One of the distinctive features of modern banking is the establishment of branches throughout the country. This is shown in the tables prepared by Mr. James Dick for the paper read before the Bankers' Institute in April, 1892.

In 1883 there were 3932 offices, but in 1891 they had increased to 4934, or an average of seventeen offices for each bank.

Scotland has still a larger average of offices to the inhabitants than either England or Ireland.

For example: England . . . 1 to 8915 inhabitants. Scotland . . . 1 to 4260 Ireland . . . 1 to 9520

For our guidance in considering the merits of branches, we cannot do better than remember the advice given to bankers by Mr. Rae in his excellent work, The Country Banker. He remarks that no bank ought to open a branch unless possibly for the following reasons, viz.: 1st. It should be advantageous for the customers of that bank.

2nd. There should be a possibility of new business being obtained.

3rd. That the branch may act as a connecting link to other branches.

Branches should not be opened for the purpose of competition with other banks, because that is not altogether desirable.

It must be remembered that when a bank is opened there is a tendency for the new institution to get all the bad or doubtful accounts.

Possibly the greatest use of branches is that they find an outlet for surplus capital. Thus if money cannot be employed to advantage at one branch, yet there might exist a demand for capital at another, and consequently none of the resources of the bank remain unemployed. If the surplus funds of a bank can always be utilised at a profit, it follows that a higher rate of interest can be given for deposits.

Mr. Gilbart, in his treatise on banking, says that for small towns a branch of a large bank is more advantageous than an independent joint-stock bank, because a branch can be worked at less cost.

There is no doubt that the establishment of branches by the existing banks of this country has been the means of preventing new institutions from starting. This would mean competition, which possibly might be advantageous to the community but detrimental to the existing banks.

In Scotland the branch system has been so extended that it would be almost impossible for a new bank to be formed. The Scotch banks have also the privilege of issuing notes, which enables them to provide till money at a trifling expense.

Competition between banks is not desirable, because greater risks and responsibilities are undertaken in order to secure profits.

Of course it is desirable that banking facilities should be provided at a small cost, but these facilities ought not to be at the expense of stability. If a branch is opened at a comparatively small cost, it enables the small trader and shopkeeper to keep banking accounts.

The vast increase in the country clearing in London shows that the branch system has been the means of inducing a fresh class of people to open banking accounts.

Mr. Barnett in 1881 estimated the country clearing at £350,000,000 per annum, and since that time there has been an enormous increase in the amount passed through the Clearing House. This shows that the branches have obtained quite a new connection. They have also been the means to some extent of superseding the country note circulation, because the cheque is now more utilised. Cheques which are received at the branches are sent to London daily, where they are cleared through the Clearing House.

It has also been stated that a bank with branches would be able to get the London Agent to transact its business at a lower cost than if the branches were separate institutions. This advantage is, however, not so important in the present day, because a large number of banks now have London offices. It is, however, advantageous for a bank to open branches in order to increase its connection, when by such means the new business obtained represents various industries, because a depression of trade would not then be so severely felt. In such a case branches would act as feeders, and give, as it were, new life to the central establishment. Again, if the customers of a bank have greater facilities given them, it is natural to suppose that they would recommend the bank to others.

Again, the branch system is the means of greater facilities for the transmission of money from one district to another.

Of course, the opening of new offices ought to increase the dividends to the shareholders, as banks naturally wish to increase their profits, if it can be done with safety. It seems, however, that the additional facilities have to some extent benefited the customers rather than the banks.

The following figures show the dividends paid and number of branches after an interval of six years: -

From the above we notice that the banks which have increased their dividends are, with few exceptions, those which have opened branches in places where no banking accommodation previously existed; for example, the London and County, London and South Western, and London and Provincial, have opened branches in districts of greater London where no bank had hitherto been established. Although the fourteen banks have increased their deposits from £115,999,000 to £125,264,000, yet there has been no corresponding increase in the dividends. We must not, however, forget that in recent years there has been a steady decline in the rate of interest ruling in the market.

These banks, however, have increased their reserve fund from £8,035,000 to £8,839,000, which is very satisfactory, because it shows that they have provided additional funds to meet sudden emergencies.

Again, the additional reserve takes the place of increased capital, which is necessary when we consider that the liabilities have increased £10,000,000. Although some of the provincial banks have opened additional branches, yet their dividends do not show a corresponding increase. For example: -