The effect of this provision was that while the shareholders of the companies were partly protected, in that the amount they could be called upon to pay in the event of liquidation was a definite ascertained sum, yet the depositors and other creditors of the bank felt that they had a reasonable security for the payment of the debts due to them.

Judging banks by the nature of their constitution, we have then five classes, as follows:

(1) The Bank of England is incorporated by Act of Parliament, the only English bank so incorporated, and is outside the application of the Companies Acts. It has a capital of £14,553,000 in stock, and the liability of the stockholders is held to be limited to the amount of their individual holding of stock. Thus, although the Bank of England is not registered under the Companies Acts, it possesses the same privilege as regards liability.

(2) There are a few joint stock banks registered under the Companies Acts, but without limited liability, the shareholders being fully responsible for all the debts of the company. The only banks so registered are a few which are by courtesy regarded as private banks, the shares being held privately, and the banks being registered as companies for private reasons.

(3) There is the great body of joint stock banks registered with limited liability, most of whom have declared part of their share capital to be "reserved liability." The limitation of liability does not, however, extend to the note issues, if any.

(4) There is a rapidly diminishing class of private bankers, the number of whose partners must not exceed ten, and whose liability is, of course, unlimited.

(5) Lastly: Certain colonial banks, with head offices in London, have been incorporated by Royal Charter. The liability of the shareholders is regulated by the terms of the charter, in several instances being fixed at twice the nominal amount of the shares.

In the more recent development of English banking, two tendencies are very marked, the tendency towards concentration by means of amalgamation and purchase, and the spread of branch banking. According to Mr. Jas. Dick's calculations, as given in papers read before the Institute of Bankers (a), there were, in 1883, 317 banks in England and Wales, having 2,382 offices, being one office to every 11,315 head of population. In 1891 the number of banks had decreased to 261 with 3,231 offices, or one to every 8,915 inhabitants. In 1901 the figures were 172 banks with 4,872 offices, or one office to every 6,676 inhabitants.

(a) Journal of the Institute of Bankers, Vol. xiii., p. 320.

These figures are a striking testimony to the tendency towards concentration combined with expansion. A large part of this opening of new offices has resulted in the creation of entirely new business. Towns which twenty years ago supported two banks now have four, and yet each of the four may have as much or more business than the two formerly had, although the increase in population may be insignificant.

New resources have been tapped; the "habit of banking" as it is called, has spread. Fifty years ago cheques for small amounts, say under £5, were almost unknown, and none but the wealthy enjoyed the facilities offered by a bank. Now the members of almost every class above the artizan class, keep banking accounts, and even the poorest avail themselves of the Post Office and other savings' banks.

All this tends towards national efficiency. Instead of keeping money lying idle in old stockings or cash boxes, it is deposited in a bank and is eventually used in productive enterprise. It helps to cheapen capital, and England owes no small part of her wealth and position to the fact that cheap loanable capital has in the past been so abundant.

The process of concentration by amalgamation is part of a universal tendency. In every department of commercial activity we find this concentration of capital in a few controlling hands. In banking it was almost inevitable. It is not an unmixed blessing; the passing of the local banker to make room for the bank manager means a loss to the community which we are sometimes forced to regret, but on the whole the change has been conducive to greater economy, and, in many cases we must add, to greater efficiency.

The amalgamations of the last fifty years can be divided into three main classes:

(1) The absorption of private country banks by joint stock banks, by the larger provincial banks.

(2) The absorption of the smaller London banks.

(3) The amalgamations between the joint stock banks.

(1) Many of the existing joint stock banks now in the forefront owe their position almost entirely to this first process of amalgamation, by which country banks have been swallowed. Some of our leading joint stock banks have developed without any great recourse to this method of expansion, as, for • instance, the London and Westminster Bank and the London and County Bank. But such banks as Barclay and Company and Lloyds Bank have attained to their present size quite recently and very rapidly owing to the number and importance of the banks they have absorbed. We are tempted to enquire, why have the London banks thought fit to buy or otherwise absorb these provincial banks? And why have the provincial banks sold their businesses?

If we look back to the years 1892 - 96 we shall find our answer to the first question. These years were times of extraordinary "cheap money," that is to say, the rates at which money could be lent and borrowed were abnormally low.

Now the banker who has a purely London business, that is to say, a City banker, without suburban or country branches, is much more dependent than the country banker upon the ruling rate of interest in the money market. Lending rates in the country are much more stable and less sensitive to market influences than those in the city. In the country the element of risk is greater, the security offered is not usually so good and the bills discounted are not usually "first-class" bills; these reasons are sufficient to account for the more constant rate of interest prevailing.

The result was that while the London bankers found it difficult to maintain their accustomed rate of profit, the country banks and those London banks with a country connection suffered much less severely. This, then, is one reason why the London bankers found it advantageous to obtain a country connection; they obtained a wider basis for their business and equalised their earning rates over a period of years.

The private country bankers accepted the offer made to them not necessarily as a sign of weakness, but because they saw a greater future before them. Most private bankers, relying in the absence of published accounts, upon their local reputation, found it naturally difficult to extend their business beyond the circle of their personal influence. In many cases too, want of capital was an obstacle to expansion. But the joint stock banks relied upon being able to develop and expand an old established local business more quickly than the private banker could, and therefore offered the latter terms which it was difficult to refuse.

(2) The second class of amalgamations is that between the larger provincial banks and the smaller London bankers.

Many of the leading joint stock banks have risen into prominence in this way: For instance, Parr's Bank was a purely provincial bank at one time, with a head office in Warrington, until, in 1891, it swallowed the house of Fuller, Banbury & Co., of Lombard Street, and afterwards amalgamated with the Alliance Bank and the Consolidated Bank. The Metropolitan Bank is the result of an amalgamation between the Birmingham Banking Company and the Royal Exchange Bank. The Birmingham and Midland Bank joined with the Central Bank of London, in 1890, to form the London and Midland . Bank, which afterwards united with the City Bank to form the London, City and Midland Bank. Most of the small London banks thus absorbed had seats at the Clearing House, and this was no doubt the principal inducement to the provincial banks. Admittance to the Clearing House is a privilege not easy to obtain, and yet without it a bank cannot easily rise to first-class rank.

Even without this entrance to the Clearing House, a London office is an undoubted advantage. London, as is so often insisted, is the financial centre of the world, and not only every English bank, but nearly all foreign banks find it absolutely necessary to be represented there either by an office of their own or by a London agent. It is this London agent with which many of the more important provincial banks have now been able to dispense. Since they must be represented in London, it is at the same time more convenient and more economical to be represented directly by an office of their own.

(3) The third phase of development in the process of amalgamation is that of the large joint stock banks among themselves, including also the amalgamations between the large joint stock banks and the leading private bankers of London.

This is a process which may be yet only beginning. Instances will be fresh in the memory of all readers, the most recent being the amalgamation between the Union Bank of London and the old private bank of Messrs. Smith, Payne and Smith, with its provincial connections, and later on its absorption of Prescott's Bank, itself the result of many amalgamations. Announcements were made of a contemplated fusion of Lloyd's Bank and the Manchester and Liverpool District Bank, which would have resulted in the formation of a bank with deposits amounting to the enormous sum of seventy millions; the project was however abandoned.

Fears have sometimes been expressed that this tendency to concentration may lead to monopoly and that the public may suffer. It is of course rash to prophecy, but there is nothing in recent events to justify this fear. What combination there has yet been between banks has been for the public good. Greater uniformity of practice now prevails than was once the case, and this has led to sounder methods of banking, and so to greater security. Even more important than this, the evolution of a comparatively small number of powerful banks leads to the attainment of that decisive and concerted action in times of emergency and grave financial peril, which the delicacy of our mechanism of credit renders a necessity to the national well-being, and of which the events of the Baring crisis in 1890 are an excellent example.