It has been laid down that the working expenses of banking amount to 2 per cent. on the balances. This seems to us to be very fallacious, as it must be obvious that a banker who has two millions of deposits will be able to work at a smaller per centage than his neighbour who has only half the sum.

The results shown by the joint-stock banks prove indeed the working to be less expensive than this estimate. It is also generally found that as the current value of money increases bankers' balances decrease, and vice versa; so that a low rate of interest is compensated or corrected by the additional amount deposited. It must also be noted that with a high rate of discount ruling there is a tendency towards an increase in bad debts.

A writer on banking who from his position can speak with considerable authority puts forth a theory that an account will be remunerative to the banker if the average balance be sufficient to show a profit of sixpence on each cheque drawn.

Adopting this view for the moment we will suppose a customer with an average balance of £500, and money at 3 per cent. If we deduct £100 to be retained to meet daily drafts, leaving £400 available for investment, there would be realised a gross profit of £12, so that the customer would be entitled to draw 480 cheques per annum, besides the working of the other side of the account, without any charge being made. Bankers no doubt congratulate themselves that the public are not so exacting in the matter of facilities, otherwise the shrinking of profits would soon be such as to cause a panic in Lombard Street of an entirely different sort to those usually felt in that locality.

The changes in the Bank rate used formerly to exercise little effect on the country banks, so far as their local business was concerned, as they rarely lent under any circumstances at less than 5 per cent., nor did the rate allowed often fall below 2 1/2 per cent. In the employment of their reserves they would, however, naturally feel the ruling influence of the London market. But now owing to a variety of circumstances provincial borrowers are able to obtain money as a rule very nearly as cheaply as they could in London.

Soon after the establishment of joint-stock banks it was seen by their managers that a large class of possibly profitable customers had been wholly ignored by the private banks. We allude to persons, both in and out of trade, to whom a banking account would have been an immense advantage, but who could not afford to keep idle the sums then considered necessary to entitle them to notice. The opening of small accounts was henceforth encouraged by the substitution of an annual charge as commission in lieu of a remunerative balance, and a further step was taken by the allowance of interest on current accounts carrying a minimum balance of £200. These two measures, the second of which, as we have already noticed, is being abandoned by some banks, have rendered it possible for any respectable person to have a banking account.

Besides bills of exchange, of which full mention will be made in a succeeding chapter, there are various securities on which bankers will readily make temporary advances. Securities payable to bearer, and transferable by delivery, such as the bonds of colonial and foreign governments, are the most convenient for this purpose. All that is necessary is for the customer, after having arranged the loan and rate of interest, and requested the banker in writing to grant it for a specific time, to assign the bonds as security for the repayment, with power to sell in case of default. The borrower has likewise to engage to keep the value intact, which generally involves a margin above the market price of 10 per cent. to 20 per cent., according to the nature of the security.

British Government stocks are considered the best possible security for loans. If registered, bankers require the transfer to a partner or officer of the bank. If held in the form of stock certificates to bearer they change ownership by delivery.

Railway or other stocks and shares when fully paid up are frequently taken as security for loans. Strictly speaking a regular transfer should be executed, but generally bankers are satisfied with the deposit of the certificates if accompanied by blank transfers to be used in case of need; if, however, the borrower should become bankrupt before the registration of the transfers, the lien would be void, as the stock or shares would be within the order and disposition of the bankrupt, and therefore of his assignees. This risk can be obviated by giving notice to the company of the deposit, which if received would be sufficient, but many companies refuse to recognise anything short of a transfer. Acknowledgments are seldom given, nor necessary, if it can be proved a written notice was delivered. There are cases in which companies prepare their own transfers, when the transfer must be absolute.

Where advances have been granted on shares not fully paid up, the banker, if a transfer has been executed, becomes liable for unpaid calls, which, however, he has the right to charge to his customer. Should the shares not have been transferred he has still the right to protect himself by meeting calls, adding sums so paid to the debt. Dock warrants and complete sets of bills of lading properly indorsed, and accompanied by the policy of insurance duly assigned, are good securities, though some bankers object to make loans upon them.

Life assurance policies are frequently held by bankers as security, but usually as collateral or subsidiary to something more eligible. The principal objections to be urged against them are that as the validity of the security depends upon the punctual payment of the premiums, should the owner be unable to keep them up the banker must do so in self-defence. As in the case of calls upon shares he has the right to charge his customer, but if the latter become bankrupt it may so happen that the payments may eat up the amount assured.