The main features of the banking system of the German Empire are due to an imperial act passed March 14, 1875. Previous to that time there was a considerable number of private banks scattered throughout the empire, most of which had come into existence since 1848, and were a direct result of the liberal wave which spread over the country at that time. A few large banks, especially chartered by their respective states, were conspicuous among the mass of private institutions. Of these the Bavarian Mortgage and Exchange Bank of Munich, chartered by the Bavarian government, and the Leipzig Bank, chartered by the Saxon government, are noteworthy; but the most important of all was the Bank of Prussia, which was founded by Frederick the Great in the eighteenth century. It was a strong state institution The Chief Banking Systems of the World. 199 with a large number of branches, and transacted the greater part of the banking business of that important kingdom. In 1875 thirty-two of these banks were issuing notes, under regulations imposed by different states, and varying widely in character and efficiency.
The purpose of the act of March 14, 1875, was to unify the banking system of the empire by bringing it under the control of a great central institution in the management of which the imperial government should be supreme. This purpose was accomplished by a series of regulations which deprived the various states of the right to found banks of issue, authorized the establishment of the Imperial Bank with a central office located in the city of Berlin and with numerous branches all over the empire, prescribed the conditions under which other institutions should be permitted to exist, and fixed their relations to the imperial system.
The Imperial Bank was built upon the foundations of the Bank of Prussia, which was purchased by the imperial government and transformed into the new institution. It was permitted to establish branches in any part of the empire, and was required to establish such branches when so directed by the Bundesrath. Private individuals were permitted to own its capital, but its government was entrusted to three bodies: a committee of four, consisting of the Chancellor of the empire and three other persons appointed by the Emperor and the imperial council; a board of directors appointed for life by the imperial council; and a board of administrators elected by the stockholders. The immediate management was entrusted to the board of administrators, but on all matters of great importance, such as those pertaining to the policy of the bank and its relations to the government and to other institutions, the decision of the board of directors, and in the last instance of the council of four, was final.
It was the aim of the authors of this act ultimately to give to the Imperial Bank and its branches the exclusive right to issue notes in the empire. It was not thought best, however, to attempt to accomplish this at once, and consequently regulations were made prescribing the conditions under which the thirty-two banks already mentioned might become parts of the imperial system, and share in the issue of notes. Among these the following are the most important: -
(1) In the year 1891 and every tenth year thereafter the imperial government was to have the right to deprive these banks of their privilege of note issue without compensation.
(2) The amount of notes to be issued by all the banks exclusive of the imperial institution was limited to 135,000,000 marks, to be distributed among them on the basis of the population of the locality served and the amount of the business transacted. In case any bank should at any time voluntarily give up its right of issue, the amount of notes thus withdrawn was to be added to the quota of the Imperial Bank, which was fixed at 250,000,000 marks.
(3) All the banks were subjected to the same regulations as regards reserve, character of securities, etc., the requirement being that one-third of the assigned quota must be represented by legal-tender money and the remaining two-thirds by bills of exchange maturing in three months or less and bearing the signatures of at least two solvent persons. Beyond that limit each bank was permitted to extend its issues provided a tax of five per cent be paid to the imperial government upon such excess. Each bank of issue is required to publish an account of The Chief Banking Systems of the World. 201 its condition in the Reichsanzeiger on the seventh, fifteenth, twenty-third, and last day of each month.
Depositors are protected in the same manner as noteholders, except that in this case no quotas are assigned and, consequently, no provisions regarding an emergency circulation required.
The profits of the Imperial Bank are distributed between the stockholders, the surplus fund, and the imperial government in the following manner: Of the total, a dividend of four and one-half per cent is first paid to the stockholders. Of the remainder, twenty per cent is set apart for a surplus fund until the amount aggregates one-fourth of the capital of the bank. The residue is shared equally between the stockholders and the imperial government until the share of the former amounts to eight per cent of their stock, after which the imperial treasury receives three-fourths.
The execution of the act of 1875 has been accompanied by considerable friction, but in the main it has accomplished the purpose for which it was passed. Only sixteen of the thirty-two banks of issue were willing to comply with the severe conditions necessary to make them a part of the imperial system, and the Bank of Brunswick alone refused to take advantage of the opportunity for reorganization offered by the new law. However, it was able to maintain its independence for a short time only, and ultimately followed the example of its sixteen neighbours. Since these first years the number of the banks of issue in Germany has continually decreased. Of the seventeen which ultimately complied with the imperial law, only eight continued to issue notes in 1891, and only six in 1900. The Imperial Bank has extended its branches rapidly, having established by 1895 two hundred and sixty-seven offices in different parts of the empire. Thus as a result of the legislation of 1875 the German banking system has become highly centralized, there being in 1894 only ninety-six non-issuing private banks in the entire empire.
In Germany bank currency does not play so important a part as in England or the United States. The deposit system is growing at the present time, but has not yet reached large dimensions. The aggregate amount of uncovered deposits was estimated to be 1,400,000,000 marks December 31, 1899, while the bank-note circulation of the country at the same time amounted to 1,450,-000,000 marks. The estimated coin circulation at the close of the year 1899 was 3,364,000,000 marks of gold, 147,833,333 silver thalers, and 597,500,000 marks of subsidiary silver.