The late Mr. Newmarch in 1850 gave an interesting account of the London bill brokers who remitted bills to the country for the purpose of circulation: "B, a banker at Lincoln, has a surplus of £50,000. He is also in the habit of requiring bills of exchange of certain usances and of certain amounts to meet the applications of some of his customers who employ them in the course of their trade. B. might have bills in his own case, but would not reissue, because (1) it would indicate that he was poor, and (2) it would disgust his customers by revealing their transactions to rivals. The London bill broker therefore sends bills plus the amount of discount due by him on the transaction. These bills had been created in totally different parts of the country, some being foreign bills. This transaction between London and Lincoln accomplishes four things. The Lincoln bank obtains (1) employment for money, (2) a good security; (3) the bill broker receives £50,000 by which he can discount a further amount; (4) a bill currency is introduced into Lincoln perfectly adapted to its wants.

"There are three principal modes in which payments of debts are accomplished: (1) The buyer may have no difficulty in placing his account upon the footing of a book debt where he is debited for what he purchases and credited when he pays; (2) buyer may pay his debts by remitting approved bills; and (3) buyer may undertake to accept bills drawn upon him by the seller. By the first and second modes the circulation of bills is promoted, and by the third mode the creation of bills takes place. The bills obtained from London may accomplish seven distinct transfers: (i) Discharges conditionally the claim of drawer or acceptor; (2) discharges claim of payee on drawer; (3) bill broker on payee, supposing the payee to discount the bill; (4) Lincoln banker upon bill broker; (5) farmer upon Lincoln banker; (6) dealer in goods or cattle on Lincoln customer; (7) when sent for payment by dealer's banker to London correspondent."

Mr. Newmarch concludes his remarks by stating that "this skilful redistribution of the bill currency of the country is one of the greatest achievements of our banking system".

This system has now become extinct in consequence of the altered conditions of trade. Bills are now sent to the country banks solely as investments, and not for currency purposes.

The amount of bills under discount by the banks of the country for the year 1849 was estimated as follows, viz.:

We can quite understand that as the business increased in London in consequence of more bills being sent from the country, it was necessary that the merchants who transacted such business should devote their whole time to the study of these documents, and therefore the business of a bill broker became quite distinct. The vast number of bills which found their way into the London market were exceedingly difficult to understand, because they represented an infinite number of trade transactions. In order to estimate the relative credit of each individual whose name appeared on bills either as drawer, acceptor, or indorser, the modern bill broker devoted himself entirely to the study of these documents, which were classified as being either first or second rate. If of the former description it would be assumed for a certainty that at maturity they would be paid, but if of the latter class it might be otherwise.

This change in the system of business has affected the bankers, because, instead of relying upon the bills held by them, they depend to a great extent upon the broker. The modern bill broker also receives money on deposit, which is utilised in discounting bills. However, the position of the bill brokers is one of great delicacy, because they are dependent upon the bankers for a great portion of their funds. If at times the bankers have no surplus capital to lend, the bill brokers make application to the Bank of England for loans in order to meet their requirements. Therefore the Bank of England is called upon at certain times to meet large demands upon its reserves.

The London bankers keep a large portion of their capital with the Bank of England, which has had the effect of making the Bank of England the final reserve for the country.

It is a part of the system of the Bank that any one respectably introduced can have a discount account at that institution. It seems an anomaly that the London bankers and the Bank of England should supply the bill brokers with funds in order to compete against them. We have seen that when the bill brokers are unable to obtain sufficient funds from the London bankers, they make applications to the Bank in order to meet their daily requirements.

Thus the Bank is called upon to meet a large number of applications for loans, which at times amount to a considerable sum. During the commercial crisis of 1857 the Bank lent to bill brokers more than nine millions, although their advances to the bankers amounted to only £8,000,000, and not unnaturally the Bank thought it unreasonable that so large an inroad upon its resources should be made by their rivals.

Another important point to be remembered is that some of the bill brokers carry on their business with a comparatively small capital in proportion to their great liabilities.

The bankers of the present day, by lending their surplus capital to the brokers, have been the cause of the latter class obtaining nearly the whole of the best mercantile bills; whilst the former now discount trade bills of smaller amounts, such as those drawn by the wholesale houses upon the retail dealers in the country. The Bank of England has shared the fate of the other bankers in not being always able to obtain discount business. It may happen that the bank rate is say 2 per cent. when bills are being discounted in the market at 1/2 per cent. This explains to us the reason why at times the bank rate is ineffectual to attract gold from abroad. The London banks have lost in some degree what was considered one of the best investments for surplus funds in consequence of the present system of large loans to the brokers.

Another point for consideration is whether the money lent on demand to bill brokers can in reality be considered as a reserve. If a crisis in the money market should occur, and all the banks call in their loans, it would be impossible for the brokers to meet the demands without assistance from the Bank of England, and at such a period that institution might not be in a position to meet all outside applications.

The Bank of England is supposed to find capital at times when the outside market has exhausted its credit. That great institution being the final reserve for the country, makes it a very important factor in the money market, and its weekly accounts are closely studied.

The Bank's position in the discount market is at the present time somewhat different from what it was some years ago. The large increase in the number of joint-stock banks holding vast deposits which must be lent, has contributed towards the change. Thus in 1851 the Bank discounted £1 out of every £20 inland bills created, whilst in 1875 there were at least £30 of inland bills created for every pound of the same discounted by the Bank, and during the last twenty years the bill transactions are still relatively smaller. Competition is continually taking place between the Bank and the outside market, or in other words the bill brokers.