However, if the opening of branches has prevented other new banking institutions from starting, the result would be in time favourable to the existing establishments.

We will now consider some of the disadvantages which arise under the existing system of branch banking. It has been alleged that each office is in some sense a source of weakness, and this we believe is one of the reasons why the Bank of England has not opened more branches.

A recent writer in the Economist suggested that the Bank of England should have a large number of branches, like the Imperial Bank of Germany which has at present 250, but we must not forget that the Bank of England holds the cash reserve of this country. The existing banks would not like to see the Bank competing against them. The establishment of a branch means an additional responsibility to the directors; and it is impossible to suppose that they can understand thoroughly all the details and have a practical insight into the business of a town far away from the head office; they must to a great extent be guided by the manager of the branch, who supplies them with the necessary information. However, the real responsibility for every branch must rest with the directors.

Again, any sadden demand for cash must be met from the central institution. The cash reserves of the banks have not, however, increased in proportion to the number of branches opened.

Mr. Goschen, in his celebrated speech at Leeds on 28th January, 1891, mentioned that eleven large banks kept in cash only 10.3 per cent. in 1888, whilst in 1879 they held 129 per cent. There does not appear to be any connection between the amount of cash held and the number of branches. The monthly returns issued by some of the banks show that some with the largest number of branches have the smallest cash reserve. No doubt if each branch was an independent bank, a larger cash reserve would be held. Of course, one must not forget that the facilities for the transmission of coin are greater now than they were fifty years ago.

It is also possible that if an issue of £1 notes takes place, as advocated by Mr. Goschen, it would be distinctly advantageous to a bank with a large number of branches. These notes could be sent to any branch at a trifling expense compared to the cost of transmitting gold. The National Banks in America keep $1 in cash for every $4 deposited. This gives a proportion of 25 per cent in a. country where branch banking is discouraged. A proportion of 10 per cent. to 14 per cent. of cash does not seem to be a sufficient reserve for banks which have a large number of branches.

We know that banks succeed because great confidence is placed in them, but if a branch happened to make a great loss it might cause a run upon all the branches. The bank might be perfectly solvent and yet be obliged to close its doors, because the head office might not be able to supply till money to a large number of branches with sufficient rapidity.

It seems to us that a bank with a comparatively small number of branches is relatively stronger than one with a large number. The former would have, as it were, its business more concentrated, and consequently be able to supervise it more thoroughly. If a bank opens branches, it is a question whether that bank should not increase its capital. In America no new bank is allowed to be formed unless a certain amount of capital is assigned to it. The weakness of our system is that there has not been a corresponding increase of capital in proportion to the liabilities.

Mr. Gilbart stated some years ago that a bank's capital should not be less than one-third of its liabilities. No doubt this is a very high proportion, but it is questionable whether 10 per cent. is sufficient.

If we study the balance sheets of the Scotch banks we find that, although their deposits and branches have increased, their capital accounts remain stationary. Thus: -

It must also be remembered that the Scotch banks have accepted the responsibilities of London institutions without increasing their capital account, but they have however increased their reserve fund to some extent. Quite recently it has been found necessary to reduce the rate of interest on deposits in consequence of the difficulty experienced in the employment of surplus funds. On the other hand, the rate of discount has been correspondingly lowered. The English banks have, however, increased their capital and reserve considerably. Thus to October, 1890, there was an increase in 12 months of £1,070,439 in capital and £869,088 in reserve.

The capital of the fourteen banks already mentioned amounts to £18,631,000, against deposits amounting to £125,264,000. This shows a greater proportion of capital for the English than for the Scotch banks.

Another disadvantage of branch banking is that there has been a tendency in recent years for banks to open branches in places where rival establishments exist. Possibly at such places there was enough business for one bank, but, with two, banking profits have been reduced to a minimum. There is no doubt that the opening of branches has been the means of extending banking facilities to a class who formerly did not avail themselves of them. We might say that fifty years ago no one opened an account with a bank unless he was able to keep a large balance. Banking in those days existed principally for the wealthy. In the present day any one can have a banking account, provided a small commission is paid.

The large increase in the deposits of the banks must be principally due to the fact that a new class have banking accounts.

We have already mentioned that the enormous increase in the country clearing in London is partly due to the increased banking facilities offered by the existing banks.

The following table shows the increase in the number of banking offices in various large towns, and we may presume that these branches would not remain open unless a profit was made: -