Perhaps the most striking feature of the French banking system is the undeveloped condition of deposit currency and the large use of bank notes supplied exclusively by one central institution. These notes serve as the medium of exchange for both small and large business transactions and have proved so stable and satisfactory that there has been little need for deposit currency.
The Government fixes a limit to the maximum issue, but this amount is increased from time to time as need requires. At present it amounts to 5,800,000,000 francs, or about $1,160,000,000. The circulation of the Bank of France, which generally amounts to several times the deposits, rests entirely upon the credit and assets of the bank. No security is required for the redemption of the notes, and no special reserve is kept for either notes or other liabilities. In practice, however, the bank finds it advisable to keep its specie reserve at 60 to 75 per cent of all liabilities. Thus the currency is perfectly elastic expanding and contracting as the business demand for it changes. This "asset currency" or banking plan of note issue is in striking contrast to the rigid English system based on the currency principle and to our inelastic system of bond-secured circulation.
The Bank of France is required to maintain a branch in every department in France, and it has numerous auxiliary offices throughout the country. One-half of the total capital, which now amounts to 182,500,000 francs, is held by the main bank and the rest is allotted to the branches. The capital stock, which amounts to about $37,000,000, is held by 32,251 shareholders. The stock is issued at 1,000 francs a share and has recently been quoted on the Paris market at about 4,500 francs. It pays dividends of over 20 per cent. Loans are made by the branches at the same rate as at the main office. In recent years the rate has been between 2 1/2 and 4 per cent and has fluctuated less than in any other country. A characteristic of French banking is the making of many small loans ranging down to a few francs.1 The Bank of France, in common with all the large central banks of Europe, does a large business in rediscounting paper taken by the smaller banks and bearing their indorsement. The bank's business with private persons is limited by the requirement that all paper discounted must have three signatures or two signatures and specified forms of collateral.
France has never formally abandoned the bimetallic standard, but for many years it has practically maintained the gold standard. The bank holds the bulk of the legal tender silver, except the smaller coins in common use, which amounts to about one-half the gold in its vaults. The silver five-franc pieces are legal tender so the bank is compelled to accept them at par with gold, but it also has the right to pay them out. This gives it a means of checking the withdrawal of gold. When the Bank of England wants to stop the exportation of gold it resorts to the clumsy device of raising the discount rate or the mint price of bullion. The Bank of France offers the customer silver or compels him to pay a premium for the gold, a method equally effective and much less disturbing to business.
Though the Bank of France is a private corporation it acts as the depository of public money and fiscal agent of the Government, and the governor and two deputies are appointed by the President of the Republic. These officials must be stockholders and they hold office practically for life. There is also a general council of fifteen regents and three auditors chosen by the two hundred largest stockholders. The branch managers are appointed by the Government and their subordinates are usually sent from the main bank so that the administration is highly centralized.
While the Bank of France has a monopoly of note issues, there are many small banks throughout the country competing with the branches for commercial business. There are also many powerful banking institutions like the Credit Lyonnais (capital 250,000,000 francs) with numerous agencies, the Societe Generale (capital 400,000,000 francs) and several others, which do a trust company and financial banking business. These banks have numerous branches and supply the French people with banking facilities for both their domestic and their foreign business. The Credit Foncier is primarily a mortgage bank lending on both agricultural and urban security, but it also discounts commercial paper.