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being supposed that the money is used or turned, in the same process of discounting, four times in that period ; and in either case a large surplus will remain for the part payment of dividend on the capital, to be added to the three per cent. which that capital has been making during the same time on its investment in Consols, and which sums together make up the total dividend paid.
The rate of discount at the London joint-stock banks is always, it is to be observed, lower than that of the Bank of England; and there is this additional drawback and burden in discounting with the latter-If you have a discount account with the Bank, and a bill running, and one of the parties to the Lill fails, the Bank's practice is to return the bill to you, and to call upon you to pay it at once, without waiting until maturity. This no other bank takes upon itself to do, the practice being, in fact, wholly in excess of any legal rights belonging to the holder of a bill of exchange.
The subject of bill-broking is so closely connected with banking business that it is impossible to avoid saying a word or two on it. An attempt has already been made to convey some notion of the enormous sums with which the great banking interest of this country is intrusted. Here is an account of the deposits held by the undermentioned London joint-stock banks at the latter end of 1857, with the dates of their respective commencement of business :2
Lon lon and Westminster,
936,724 3,533,425 1,388,933 1,114,846
183 1 1837 1840 1841 1838 1856 1857 1857
£12,592,549 1 Evid. of Mr. Neave-Evid., p. 16, Q. 223; see also Evid., p. 81, Q. 1266, 1267.
· Evid., p. 70.
There are also the sums deposited in the other joint-stock banks and private banks of London and the country, the bulk of all which is to be turned to profit in some way or other. To effect this the agency of bill-brokers is employed to a great extent, and the practice of so employing them has much grown of late years; for, as larger sums became intrusted to the bankers, the more difficult it became for them to find discounts enough for themselves, and they resorted to bill-brokers, a class who were in their origin merely what their name imports - the agents for bringing together holders of bills, and persons who were willing to discount bills. About fifty years ago the business of billbroking began to assume its present character, the principal feature in which is, that the bill-brokers discount themselves, and have become the great medium for the transmission of the spare capital of one part of the country to another part where it is more required. Thus the bankers of the rural districts, where capital is not much in request, send their money up to the London brokers to be used at interest, and with this money the brokers discount the bills sent up to them for that purpose by the bankers, and sometimes the merchants and others, of the manufacturing and mining districts, and the great centres of industry and commerce.
The commercial classes of London are also supplied by these brokers with money on discounts, to which, otherwise, they would have no ready access.
The feature of the system, to which, however, we have at present principally to direct attention, is, that the London and provincial bankers were much in the habit of depositing largely the money intrusted to them by their customers, with the hill-brokers at interest, but also on call; and the bill-brokers were enabled, without keeping any reserve of their own, and in some cases without, in fact, possessing any capital of their own, to meet all these immense liabilities, by the operation of a system which had been in existence since the year 1830; and by which the Bank of England had been in the habit of allowing them accommodation to any extent, by way of loan or advance upon the security of good bills lodged by them in the Bank. The extent of these trans
actions may be in some degree estimated by considering that, during the monetary pressure of the year 1857, the loans and advances of the Bank of England rose from 10 millions sterling, on October 24, to upwards of 20 millions sterling, on November 21; and that half of that latter amount consisted of accommodation to bill-brokers. During this year, one or two bill-broking houses stopped payment; the liabilities of one of which is stated to have been no less than £5,442,285. The reader must, however, carefully bear in mind this—it has not as yet been made to appear that these failures arose from
cause than the misconduct of the individuals concerned in the management of the business. There is nothing brought to light pointing to the conclusion that such consequences necessarily flow from the system itself. At any rate, the system is now materially altered, as the Bank of England, in the course of last year, closed their discount accounts with bill-brokers, who can, therefore, no longer look to the Bank for assistance, but must depend in future on resources of their own; their dealings with the Bank being now confined to the usual quarterly advances. It will be understood that, when we spoke of the bankers depositing money with the bill-brokers on call, it was not intended to convey that the money was intrusted to them without security. The banker so depositing always receives bills having some time to run, or other security, to an amount sufficient to cover the sum he deposits, and which, of course, were returned to the bill-broker by the banker when he calls back his money. The business of a billbroker is one which has for its object the convenience of bankers who employ their deposits at call, and the convenience of the public who receive discounts by these meanis; and it is found that the wants of the public for discount are about equal to the money seeking employment from day to day. The two demands nearly balance one another ; and these two demands being in existence, the practical question is, whether the balance of them
1 Mr. Neave's Evid. Evid., p. 25 ; Q. 377, 379.
shall be effected by the bankers or by the intervention of billbrokers? and probably the new rule adopted by the Bank of England will have the effect, at least for some time to come, of throwing more business into the hands of the London joint-stock banks.
We will next advert to the practice of the re-discounting of bills, against which so much has been said in condemnation. This practice ought to be clearly distinguished from one to which its name is often most idly and improperly given. If a person obtains a loan, offering as security a parcel of bills of exchange, to an amount sufficient to cover the loan which he has obtained by discounting them, and which bills are to be returned to him if he repays the sum advanced before their maturity, but if not, the proceeds are to be received by the lender and holder of the bills as they arrive at maturity, and the offer is accepted ; this is an advance upon the security of bills of exchange, but it is not a rediscount, because the borrower does not place his name on the bills, and does not make himself liable upon them. A re-discount takes place when a person who has already discounted a bill for A, takes the bill to B, and gets him to discount it again, A, as owner of the bill, placing his name upon it, for security to B in the transaction. The London joint-stock banks, it is said, never re-discount in the proper sense. One of the charges
-? made against the bill-brokers, before the committee of last year, was founded on their excessive re-discounts. They were in the habit, it was alleged, of recklessly re-discounting bills discounted by the provincial joint-stock banks, and transmitted by them for re-discount in London, and of re-discounting them solely on the faith of the name of the provincial bank which appeared upon them, and without any regard to the names of the other parties to the bills; and the Borough Bank of Liverpool was said to have had, at the time of its suspension, no less than 2 millions worth of their discounted bills held in London-paper which they had discounted, with the discredit attaching of having very bad names on it, and which had been
1 Evid., p. 152, Q. 2245, p. 73, 8. VOL, VII. NO, XIII.
re-discounted. This practice seems to be regarded with much disfavour in the commercial community ; but the grounds of objection are not at all clearly disclosed, and on principles of law it does not seem easy to discover any impropriety in it. The question has the appearance solely of one of prudence and knowledge—the elements of decision in all questions of money dealings. It is said to tend to encourage a bad class of bills ; that, however, must necessarily be a consequence of the abuse of re-discounting—it is not the object of it—it is no necessary part of the business of re-discounting. Yet, before it is abolished, something inherently vicious ought to be stated and proved in this great machine, by the working of which the superabundant capital of the agricultural districts is transferred to the centres of manufacturing, mining, and commercial enterprise. That credit may be abused by the creation of fictitious bills is, no doubt, true, but that such bills occasionally get into circulation is no new discovery ; nor is it unlikely that neither brokers nor bankers should be able at all times to detect such impositions ; hence, they are sometimes deceived, and suffer loss accordingly. The estimate generally received of the amount of the bills of exchange, existing together at any given time in England, appears
to be from two hundred to three hundred millions' worth therefore, the transactions of this class being so enormous, it is not surprising if there are occasionally losses from imprudence, inadvertence, recklessness, or fraud. The subject of re-discounts by bankers seems very seldom to come before the courts, Pollard v. Ogden 1 is, we believe, one of the last cases under this head, and may be referred to for the rights and liabilities of bankers on occasions of this kind. We will close this branch of the subject by stating that, while the inquiry before the committee of last year clearly showed, that the joint-stock banks which have lately stopped payment were brought into that state by misconduct and want of integrity in the persons managing them, and not at all by reason of any defects in the principles on which the system is founded; on the other hand, there appears still to linger in some
* 2 Ell. & B., 459.