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seems to be this: Vast numbers of persons, who, on the one hand, never before employed a banker, and, on the other, were not much in the habit of investing either in British or Foreign securities, but who kept in hand, in their homes for the most part, any small sums that they might have to spare above their daily wants, attracted by the high interest given by the jointstock banks, upon sums deposited with them at very small notices, and in many cases absolutely at call, have flocked to them to place their money there. Many persons,


may be fairly surmised, under the same temptation, by means of greater thrift and self-denial, have been led to save and accumulate, and to have sums to deposit, who never owned a surplus or a saving before. In Scotland, where banks are very numerous—indeed, there are nearly as many banks, if we include branches, in Scotland as in the whole of England and Wales—the system of giving interest on deposits has long been known, and works in the same way, or (perhaps we might say) performs still greater miracles. The whole population of Scotland is about three millions, we believe; nevertheless, the amount of money which they deposit in their banks at call or short notice, but at interest, was, according to the calculation of well-informed persons, considered to be fifty millions sterling in November, 1857. The tendency of all this, the consequence of the position in which the joint-stock banks find themselves, by having these immense masses of money forced upon them--that is the language used —

— is said to be to incline their managers to run greater risks of losses in some cases, than is consistent with prudent banking ; because it is said, as the interest on all this money has to be provided for immediately, and the dividend to be maintained besides, the temptation is to discount a lower class of bills than is prudent, and perhaps even, it is said, this course may be instrumental in giving currency to bills that probably ought not to be discounted. The notion of the generation which is dying out

· Evid. of Governor of Bank of England. Evid., pp. 22,65. · Evid. of Governor of Bank of England. Evid., pp. 58 ; Q. 924, 59; Q. 926, 68; Q. 1101 ; and see and compare Mr. Salomon's Evid., ib., p. 71, 72,


was, that to give interest on deposits is not banking, and no part of a banker's proper business ; but there is no better ground for this than for the notion (which yet prevailed for many centuries), that it was no part of the business of a Christian to take interest at all. The theory of the joint-stock banks is certainly plausible. These banks give, their advocates say, an advantage to the person who has money which he does not propose to invest in securities which he might perhaps be called upon to realize at times when he could not do so without loss, by giving him the opportunity of obtaining interest upon it at the same time that he can recall it at pleasure. To the borrower, on the other hand, they hold out the opportunity of obtaining money on the lowest terms known in the market. In short, as the fact has been expressed, “ the public, rightfully or wrongfully, have certainly taken to joint-stock banking;” and this fashion or fondness, together with the increase of late years in the amounts held by private bankers, leads to the estimate of one thousand millions sterling, as the grand total held upon deposit by the banks of this country. True it may be, that some of these companies have advertised in the newspapers with a view of attracting notice and getting hold of business. Some shareholders of a few of them may have been known to solicit tradesmen and others to join them, and open accounts, &c. The expenses moreover of management may be larger than in private banks; still we apprehend it to be difficult to pronounce this system, at any rate as yet, with the limited experience which the country has of them, to be incapable of securing, upon the whol', advantages to the community, and, at the same time, profits to the shareholders. All the witnesses before the parliamentary committees of 1826, testified to the great benefits arising from the universal adoption of a similar system in Scotland. Why should the contrary effects, or any inferior effects, be looked for here? The London joint stock banks, it is to be remembered, do not follow exactly the Scotch system in respect of allowing interest; for the Scotch plan is to allow interest on the daily balance, calculating the interest, day by day, at the same rate which they allow on deposit receipts. But the London banks allow interest only at the rate of one or two per cent. on money retained above a month in the bank, with other regulations tending to render the rate of interest paid in London lower than that given in Scotland. Since the establishment of joint-stock banks the dividends received by creditors in cases of bankruptcy have been found in general (it appears) to be larger than those realized from the estates of the private bankers that fail. The ruin is more widely spread, it is true, when a joint-stock bank becomes insolvent, as not only depositors but shareholders suffer—in the aggregate, a much greater number than can in general be affected by the failure of a private bank. But a similar objection may be applied to the great joint-stock carriers. When a railway accident occurs, it may be said the infliction of pain, damage, and death-the stragesis far more fearful than was possible under the old stage-coach system of travelling; yet railways are permanently established in the nature of an institution of the country, and so far as joint-stock banks draw into use money that formerly lay dead, they confer a benefit on the mercantile community, by rendering money cheaper and more abundant ; and it cannot be doubted but that, in November, 1857, the Bank of England was enabled to afford the extent of accommodation to trade which was afforded (previous to the 12th, when the Government letter appeared) by her, in a very large proportion, from the large deposits with her made by the joint-stock banks, and forined out of the small sums which were attracted to them in the manner that has been mentioned, and which, but for the joint-stock banks, would not have been available for discounts at all. The fact cannot be questioned ; the benefit to the commercial body and to the whole country is undeniable. In consequence of the great and rapid growth of the monied classes which has been in progress in the last quarter of a century, the

78; Q. 1221, Mr. Coleman's Evid., ib., pp. 133, 137. Mr. Foster's Evid., ib., pp. 145, 146, 157. Mr. K. Hodgson's Evid., ib., pp. 250, 257, 258, 259, 263. Mr. Haliday's Evid., ib., p. 274.

Evid., p. 164,

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want for more banking has been felt; that want has been met by the application of the joint-stock principle to money dealing, together with the adoption of the Scotch scheme of paying interest on deposits, with modifications; and hence the vast increase in the sums held on deposit, and the vast increase of bankers' reserves which were in the hands of the Bank of England at the time of the pressure in November, 1857, and which had been placed there by the joint-stock banks, in order to be in readiness in case any sudden demands should have been made on them by their customers for the re-payment of the sums they held, on call or at short notice. It is not to be forgotten, among other advantages, such as the promotion of labits of prudence, self-denial, thrift, and forethought, which an extension of the habit of keeping a banker gives rise to, how largely it serves to economise the circulation. The system of payments by cheques and bills, instead of by coin and notes, which springs out of the now generally diffused practice of banking, has had so much effect in this way that the circulation, as regards gold and notes, is found to be actually smaller than it was some time ago. Payments are more commonly made by transfers in account; credit is substituted for money to an almost incomparably greater extent than formerly; and the national gain (at any rate in ordinary times) is certain. Every one acknowledges the immense expansion of trade and manufactures, and no one disputes the ample proofs of the fact which the tables of exports and imports afford, and which are patent to the eye in the rapid advancement of our great towns. But when you say this, do you not at the same time imply that fresh uses are thereby created for money ; new fields of employment for capital opened, affording quicker returns than were possible to be had under less active and animated commercial conditions, when transactions were rarer and money changed hands seldomer, in a poorer period ?

“ The same sum in a rich country will effect perhaps ten successive operations of exchange in the same space of time as one in a poor country. In a poor country, after a dealer has disposed of his wares, he is sometimes a long while before he can provide

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himself with the returns he has in view, and during the interval the money proceeds remain idle in his hands. Moreover, in a poor country, the investment of money is always difficult. Savings are slow and gradual, and are seldom turned to profitable account until after a lapse of years, so that a great deal of money is always lying by in a state of inaction.”

Hence it may well be that modes of banking which were thought unsafe, or at least not en régle, among the older bankers, the experience of these days may show to be sound and beneficial; and as, for instance, to lend money on railway debentures has at length come to be considered no infringement of the banking canon against investments on inconvertible securities, facts having shown the pedantry of such a notion, so the payment of interest on deposits contains in itself nothing to alarm the most timid; at any rate, in times when it is possible for the banker to employ a portion of those deposits in such a way as to derive a satisfactory profit, chiefly by discounts of bills having no long time to run, and to arrange the run off of the bills he discounts in such a way as to secure his being at all times in funds to meet the demands that may be expected to come upon him. The capital of the bank he does not employ in this way, but invests in Government securities, so as to be available at the shortest notice to satisfy unexpected demands, and to give that confidence to the publie and to his customers which is the heart's blood of his business and the richest of his assets. As we have said, there is no substance in the commonplace objection against the joint-stock banker because he professes to pay interest on deposit accounts, and also to pay large dividends on the paid-up capital. If a customer brings in £100 on a deposit account, and the banker discounts out of it a good commercial three months' bill at five per cent., then the interest on the deposit only being payable in most cases when it has been retained a month, he can afford to pay his customer a satisfactory interest for however short a time the money may be retained over the month, and a very handsome interest if it be retained for a twelvemonth, it

1 Say-Polit. Econ., Bk. II., cap. 4.


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