have been only 2.6 per cent. The Imperial Government thus, by the high rate of the new shares, encouraged the subscribers in the idea that it did not contemplate state ownership of the Reichsbank; otherwise,
the proper course would have been to issue the new shares
at 118 and reserved them for the shareholders. Should
state ownership take place, there would be no legal
objection, but it would be a hardship which would not
strike millionaires exclusively. Furthermore, a dividend
of more than 8 per cent has been paid only once since the
readjustment of the division of the profits of the Reichsbank, namely, in the year 1906, at the time when the
overstrain of credit reached such a high point. On the
average, during the years 1901-1906 the dividends
amounted to only 6.55 per cent, and in 1902 to only 5.47
per cent. Since no shares were issued below 130, the
average dividend amounts, even for the original subscribers, to only 5 per cent on their invested capital. Of the
premium on the shares first issued, Prussia received
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National
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Commission
15,000,000 marks in 1875 a s compensation for the transfer
of the Prussian Bank, and the remainder was turned into
the reserve fund; half of this, however, is to be considered
as belonging to the Imperial Government.
But if, as is to be expected, the privilege of the Reichsbank is actually renewed, then the further question arises
whether on this occasion material change should be made
in the legal provisions concerning the bank. Of first
importance is the question whether the amount of notes
not covered by coin or bullion shall be restricted in the
hitherto-existing manner. In the last nine months, with
the continually high discount rates, this arrangement has
been frequently attacked and held responsible for these
high rates. The bank, in endeavoring to fulfill properly
the task of regulating the money circulation, would have
found difficulty in maintaining a lower interest rate, even
without the limitation of note issue and the note tax.
The nature of its task is that it shall maintain the value
of the monetary unit as stable as possible, in whatever
form this is expressed. In times of economic prosperity
the prices of goods rise, primarily as the result of the
actual extension of national production, which brings
an increase of the national income with it. At the same
time, however, comes the tendency for prices to rise still
further through the extended application of the purchasing
power, resting on credit, but expressed in terms of monetary units. This kind of rise in prices, however, signifies
nothing else than a corresponding depreciation of the monetary unit. If it is not checked, the whole system of prices
rises higher and higher, until it finally collapses in a crisis,
238
Renewal
of
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Charter
perhaps at the slightest shock. The Reichsbank can, in
any case, exert a very limited restraining influence upon
this movement, for it surpasses the other great banks
only in the volume of its discount business, the volume of
its loan transactions being comparatively unimportant,
whereas the five large Berlin private banks, at the end of
1906, reported an aggregate of 2,650,000,000 marks in
loans on collateral and current credit advances. All the
same, the advances of the discount rate of the Reichsbank act like brakes upon the wheels of business, preventing them from traveling too rapidly. It would not
be arguing soundly to say that because the bank would
not act otherwise even without the limitation of the note
issue this limitation is therefore unnecessary. Rather
assert that it is expedient that such a fixed norm should
exist for the regulation of further note issues, according
to which the bank is not only to guide itself, but the
operation of which contributes to enlighten and warn the
public concerning the situation.
The arrangement by which the Reichsbank is permitted
to issue notes up to a certain amount and can go beyond
that amount only by the payment of a tax on excess circulation is a means of keeping the issue of notes within
bounds. And even on this ground the limitation must be
retained, for bank notes are still too significant in German
monetary circulation in comparison with the conditions
attained by more progressive countries. In England
there have been no uncovered notes in circulation for
more than ten years; the bullion stock of the Bank of
England is, as a rule, several million pounds greater than
239
National
Monetary
Commission
the sum of the circulating notes of the bank. On the
17th of July, 1907, for example, the bullion stock amounted
to £35,900,000 and the volume of the outstanding notes
to only £29,300,000, while there were £25,100,000 in the
reserve of the banking department. At the same time the
total stock of gold coin and bullion of the United Kingdom
was estimated at only £120,000,000, while the gold stock
of Germany is at least 3,700,000,000 marks. The average
stock of gold (not the stock of cash) of the Reichsbank,
however, amounted in the year 1906 to only 675,000,000
marks, with an average note circulation of 1,387,000,000
marks. From these figures a backwardness of the German
payment and credit organization is evident, which would
only be greatly increased by making the issue of uncovered notes easier. In Germany, too, the opinion is bound
to gain ground that a lower interest rate is not conditioned upon a great quantity of effective circulating
medium, whether gold or bank notes. In England the
bank rate recently stood at 2 per cent and the private
discount rate at seven-eighths of 1 per cent, but the
stock of effective circulating medium was not greater
than in the year in which the discount rate rose to 6 per
cent. In the most highly developed modern states money
plays only the r61e of a measure of value. It is of relatively small significance as regards the actual circulation
of goods. The interest rate, however, depends upon the
amount of free capital available for new investments at
any time, which is measured in terms of money, but is
invested in cash only for the smallest part. In the United
Kingdom at present the sum of the deposits of the cus-
240
Renewal
of
Reichsb
ank
Charter
tomers of all banks and banking houses amounts to
about £900,000,000, and this gigantic sum includes the
greater part of the circulating capital of the nation.
Transfers are continually made from one account to
another without the aggregate being noticeably changed.
With this amount remaining the same, however, the
quantity of free capital contained in it and exerting an
influence on the interest rate, can vary greatly. If an
account holder must transfer that sum which is credited
to him to-day for the fulfillment of obligations falling due
on the morrow, then he possesses no free capital, and the
greater the number of bank customers who find themselves in such a position the smaller is the total sum of
free capital. Free capital arises, in general, only from
profits and surplus of incomes and from finally repaid
investments of capital—for example, government bonds
which have been repaid. No real free capital can be created
by an increase of note issue having no substantial foundation. Such issues as those against loans on securities, or in
connection with the discounting of finance bills, etc., only
raise the nominal price of goods or securities, prolong an
unsound condition, and make its evil consequences worse.
We come, therefore, again to the fundamental principle that the issue of notes is not to be made easier,
since thereby the attainment of a rational system of circulation is made more difficult. This rational system,
as it exists in England, not only serves the purpose with
the smallest possible gold stock, but it permits the most
complete and rapid utilization of the free capital available at any time. It is therefore very desirable that the
83703—10
16
241
National
Monetary
Commission
agitation recently inaugurated for the extension of the
check system should be completely successful. It is
a matter of course that indorsement and clearing must
accompany this business, for a check which is paid in
cash fails of it£ proper purpose. Whether this development could be greatly furthered by the acceptance of
interest-paying deposits by the Reichsbank appears
doubtful; for the first result would probably be that the
volume of deposits of this kind flowing to the other banks
would be correspondingly reduced. If, however, the
general public were to get more into the habit of having
an account at a bank, then the Reichsbank might receive
its share of the increased business without lessening the
deposit business of the private banks. The limitation of
the acceptance of interest-paying deposits by section 13,
No. 7, of the bank law, appears in any case practically
superfluous. The Reichsbank ought to see its chief duty,
however, in the development of the system of payments
by transfers to, and deductions from, accounts current
(Giroverkehr) and in the extension of the clearing system.
If the limitation of the issue of uncovered notes is retained
according" to the present regulations, then there is no
reason for changing the basis upon which the profits of
the Reichsbank are divided, as regulated by the law of
the 7th of June, 1899. In general, the present condition
of the Reichsbank should be maintained. The notes of 50
and 20 marks should be retired, for, as was to be expected, they have exerted no influence on the gold stock
of the Bank, and have had a tendency to retard the extension of the method of payment by check and to counteract the efforts for the limitation of note circulation.
242
VII
Concerning the Renewal of the Privilege
of the Reichsbank, and of the
Private Note Banks
By DR. MORIZ STROELL
Director of the Bayerische Notenbank
(Article from the Bank-Archiv,
243
1907, page 311)
VII.—CONCERNING THE RENEWAL OF THE PRIVILEGE OF THE REICHSBANK AND OF THE PRIVATE NOTE BANKS.
Dr. MORIZ STROBU,,
Director of the BAYERISCHS NOTENBANK.
[Article from the Bank-Archiv,
1907, page 311.]
The question of the renewal of the privilege of the
German banks of issue has recently again come to the
fore. I will endeavor, at the request of the editors of
the "Bank-Archiv," to present briefly my views with
regard to this matter.
So far as the corner stone of the whole fabric of German
banks of issue, the Reichsbank, is concerned, its continuance is understood as a matter of course. Without a
central bank, regulating, by means of the issue of notes,
the changing needs for means of payment, modern economic life is inconceivable. The organism and extraordinary expansion of the industrial life of Germany have
for a generation been bound up with the Reichsbank.
On this point there can be no difference of opinion.
And even the differences of opinion concerning the
form in which the privilege should be renewed are really
fewer than is frequently believed. Into the discussion
concerning this question, matters are frequently introduced which stand in little or no direct connection with
the Reichsbank and its institutions.
But to proceed at once to the main point. The institutions of the Reichsbank have stood the test in every way
245
National
Monetary
Commission
for decades; and the wise do not willingly disturb tried
and proven institutions. The Reichsbank has fulfilled its
duty, from without and from within, and this both in
normal and in critical times. From without, it has protected the German gold standard; within, it has drawn
over the Empire a splendid network of institutions dispensing credit and performing monetary transfers. On
the basis of a flexible note issue these institutions satisfy
the need for credit at a rate of interest which is now
higher, now lower, but which is always determined by the
existing economic conditions, and is never fixed by considerations other than those pertaining to the public welfare. In the course of a generation a great nation experiences many critical and stormy days. The Reichsbank
has always been the last resort and a thoroughly reliable
support. I recollect the hard times of the summer of
1901, which were characterized by a crisis in which financial confidence was shaken in an exceptional manner; I
recall the period of great world-wide strain and stress of
capital and production which has just passed, with all
the worrying concomitant phenomena in the sphere of
credit. The Reichsbank and its far-seeing management
were always at hand, now supporting and furthering,
now wisely restraining, now helping and aiding, judging
the whole German economic situation from the higher
point of view, and always putting the common good before
their own interests. We have had collapses of confidence
and scarcity of money, but, thanks to the Reichsbank,
we have not had a real money crisis for a generation;
that is, a time in which circulating medium was not to
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be had by pledging good bankable securities. Sad times
were they, all the same, alike significant for the great list
of failures, and the terrible economic suffering. More
than once, I repeat, the Reichsbank has saved a precarious
situation by its elastic and properly handled issue of
notes. The Reichsbank with its present constitution is
recognized and esteemed everywhere throughout the
whole Empire as the leading credit institution. It has
become the bank of banks; the central crowning stone of
the whole economic structure.
And does such an institution, which supplies so many
needs and guards against so many failures, need special
reform? Such a proposition is not altogether obvious.
What do the reformers desire? Are the old, threshedout questions regarding the amount of capital, the division
of profits, the private nature of the share holdings, and
similar questions to be brought up once more for discussion? We have come to realize that the amount of the
capital of the great banks of issue, which in their case
is far more of a guarantee fund than active capital, plays
no really important role. We likewise realize more and
more that a state-owned Reichsbank, quite aside from
important military and political considerations, would be
drawn year by year into the struggle of the parliamentary
and political parties. Finally, we know that a great share
of the earnings of the Reichsbank already flow into the
Imperial Treasury in various forms, and that this share
has almost reached the maximum. Or is the P.eichsbank
to be compelled to accept interest-paying deposits in the
future, which are only a burden in normal times, and a
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danger in unquiet times, and in any case, a hindrance
to the bank? All this can not in my judgment be the
serious object of the plans for reform.
Another question appears more worthy of discussion—
the question, namely, regarding the amount of tax-free
notes necessary for the Reichsbank. The tax-free quota,
as is well known, has been increased in the course of time
by the quotas of private note banks which have renounced
the right of note issue, as well as by means of the bank law
of 1899. The latter increase was made with particular
reference to the increased population. In less wellinformed circles the opinion is now impregnably intrenched
that the interest rate of the Reichsbank at any time depends upon the quantity of tax-free notes. The disadvantage under which many a business man has labored by
reason of the high interest rates of recent times, together
with the above-mentioned belief, will perhaps lead to a
demand for an increase of the tax-free circulation of the
Reichsbank. But the interest rate is far less dependent
upon the limitation of note issue than upon the conditions
of the metal reserve, upon the international movements
of gold, and upon general economic conditions. The
Reichsbank is no automatic machine, but an independent
and intelligently guided institution. Figures are dead
until the spirit which comprehends the figures gives them
life. The Reichsbank has discounted at times at a low
rate in spite of the enormous demands laid upon it, as, for
instance, in the summer of 1901. On the other hand, with
only a moderate circulation it has not hesitated to raise its
rate, even by fits and starts, when the preservation of the
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German gold standard required it. It must, on the one
hand, warn the public against speculative excesses by
means of a rise in the discount rate; on the other hand, it
may not keep the rate at an artificially low level in order
to prevent the manifestations of unsound economic conditions from coming to a head. It must establish the
interest rate after careful consideration of all pertinent
conditions, and not according to the present quantity of
tax-free notes. The desire for permanently lower interest
rates, which is comprehensible from the point of view of
the individual, can not always be fulfilled, owing to economic considerations. As Michaelis, one of the originators of the bank law, said: "The emergency reserve is
always outside any tax-free limit of note issue, however
the latter is measured/' On these grounds I consider
altogether unnecessary a further increase of the quota of
tax-free notes, a move which would indirectly injure the
imperial finances. If, however, a law should be enacted
for the purpose, the Reichsbank management might accept
the grant with very cool thanks, without feeling itself
really enriched thereby.
It would be well—although it is more a matter of practice than of legislation—if in future the imperial financial
management, in its dealings with the Reichsbank, would
exercise a greater restraint with respect to the discounting
of treasury bills. The status of the Reichsbank is hereby
injured, and the interests of the business world are unfavorably affected. Every central bank of issue has the
right to be independent of state finance, at least in normal
times, and the Reichsbank ought to secure this right as far
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as possible. As a matter of fact, the Reichsbank and the
Imperial Government do not follow their- own interests in
accepting and discounting treasury bills, but only the demands of necessity. It is to be hoped that after the completion of imperial financial reform, the practice of making such demands upon the Reichsbank, which have been
generally regardfed as an injury to business, will be permanently discontinued.
What the Reichsbank is especially in need of, a permanent and considerable increase in its metallic and particularly its gold stock, can not be created for it by legislation, at least not directly. It can be created indirectly,
perhaps, but only gradually. The insufficient amount in
troublous times of the gold stock of the bank is undoubtedly a weak point in our economic life. That this weakness is not rooted-in the constitution of the Reichsbank,
but solely in prevailing conditions, does not change its
seriousness. Some, of the recent bank statements could
not be viewed without apprehension, because it was easily
conceivable that with a sudden increase in note circulation
and a coincident decrease of the metallic stock, the bank
might be forced to the edge of insolvency by the necessity
of providing covering for its notes. This w;ould have been
all the more the case if one had proceeded to reckon the
depreciated silver in the bank at its real gold value and
to assign to the greatly increased stock of imperial treasury notes their negative value as a reserve against note
circulation. The fear that the flexible and theoretically
unlimited right to issue notes might become practically
illusory some day for want of a satisfactory metallic re-
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serve is not altogether dispelled when one pauses to consider the matter somewhat seriously. Inasmuch as
German business feels no lack of gold, and every day monetary transactions are richly, almost too richly, saturated
with gold, all that is needed to remove the above-mentioned difficulty is to divert the gold from those channels
in which it is too abundant and lead a part of the stream
into the bank vaults, where the yellow metal has far
greater functions to perform as the basis of the total
money and credit circulation than it has in daily exchange.
Just now, as is well known, a strong movement is on foot
which plans to economize the circulating medium in various ways and lead it to the central bank for facilitating
credit business. The efforts toward that end, made by
the banking world and experts in the matter of coinage,
have in general no direct connection with the constitution
of the Reichsbank. Nevertheless, they are frequently
mentioned in the same breath with it, perhaps because
their operations are to result for the benefit of the central
institution. Among such means of economizing gold are
the following: The regulation and extension of the method
of payment by check; the introduction of new clearing
houses, mortgage-bank clearings, and the like. Of similar
intent was the law passed more than a year ago, which
authorized the Reichsbank to issue notes of 50 and 20
marks. The issue of an imperial treasury note of 10
marks as a partial substitute for the gold crown also belongs to these schemes. Thus, gold was to be brought
gradually into the Reichsbank vaults. These means and
measures have the common characteristic that they do not
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work quickly, but only gradually, because of the opposing
customs of business and of the people, and thus require a
certain lapse of time for their development. It appears to
many to-day to be a considerable sacrifice to give up, even
to a certain degree, the use of money or of gold. To be
told to do this appears to the metal fanatic a sin against
the German gold standard. The check and the small
paper note can be forced upon the German citizen who is
accustomed to using gold only by dint of considerable
effort. The Austrian, on the other hand, who has now
become unaccustomed to using gold, has to be coaxed to
use the brand-new gold pieces in daily business. As in
other matters, so in those pertaining to the technique of
currency, men "call custom their nurse.''
Now for the private banks of issue. The bank act of
1875 r e sts upon the mixed, federal bank system—that is,
on the cooperation of the Reichsbank and the private note
banks. This regulation of the German banking system
was by no means conceived of as a transitory arrangement,
as is sometimes asserted, but as a permanent organization,
corresponding to the federal organization of the Empire.
The legislative i n t e n t was to render possible a credit
system for the whole Empire, as decentralized and intensive as possible, under the centralized direction of the
Reichsbank. The bank act was careful to place the
destiny of the private banks of issue, which represent the
federal component in the banking system, exclusively in
the hands of the Bundesrat (Federal Council)—that is,
in the hands of that body in which, along with a conscientious regard for imperial needs, the especial interests
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of the individual federal states are protected and represented. The note issue of the private banks represents
part of the federal authority in matters of finance; and in
more than one way the finances of the state are closely
related to the state banks which continue to exist in the
kingdoms of Bavaria, Saxony, and Wurttemberg, and the
Grand Duchy of Baden. The federal idea, which had its
share in the framing of the fundamental provisions of the
bank act, demands the future maintenance of a type
bank, which has stood the test for a generation, and has
done yeoman service in developing the credit system in a
large section of the German Empire. No one was in favor
of a complete monopoly of the Reichsbank in the discussion
of the renewal of its privilege in 1890 and 1900; and if the
question were put to-day in those states of the Empire
where the state banks are active in the full exercise of
their privileges, whether the institution of a local bank of
issue is to be sacrificed in favor of an imperial bank
monopoly, it would undoubtedly, on political and economic grounds, be answered in the negative.
The great private banks of issue have not acquired such
an established position in business and such a hold on
esteem without strenuous efforts on their part. They
were certainly not borne aloft by the favoring hand of
legislation, for on every occasion the law was altogether
partial to the central institution. There was no lack of
administrative limitations and difficulties of every kind.
It is no wonder that under the pressure of these circumstances the small private note banks, and even those of
intermediate rank, were gradually crushed out, and that
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only the politically and economically important banks
in the larger states, which could carry on their operations
over an extended and assured territory, have survived.
If these banks remain firmly entrenched in the domain
of credit in their own special realm, they owe it to the
valuable service which they have rendered and to a proper
conception of the task imposed upon them by bank
legislation.
This task consists in supplementing the activity of the
Reichsbank by providing for the requirements of local'
credit in all its ramifications and giving the closest attention to individual needs. The extension and control of
the machinery of credit in the smaller cities and business
centers constitute the main business of the present system of German private banks of issue. Their numerous branches and agencies operate profitably and with
facility here, and their activity lowers the interest
rate. They are in close connection with the local credi
banks; they discount their bills, and afford in this manner the advantages of note issue to the small business
man. The cities in which they are represented have the
advantage of being bank cities and of being thereby
included in the great mesh of monetary intercourse. The
numerous offices in small cities bring credit business into
regulated channels, and operate for the regulation and
safety of all business relations. They accustom the
business communities of even the rural districts to the
use of checks and the method of payment by means of
transfers to, and deductions from, accounts current
known as the " g i r o " (giroverkehr), and by adapting
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themselves to local and individual conditions serve as the
pioneers in spreading the knowledge and gradual use of
modern monetary arrangements. An excellent illustration is afforded by the Bayerische Notenbank. This has
eighty suboffices, and of these forty are in Bavarian
cities in which neither the Reichsbank nor any other
large credit institution does business; and these suboffices are provided with banking facilities, and carry on
all kinds of business legally permitted to the bank.
Similar conditions prevail through the activity of the
private banks of issue in Saxony, Wurttemberg, and
Baden. The private note banks are enabled to perform
such important and diversified services because they
work more cheaply than the central bank, and avoid the
costly apparatus of the Reichsbank. Shall all of these
lesser cities lose the important advantage of being bank
cities by the monopoly of the Reichsbank? Or are we to
believe that the Reichsbank, in its character as a monopoly, would, or could, provide all of these places with
Reichsbank suboffices? The mere matter of expense
would, in my judgment, put such a plan entirely out of
the question. The activity of the private note banks in
the smaller cities places the sound distribution of credit
upon many shoulders, and thus constitutes an appreciable and, under certain circumstances, a very grateful
relief for the Reichsbank. The stable level of the note
circulation, which fluctuates comparatively little even in
troublous times, is explained indeed by the utilization of
the resources afforded by the private banks of issue in
the smaller cities. The fluctuations and disturbed con-
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ditions of business in the great financial and commercial
centers, the elastic regulation of which naturally falls to
the Reichsbank, are felt but little in the smaller cities.
To regard the stability of the bank-note circulation as
indicative of evil influences is therefore to misapprehend
altogether the activity of the private banks of issue and
their functions. The objection which was formerly heard
at times that the private note banks neutralized the
discount policy of the Reichsbank by underbidding the
Reichsbank discount rate has ceased to have any force,
because since 1901 the discount rates of the private banks
have almost without exception been adapted to those of
the central bank. If the private note banks, with the
exception of the Bavarian Bank, have since 1901 loaned
temporarily below the regular discount rate, these loans
have not been made through the instrumentality of
note issues, but mostly out of the superabundant
original capital and the deposits. It is not, therefore, a
question of the abuse of the note privilege. The influence
of the private note banks on the interest rate has been
generally overestimated. The private banks of issue, in
my judgment, by their generally loyal and unobjectionable course, have honestly deserved to be treated and
to be regarded by the Reichsbank, not as inconvenient
rivals, but as estimable cooperators in the fulfillment of
a common duty. The matter of the issue of notes by
private banks has been considered by imperial legislation
since 1875 a s a question of organic economic development. This statesmanlike conception, in which the principle of centralization has certainly not suffered, will
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undoubtedly prevent the existing prosperous state banks
from being cut off before their time by arbitrary legislative action.
I therefore declare myself, on the ground of the foregoing considerations, in favor of the unconditioned maintenance of the present note-bank system. Not only the
tried organs of the bank act, the Reichsbank and the
private note banks, but the whole German business world
interested in existing banking institutions, are, in my
judgment, fully justified, and have long been justified, in
demanding that the banking system, in its fundamental
features, be constituted a definitive arrangement, and that
the present periods of renewal be removed, or at least
lengthened. This desire is justified, though it may be
unattainable from parliamentary considerations.
Finally, I would call attention to a point with regard
to which the bank law does not seem to need a change,
but does need a supplement of no little importance. This
concerns the position of the Reichsbank and the private
banks of issue in case of war. It follows from the position of the Reichsbank as the central bank of issue for
Germany, that in case of war it must serve the Empire as
a war bank, in addition to its manifold economic duties.
In such a situation the metallic stock concentrated in
the German note banks would be of the utmost importance, constituting, as it does, in critical times the main
support of the whole monetary system. It would mean
everything, not only during the continuance of the war,
but still more so in the economic readjustment and financial reconstruction later on. Not only the metallic stock
83703—10
17
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of the Reichsbank, but also that of the private note
banks, which consists almost exclusively of gold, should
be considered in this connection. This national metallic
stock ought not be scattered or uselessly squandered and
dissipated in the channels of daily business. It should
be kept intact for purposes of the public welfare and
remain sequestered for those purposes. In Schmoller's
Jahrbuch for 1899 I expressed the opinion in my article
4
* Concerning the German Monetary System in Case of
W a r " that Germany, in case of a quick, decisive victory,
would be able to dispense with compulsory monetary regulations. The enormously increased monetary demands
for economic and military purposes in the last decade
have caused me to change this opinion, because the
requirements of war might exceed the normal demand far
more than was formerly believed. It now seems to me
that no continental state could carry on a great European
war without a temporary forced currency, because it
would need its gold treasure as an emergency reserve,
and foresight urgently demands its concentration for all
emergencies. The technical inferences drawn from this
necessity need not be presented here in detail; it is sufficient to make this brief reference to eventual measures
in case of war. The provisions of the bank law regarding bank statements, the redemption of notes, and loans
upon securities would need, in my judgment, a temporary modification for all German banks of issue in case of
war. It seems to me that it would be expedient to introduce a clause into the bank law investing the Bundesrat,
or the Reichsbank, with the necessary authority to make
these changes.
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If the representatives of the German banking world at
the coming Hamburg convention should take up the
imperial bank act of the 14th of March, 1875, in their discussions they may well pay homage to it and to its authors.
It is largely to the bank act that Germany owes its prosperity and the assured security of its credit. The German
financial world will have to admit, however, that the best
legal institutions are vivified only through the intelligent
cooperation, the efforts, and the self-restraint of the citizens. Protective institutions should be utilized in accordance with the dictates of reason. We must be careful not
to abuse them by relying blindly on them or demanding
the impossible from them. Human reason can not be
replaced by any legal institution, however cleverly devised.
259
VIII
Law of June 1, 1909, Amending
the Bank Act
261
VIII.
LAW OF JUNE i, 1909, CONCERNING
CHANGES IN THE BANK ACT.
We, William, by the grace of God, German Emperor,
King of Prussia, etc., ordain, in the name of the Empire
and with the consent of the Bundesrat and the Reichstag, the following:
ARTICLE I .
Section 24 of the Bank Act of the 14th of March, 1875,
is changed to the following form by the repeal of article
2 of the law of June 7, 1899.
The net annual profit of the Reichsbank is to be divided
at the close of each year in the following manner:
1. In the first place, a regular dividend of $% percent
of the capital is to be distributed among the shareholders.
2. After 10 per cent of the balance has been transferred to the reserve fund the new balance shall be distributed in the proportion of one-fourth to three-fourths
among the shareholders and the imperial treasury, respectively.
If the net earnings are less than $% P e r c e n t of the
capital, the difference is to be made up from the reserve
fund.
The premium gained on the sale of Reichsbank shares
is to be added to the reserve fund.
Back dividends having a four-year standing after
maturity are canceled in favor of the Bank.
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ARTICLE 2.
Article 5 of the law of June 7, 1899, is amended by the
following provision:
The total amount of tax-free uncovered notes to be
apportioned to the Reichsbank, according to section 9 of
the Bank Act, including the shares of the banks numbered
2 to 12, 15 to 17, and 20 to 33, which have accrued to the
Reichsbank, is to be fixed at 550,000,000 marks, and the
total note circulation for all the banks is to be raised to
618,000,000 marks.
The amount of notes in circulation, according to the
reports which are submitted at the end of March, June,
September, and December of each year, for the purpose of
determining the tax (section 10 of the Bank Act), raises
the shares of the Reichsbank to 750,000,000 marks, and
the aggregate circulation to 818,771,000 marks.
ARTICLE 3.
The notes of the Reichsbank are legal tender. In all
other respects the provisions of section 2 of the Bank Act
remains in force.
ARTICLE 4.
I. In section 18 of the Bank Act the words il German
currency" are changed to "German gold coins."
II. Section 19, paragraph 1, of the Bank Act is changed
to the following form:
The Reichsbank is required to accept at full face value
the notes of those banks which are announced by the
Imperial Chancellor, according to section 45 of this act,
not only in its main office in Berlin, but also in its branch
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offices either in cities of more than 80,000 inhabitants or
in the city where the bank which has issued the notes is
located, as long as the issuing bank punctually fulfills its
duty of note redemption.
Similarly, the Reichsbank is required to exchange to
bearer its notes for the notes of each of the announced
banks in its branch offices which are located in the same
States where the issuing bank is operating, as far as the
amount of the notes of these branch offices permit such
exchanges.
The notes accepted or exchanged, according to paragraphs 1 and 2, may be presented by the Reichsbank
either for redemption or as payments to the same bank
which issued them, as well as payments in the city where
the latter has its principal office.
ARTICLE 5.
I. In section 8, paragraph 6 (C), of the Bank Act, the
words "and checks" shall be inserted after "bills."
II. The following words shall be inserted in section 132
of the Bank Act after "solvent:" "as well as checks
which are indorsed by not less than two persons known
to be solvent."
III. The following words shall be inserted in section 17
of the Bank Act after " solvent:" " or in checks which are
indorsed by not less than two persons known to be solvent."
IV. In section 32, paragraph 1, of the Bank Act, after
the phrase "the sale and purchase of gold and bills," the
words "and checks" shall be inserted.
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V. The following provision shall be appended to section 47 of the Bank Act:
SEC. 47 a. With regard to the reserve against the circulating notes of the private note banks which are exempt
from the restrictions of section 42, the provisions of section 17 shall be applicable.
ARTICLE 6.
I. Article 6 of the law of June 7, 1899, is amended as
follows:
The following sentence is to be added to section 13 of
the Bank Act, paragraph 3?—(C), after the words " of
their exchange value."
"To these are to be added the bonds of domestic quasi
public agricultural credit institutions, which are issued
to bearer, as well as the bonds of the above institutions
and banks, which are payable to bearer and which are
issued on the basis of loans granted to a domestic municipal
corporation or which are guaranteed by such a corporation.''
II. The following provision is to be inserted under
figure 9 in section 13 of the Bank Act:
" 9 . To issue interest-bearing loans for not longer than
three months on pledges of the right of claim of debts
registered in the debit books of either the Empire or one
of the German States, to the maximum amount of threefourths of the exchange value of the converted debt."
III. Section 20 of the Bank Act is appended by the following provisions to be designated as sections 20a and 206.
SEC. 20a. If the right of claim of debts registered in
the debit books of either the Empire or one of the German
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States (sec. 13, fig. 9) is pledged to the Reichsbank, the
signatures of the persons, for which the Reichsbank is
kept responsible according to section 38, are adequate
for the recording of the pledge in the debit books in the
name of the Reichsbank. Inasmuch as this latter provision requires the signatures of two members of the board
of directors, the authentication of the application is valid
when made by other officials of the Reichsbank named
by the board of directors to the debt administration.
The provisions of section 183 of the law concerning
voluntary jurisdiction are applicable to the authentication.
SEC. 206. If the pledge of the right of claim of debts
has been registered in the name of the Reichsbank in the
debit books (sec. 13, fig. 9), the Reichsbank retains the
right to the pledge even when it has been transferred to
a third party, unless the right of the latter has been
recorded in the debit books before the entrance of the
pledge of the right to the claim or if at* the time of registration the right of the third party has been either known
or, save for gross negligence, could have been known to
the Reichsbank.
If the debtor does not meet his obligations guaranteed
by the pledge of the right to the claim, the debt administration is authorized and required, upon the written
request of the Reichsbank, to issue to the latter, without demanding any proof of the delay on the part of the
pledger to meet his obligation, certificates of indebtedness to bearer for the whole or a corresponding part of
the claim, unless such issue is prohibited by judicial
order or when the right to request such issue or to make
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other arrangements was recorded in favor of a third
party prior to the pledge of the right to the Reichsbank.
The pledge of the right of claims may also be used for
the purpose of defraying the cost incurred in the issue
of the certificates of indebtedness.
The debt administration shall inform the Reichsbank,
at the time of issuing certificates of indebtedness to the
latter of the later transfers of the right to the claim.
The provisions of section 20 stipulate for the compensation to be demanded by the Reichsbank out of the
certificates of indebtedness to be issued by the debt
administration.
ARTICLE 7.
Section 22 of the Bank Act is to be changed to the
following provision:
The Reichsbank is required to take charge of the
business of the imperial treasury without compensation.
The .Reichsbank is authorized to assume the obligation of administering the similar business of the federated
States.
ARTICLE 8.
Articles 3, 4, 5, and 6 of this law shall go into effect on
the 1st of January, 1910. The other provisions shall
go into effect on the 1st of January, 1911.
Issued over our imperial signature and seal.
Given at the New Palace, the 1st of June, 1909.
(Signed)
WILLIAM,
VON BETHMANN HOLLWEG.
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@FedFRASER