The specie held by the Bank is not looked upon solely as the banking reserve of the country, but is also regarded as a most important resource for the Empire in time of war. Any loss of its gold is accordingly a matter of general concern, quite apart from the particular degree of importance which it may have at a given time in purely banking aspects.

1 The well-known disapproval with which the withdrawal of gold for export is regarded at the Bank, is said by English writers to be a potent factor in the protection of its reserve.

Some increase in the stock of gold held by the Reichsbank came with the expansion of the world's supply of gold which began in the closing years of the last century, but the increase was far less considerable than in France and hardly in proportion to the expansion of credit which was taking place in Germany. During the years of active business preceding the crisis of 1907, the demand for accommodation at the Reichsbank increased greatly and at times the issue of notes approached the rigid limit of the one third cash reserve requirement. After the crisis of 1907, which like that in 1901 was handled effectively by the Reichsbank, two effective means of strengthening its position were adopted. Rates of discount were maintained at a somewhat higher level than the policy followed in previous years in similar circumstances would have required. By this means the further expansion of credit was in some measure checked, and a low price level relative to other countries established which would tend to increase the inflow of gold. The accumulation of gold was also furthered by the passage of a law in 1906 authorizing a limited issue of notes by the Reichs-bank in denominations of fifty and twenty marks These small notes entered into circulation slowly at first, but gradually the habit of making small payments in coin was weakened and by 1912 the notes had become so acceptable that an increase in the issue was required. As a result of these measures the Reichsbank secured a large addition to its stock of gold, which increased from about 500,000,000 marks in 1907 to more than 1,200,-000,000 in 1913.

Like the Bank of France and unlike the Bank of England, deposits are a small part of the liabilities of the Reichsbank in comparison with its liability in the form of notes. Although the German deposit banks like those in England hold little cash in their own vaults, they do not maintain large reserve balances at the Reichsbank. They rely absolutely upon the conversion of earning assets into cash, through rediscounts at the Reichsbank as an assured means of meeting all unusual demands that may be made upon them for money. In the common American sense of the term, Ger-man deposit banks have no reserve. It is their concern to possess a good supply of the particular assets which the Reichsbank will readily discount, and all past experience goes to show that no other safeguard is necessary.

Temporarily idle funds are regularly deposited at the Reichsbank by the other banks and they are obliged to maintain balances with it in order to make use of the admirable service for making settlements between different parts of the Empire which the Bank has established. Compensating balances are required of all who make use of the service in amounts determined by the extent of the use. The balances required from banks are, therefore, relatively large, but obviously such permanent balances are quite unlike the reserve balances maintained by English banks at the Bank of England.

The system of settlement by transfer on its books, by means of which payments and transfers of funds can be made between all those having accounts on its books wherever situated within the Empire, furnishes a most striking example of the energy which the management of the Reichsbank has manifested in modernizing and improving German banking methods. Unlike the Bank of France, the spur of legislation has not been needed to bring about the diffusion of its branches, of which nearly five hundred of various grades have been put in operation. Banking facilities through other agencies have also been developed far more adequately than in France. As in France the first banks of deposit date from about the middle of the last century. Most of these banks were established primarily for the purpose of initiating and financing industrial undertakings which required large investments of capital. It was only after long years of gradual development that commercial loans and the receipt of deposits from the people generally became the chief business of the German deposit banks. The original function has not, however, been discarded. They are still the most important source from which capital for new enterprises is derived, and through them the securities of companies which have passed successfully through the initial stages of development are marketed among investors. These financial activities, so contrary to the practice of the division of functions between commercial and investment bankers, traditional in Anglo-Saxon countries, have not involved any apparent loss of strength in the German banking system. No more than the capital and a part of the surplus of the banks is employed in development work and the capital of the banks is for this reason greater in proportion to deposits than in most other countries. Banking concentration has reached an advanced stage in Germany, but it has taken a direction quite unlike that in France and in England. Recognizing the inevitable necessity of limiting the activities of a bank operating numerous branches to business, the safety of which can be tested by routine standards, the leading German banks have neither opened many branches nor entirely absorbed large numbers of existing banks. They have preferred to acquire control or at least a voice in the management by the acquisition of shares in provincial banks and have thus secured most of the advantages of centralized organization without sacrificing the advantages of local interest and intimate knowledge of the affairs and needs of borrowers in all parts of the country.