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PAUL RATCLIFFE'S ADVENTURES.

A RAMBLERS JOTTINGS.

OUR "CITY" ARTICLE. -

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OUR "CITY" ARTICLE. THOUGH the banking operations of the country are mainly carried on by joint-stock associations, and, as a consequence, private banks have con- siderably diminished in number, the latter still occupy a respectable position, and are the medium through which a good deal of the business of the country is carried on. A private bank, however, has, in some respects, an advantage over a joint-stock bank. In the one, personal weight and individual influence have the preponderance, while, in the other, these elements are disseminated, or reduced, as it were, to nil. Still, from their comparative security, joint-stock banks are gradually superseding private banks, and this would have been the case at a much earlier period had the principle of joint-stock associations been applied to banking as it has to other departments of enterprise. The joint-stock system has mainly sprung up within the last forty years, for in 1826 the forma- tion of joint-stock banks was authorised in Eng- land for the first time. A law to that effect was passed, after a strong opposition from the Bank of England-the then only joint-stock banking establishment in the country of more than six partners-which succeeded in getting clauses in- serted in the Act to prevent them being established within sixty-five miles of the metropolis. Thus, while provincial towns and places not having a tithe of the wealth and population of London- the capital and counting-house of the world-were authorised to form joint-stock banks, the city of cities was shut out by law from establishing tiiera, though the magnitude of its transactions pres- singly demanded banking accommodation of the amplest character, and remained out for seven I years after provincial districts had been conceded the boon. It was not until the year 1833 that joint-stock banks could be legally formed in Lon- don, and the first institution of its class-the London and Westminster Bank-dates its estab- lishment only from June, 1834. There are now, however, 101 joint-stock bank- ing companies in England and Wales, according to a Parliamentary return, with twenty millions of paid-up capital by 30,711 shareholders. This capital, by virtue of the lucrative dividends de- clared-these ranging from 5 to 30 per cent. per annum-has greatly augmented in value, though joint-stock banking transactions may be said to be but partially developed as yet. There is, how- ever, a difference of opinion as regards the work- ing of these associations, and a great deal depends whether we look at the question from a share- holder's or a depositor's point of view. Taken from a depositor's point of view, it may be urged that a joint-stock bank cannot be too rich in the shape of paid-up capital, as this is the best way of pro- viding security for its transactions, having then something substantial to fall back upon in case of need. Any person of reflection, it is said, having a sum of money to deposit, would naturally prefer the security of that bank which possessed the largest amount of paid-up capital, always sup- posing the management to be competent and effective. It is because the Bank of England, monopolist though it be, possesses the largest paid-up capital of any bank in the world, and is, upon the whole, ably managed, that it com- mands the implicit confidence of the public, and in times of pressure its security for deposits would be taken with confidence, while that of other banks would in all probability be rejected. The reason is simple. In the Bank of England the two most vital principles involved in joint-stock association are provided-namely, abundance of paid-up capital and able manage- ment. If the Bank only allowed interest on de- posits, and offered generally more liberal terms tor business, like most of tslie joint-stock Ib&nksj it would, in the nature of things, distance most of its competitors. With regard, however, to the security which the paid-up capital in a joint-stock bank affords, a very important principle is involved that cannot fail to force itself upon public notice- it is the proportion of paid-up capital which a bank ought to possess in relation to its liabilities. In nine London joint-steck banks only, with de- posits amounting to from sixty-seven to seventy millions sterling, they only possess 4f millions of paid-up capital, whereas, in accordance with a sound and recognised theory in banking, thev ,cc sound and recognised theory in banking, thev should not have less than seventeen millions at least. We put the paid-up capital at one-fourth the deposits, which is considered the minimum of security. But, looking at the case from a share- holder's point of view, a very different phase presents itself. A shareholder argues that a bank cannot pay too high a dividend upon the working of its paid-up capital, and seldom contemplates, or even thinks about, the analogy of the inverted pyramid, so long as everything flows smoothlv on, and the surface of affairs is scarcely ruffled with a breeze. The larger the profits are in a joint-stock bank, the shareholder, generally speaking, considers it the safer; and as these associations yield better returns to shareholders than any other description of investment, they are the favourites of most in- vesting capitalists. We would venture, however, to suggest that this is not a sound policy, and that joint-stock banks, if they wish to abide upon a solid foun- dation, and be permanently prosperous, must not give so large a proportion of their profits to their shareholders, who do not earn them, and relatively so small an amount to their depositors, whose capital produces the large and lucrative dividends they declare, to say nothing of rather costly management expenses. These suggestions, we venture to think, are worthy of consideration; ma, if practically kept in view, will have a ten- dency to establish joint-stock banks upon a broader and firmer footing than they are at present, and will enable them to weather the severest storm that can possibly assail the bank- ing system, of which they are so large and so .mportant a part. We will now give the dividends declared at the •ecent meetings of the leading joint-stock banks, is they measure in some degree the utility and mportance of these establishments, and also point jO the necessity of making them, practically, as perfect as they possibly can be:- vesusig capitalists. We would venture, however, to suggest that this is not a sound policy, and that joint-stock banks, if they wish to abide upon a solid foun- dation, and be permanently prosperous, must not give so large a proportion of their profits to their shareholders, who do not earn them, and relatively so small an amount to their depositors, whose capital produces the large and lucrative dividends they declare, to say nothing of rather costly management expenses. These suggestions, we,ve.^ure think, are worthy ol: consideration; and, if practically kept in view, will have a ten- dency to establish joint-stock banks upon a broader and firmer footing than they are at present, and will enable them to weather the severest storm that can possibly assail the bank- ing system, of which they are so large and so important a part. We will now give the dividends declared at the -recent meetings of the leading joint-stock banks, as they measure in some degree the utility and importance of these establishments, and also point to the necessity of making them, practically, as perfect as they possibly can be:- n J. Per Cent. per Annum. 1864. 1865. London and Westminster 28 26' London Joint-Stock 32J 18 Union Bank 20 30 London and County 32 30 City Bank 20 15 Bank of London 20 20 *Consolidated Bank 15 15 Alliance. 10 5 Imperial 8 8 The logic of these figures sufficiently establishes the fact that joint-stock banks are a great success and, as their shares are nearly all at a high This bajjk has adopted tfce system of carrvino- <> sum half-yearly to reserve. This, no doubt Itofwte the capital of the bank, but may be taken to be not aulte r beneilt t)¡:2 depositors. premium, they ought, and cannot fail, to secure the confidence of both depositors and investors. The speculation in public securities has been for some time dull, this being the holiday season, on the Stock Exchange. The Bank of England rate of discount is still at 4 per cent., and in only exceptional cases has business been done at a lower rate. The demand for discount, however, has been moderate, owing, in a great measure, te the unsettled state of the weather, and consequent fears for the harvest. The supply of money on the Stock Exchange has been abundant, and the rate for short loans has fallen to It to 2 per cent. Consols were 89§ to 89 7 for money, and 89f to t for account.

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