In the previous chapter the essentials of a good banking system were indicated. It will therefore be of interest to survey comparatively the systems in the foremost three countries of Europe in order to learn by what means in practice they realize the desired ends.

Examining first the general structure of the banking systems of the three countries here considered, it may be said that all are organized on the central bank principle. In England the head of the system is the Bank of England. This famous old bank was founded in 1694 and grew out of a government loan. Its present charter dates from the Peel Act of 1844, under which, on one year's notice and on repayment by the government of any government debt held by the bank, the charter may be annulled. At the head of the French system is the Banque de France, founded in 1800 by Napoleon. Its present charter was granted in 1897 and expires in 1920. The charter will, of course, be renewed, although heavier obligations of a fiscal nature may be imposed on the bank. The German central bank is the Reichsbank. At the time of the formation of the German Empire the Bank of Prussia was taken over at a good price by the imperial government, and was reconstituted as the imperial central bank. Its original charter expired in 1891 but was made renewable at ten-year intervals. The last renewal was in 1909 and extends to 1920.

These three central banks are all privately owned, although in their management they are more or less intimately under governmental influence. The Bank of England is outwardly managed entirely by its owners through the elected board of directors, but it is intimately in touch with the government even in normal times, and, as Hartley Withers tells us, there is a general confidence that if necessary the government will always stand behind the bank. In France the governor and the two deputy governors of the Banque de France are government appointees, although the governing board of 15 regents is elected by the shareholders. Government control is much more comprehensive in the case of the Reichsbank. The German imperial bank has boards, known respectively as the Curatorium, the Direktorium, and the Central Aus-schuss. The Curatorium is a kind of supreme supervising body of five members appointed by the government. The Direktorium is the active board of management, the members of which are also appointed by the government, and for life. The Central Ausschuss is a stockholders' advisory committee with few direct powers but not without considerable influence in the practical conduct of affairs.

Object of chapter

General structure of banking systems

Bank of England

Bank of France

The Reichsbank

Relation between central banks and governments

The three central banks are also organized on the branch basis. The Bank of England has two branches in London and nine in the "provinces." The Banque de France and the Reichsbank have main and sub-branches and agencies scattered all over their respective countries. The main branches enjoy some independence, but in all important matters they are under the control of the head office.

The Bank of England, the Banque de France, and the Reichsbank are all the holders of the national reserves, and are thus primarily banks of bankers. This is less true of England than of the other countries, because all the larger banks in England carry some cash reserves of their own, while some of the country bankers carry accounts with large metropolitan joint stock banks rather than with the Bank of England. But while they are primarily banks of bankers, these central banks have also their own private clients, and they come, therefore, in some degree into competition with other banks in the market. This competition is traditional in England. All three banks are also note-issuing banks with practically monopolistic powers. All do a discounting and lending business, while the Banque de France and the Reiehsbank also engage in security brokerage and syndicate operations.

England

France

Germany

Branches

Nature of business

Banks of bankers

Private clients

Under the central banks in each country there are large incorporated banks known as "joint stock" banks, "crédit soeiétés," and "gross banken." These are organized under general incorporation laws applicable to various kinds of business corporations. There is no special banking law. In Germany some of the incorporated banks were organized before 1870 under special charters granted by the states, but these are exceptional.

In all three countries the tendency in this field of banking is strongly toward centralization. Twelve or fourteen banks are said to control the situation in London. It is also stated that while there are almost five hundred incorporated banks in Germany, seven or eight "gross-banken" in Berlin do more than 50% of the business, while in France four big banks virtually monopolize the field. Each bank has of course numerous branches, while in some cases, more especially in Germany, apparently independent local banks are dominated by the big metropolitan institutions.

The business of the incorporated banks is mainly receiving deposits, discounting, and lending. In England the whole business of private finance is highly differentiated, but the joint stock banks are encroaching on the fields of the other agencies, namely the acceptance, the discount, and the foreign exchange houses. In France and Germany there has been little differentiation, and the incorporated banks undertake, besides the acceptance business, an extensive brokerage, syndicate, and foreign exchange business. The wide range of their activities has led now and then to complaint.

In all three countries there are also private bankers doing business akin to that of the incorporated banks. Hartley Withers tells us that the private bankers are the aristocrats in the English money market, and that they are responsible for the splendid English banking traditions. They are the pioneers of modern banking, Childs' bank having been established in 1660 and Hoare's bank in 1684. Local private bankers are relatively numerous in France, where they carry on a discount business with Bank of France notes. But everywhere the private banker seems to be losing ground. Family businesses passing from father to son cannot stand up under the competition of efficiently managed corporations.