The study of banking is a subject of great interest, because the prosperity of this country is largely dependent upon the stability of our banking system.

We might almost say that the entire capital of the country finds its way into banks in order to be utilised for the benefit of the community. For example, a manufacturer by the aid of borrowed capital obtained from banks is able to produce commodities at a cheaper rate, and thus benefit society at large. It is a known axiom of political economy that an increase of production is a cheapening process. Our modern system of banking has materially increased the prosperity of this country, because no country in the world has the same financial facilities as we have for carrying on trade. Abolish our banking system, and we should find it difficult to compete with other countries; we should, in fact, be heavily handicapped.

Credit is the basis upon which our trade is transacted. One person takes a cheque from another because he believes the drawer has capital at his bankers, and that it will be paid on presentation. This system of credit is of comparatively recent origin, and it has been the means of economising the use of the precious metals. If the cheque system was abolished, a larger amount of gold would be required to act as a circulating medium.

Gold and silver must be bought like other commodities, and when stored in banks represent capital that is not required for the moment.

Our banking system is carried on with a very small amount of the precious metals, and therefore the capital of the country is economised. We should expect to find a country in a prosperous condition where a good system of banking exists.

English banking is comparatively modern. Two hundred and twenty years ago the English banker was a goldsmith, and also advanced money upon plate, jewellery, etc. The Bank of England was not in existence, the date of its charter being 27th July, 1694, and joint-stock banking in England was also unknown, although it was not declared illegal until the renewal of the Bank Charter in 1708.

At an earlier period the business of money lending was carried on by the Jews. They lent money at a very high rate of interest, although a law passed in the reign of Edward the Confessor prohibited usury.

However, we find that in the year 1199 the rate of interest was fixed by law at 10 per cent., and this appears to have been the rate until the reign of Henry VIII. It is stated that the Jews at Oxford during the reigns of Henry III. and Edward I. were in the habit of extracting 45 per cent. from the students. The matter was taken up by the legislature, and Henry III. granted a charter by which they were only to receive interest at the rate of 2d. in the £ weekly. Money so obtained from the Jews did not benefit the trade of the country, but only of individuals who were in pecuniary difficulties.

The Jews were thoroughly hated for the manner in which they transacted business, and consequently were expelled from England in the year 1290, and were not readmitted until the time of Oliver Cromwell.

The Lombards were also money lenders, and settled in this country at an early period from Genoa, Venice, Lucca, and Florence. They lent large sums of money to different governments, for which, like the Jews, they charged an exorbitant rate of interest. Edward III. borrowed 5000 marks from them, for which he paid 7000 marks.

Besides the Jews and Lombards there was another class who were originally dealers in gold and silver bullion, but who became subsequently bankers. These men were called goldsmiths, and possessed considerable wealth. Mr. Price in his Handbook of London Bankers gives a very interesting account of these early goldsmiths and money lenders.

Amongst the early goldsmiths we have Otto, in the reign of William I., and later Henry Fitz Alwin Fitz Leofstane, who was Lord Mayor of London for twenty-four years from 1189 to 1213. In the reign of Henry III. we meet with three goldsmiths, viz., Thomas de Frowick, Warden of the Goldsmiths Company in 1270, and Alderman of Cheap Ward in 1279; William de Gloucester, Keeper of the Dies in 1255; and William, the King's Goldsmith, Master of the Mint in 1258. The names of seven goldsmiths are recorded between the years 1327 and 1377.

In 1566 the Court books of the Goldsmiths Company show that out of 107, no less than 76 of them resided in "Chepe"; the remaining 31 resided in "Lumberde Street". It was during the Commonwealth that the goldsmiths began to assume the character of bankers. Many persons left their money with the goldsmiths for safe keeping, and in return the goldsmiths gave receipts or cash notes for the same, payable on demand. These receipts passed from hand to hand, and were called goldsmiths' notes. At a later period the goldsmiths deposited their money with the Government.

There was a feeling of insecurity during the Civil War, and therefore money kept in large iron chests was removed to places of safety.

The chief investments for capital were land and cattle.

It is stated in the Verney memoirs that on the death of Lady Verney in 1641, she directs by her will that certain sums of money should be taken from her red box and distributed amongst her relatives.

During the same period we have several noblemen stating that their capital consisted principally of live stock on their estates.

Charles II., being in want of money, closed the Exchequer, and all payments to bankers who had deposited money in that place were suspended. The goldsmiths had at that time £1,328,526 on deposit, and the loss of this large sum naturally brought ruin upon them and their customers. It was not until five years after that the king caused letters patent to be granted to the goldsmiths covenanting to pay 6 per cent, per annum, but even this was discontinued in 1683.

The number of goldsmiths or bankers that were in existence at the end of the seventeenth century amounted to about 70 or 80, and at the end of another 100 years they had not increased. In the year 1801 there were 68 private bankers in London.

Many of the goldsmiths whose names we find recorded in the Little London Directory still exist as bankers of the present day. Of these we have Messrs. Hoare & Co., descended from James Hore or Hoare, a goldsmith keeping running cashes at the Golden Bottle in Cheapside, 1677; Messrs. Child & Co., descended from Messrs. Blanchard & Child of "Ye Mary gold"; Messrs. Martin & Co., descended from Charles Duncombe and Richard Kent of "Ye Grasshopper," in Lombard Street; and Messrs.

Barnett & Co., descended from Humphry Stocks of the "Black Horse" in Lombard Street, but now amalgamated with Lloyds Bank.

The London bankers met with a serious rival in the year 1694, when the Bank of England was founded to carry on the business of banking. This institution three years later obtained the exclusive privilege of joint-stock banking. It was enacted "That during the continuance of the said corporation of the Governor and Company of the Bank of England, it shall not be lawful for any body politic or corporate whatsoever erected or to be erected (other than the said Governor and Company of the Bank of England), or for any other persons whatsoever united or to be united in covenant or partnership exceeding the number of six persons in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable at demand, or at any less time than six months from the borrowing thereof".

Very little is known with respect to the country bankers. It is supposed that very few existed prior to the American War, but after the termination of that war they increased very rapidly. In the year 1797 there were 270 bankers carrying on business in the country. Unfortunately the country bankers did not possess the wealth of their London brethren. They issued notes, and at times did not have sufficient capital to pay them on demand.

It is stated that "multitudes of miserable shopkeepers in the country, grocers, tailors, drapers, started up like mushrooms and turned bankers. They issued notes and inundated the country with their miserable rags." Burke says that when he came to England in 1750 there were not 12 bankers out of London, but in 1793 there were nearly 400. This number was reduced by the crisis of 1797 to 270. Of the country bankers now in existence, the names of 61 appeared in the Post Office London Directory of 1803.

The London bankers ceased to issue notes at an early period, and found it advantageous to keep Bank of England notes as till money.

In reviewing this period of English banking we find that it made very little progress. The trade of the country was not sufficiently developed to require much capital. If it had increased very rapidly, perhaps the monopoly of joint-stock banking given to the Bank of England would have been removed at an earlier date. The profit of the bankers during this period was chiefly obtained by the issue of bank notes.