Proprietors' capital...

14,553,000

Rest........

3,564,729

Public deposits.....

3,630,809

Other deposits .....

8,644,348

Seven-day and other bills.........

1,030,354

31,423,240

Government securities

14,554,834

Other securities...

7,835,616

Notes......

8,175,025

Gold and silver coin...

857,765

31,423,240

The following table will give a more detailed account of some of the items in the above return: -

1th September, 1844.

Dr.

Circulation -

London.................

14,802,000

Country..............

6,405,000

21,207,000

Deposits, Public, viz. -

Exchequer Account...............

2,198,000

For Payment of Dividends....

315,000

Savings Banks, etc.....

501,000

Other Public Accounts....

617,000

3,631,000

Deposits, Private, viz. -

Railways.............

30,000

London Bankers.........

963,000

East India Company . . .

636,000

Bank of Ireland, Royal Bank of Scotland, etc........

175,000

Other Deposits........

5,631,000

Deposits at Branches ........

1,209,000

8,644,000

33,482,000

Cr.

Public Securities -

Advances on Exchequer Bills

Deficiency...........

Other Exchequer Bills........

870,000

Exchequer Bills Purchased ...

311,000

Stock and Annuities.......

12,821,000

14,002,000

Private Securities -

Bills discounted:

London........

113,000

Country............

2,003,000

2,116,000

Exchequer Bills, Stock, etc. .

661,000

East India Bonds ....

198,000

City Bonds, etc...............

3,357,000

Mortgage.............

620,000

Advances: -

Bills of Exchange.........

883,000

5,719,000

21,837,000

Bullion.........

15,209,000

37,046,000

It will be seen from the above, that the means or funds of the banking department for carrying on its business, consist of: - 1. The Paid-up Capital - 2. The Rest or surplus fund - 3. The Public Deposits - 4. The other Deposits - 5. The seven-day and other Bills. These funds are invested in "Government securities" and in "other securities," and the remainder is kept as a reserve in the till.

1. Viewing this as the condition of a private and independent bank, the first thing that would strike the mind of a practical banker, would be the large amount of the paid-up capital. The capital is 14,553,000; while the total deposits are only 12,275,157. The object of a large capital is, in the first place, to secure the public confidence; then, to have the means of repaying the deposits whenever demanded; and also, of affording to the customers of the bank every reasonable accommodation in the way of loans or discounts. But after making due provision for these objects this amount of capital appears unnecessarily large. Were it only 7,000,000, that would be amply sufficient for carrying on the present extent of business, and the rate of dividends might then be increased. All above this amount could only be invested in Government securities, never likely to be required for banking purposes; and if required, could not be suddenly realized, or at least not within the period in which they are likely to be wanted.

2. The next thing that would appear remarkable for a private bank, is the large a/mount of the Rest, or surplus fund.

The Rest, or surplus fund, or Guarantee Fund, as it is sometimes called, consists of the accumulation of surplus or remaining profits after the payment of the dividend. The amount of this fund should be regulated by the extent of the business, and the probable loss that might arise in conducting that business. If the fund is five or six times the amount of the deficiency that might possibly arise in making up the annual dividend, it would appear to be sufficient.1 For if, after making up this deficiency for one, two, or three years, it should appear that the profits of the bank had become permanently diminished, then the course would be to reduce the dividend, until the surplus fund had recovered its former amount.

Banks that have made large profits have either increased the dividend, or distributed them among the shareholders in the form of bonuses, or have added them to the capital. The Bank of England has adopted all these plans. Yet, after all these distributions of increased dividends, bonuses, and additional capital, the bank had on the 7th of September, 1844, a rest, arising from surplus profits, of ,3,564,729. No other "banking concern carrying on business with Bank of England notes," would think it necessary to keep such a rest. Neither the kind nor the extent of business carried on is ever likely to require anything like this amount to meet any occasional losses. The amount is altogether excessively disproportionate to the purposes for which a surplus fund is usually applied, and at the same time it tends to give an erroneous view of the profits of the bank. This rest is employed in the business, and yields profits, but it pays no dividends. The profits go to swell the dividend on the capital, and hence the capital appears to yield a profit of 7 per cent. But the dividend of 7 per is not made upon the capital alone, but on the capital and rest together, and hence upon the funds employed it amounts to only about 5 3/4 per cent.

1 Since the text was written the transactions of the banks throughout the country have increased so much that the Rest, from being looked upon merely as a fund to equalize the dividends, is now regarded as a reserve to meet exceptional losses. Such a Rest now, therefore, cannot well be too great. The larger a bank's reserve fund is, the greater is the confidence inspired in the public mind.

3. The Deposits.

The Public Deposits are thus classified: -

Exchequer account..............

2, 198,000

For payment of Dividerds...........

315,000

Savings Banks, etc. .............

501,000

Other public accounts............

617,000

3,631,000

The "Exchequer account" is the current account with the Government, and this account is credited with the amount of the taxes as they are lodged in the bank. In the beginning of January, April, July, and October, this account is debited for the amount necessary to pay the quarterly dividends, and the amount is carried to the credit of the account "for payment of dividends." The balance here standing to the credit of this account is the amount of the dividends that had not then been claimed. The next account is called "Savings Banks, etc." The trustees of the savings banks throughout the country are required to lodge the deposits in the Bank of England to the credit of the Commissioners for the reduction of the National Debt, who afterwards invest it in the public funds. We do not know what is meant by "etc.," nor yet by the "other public accounts." We believe there are certain accounts connected with the Court of Chancery that are required to be kept with the Bank of England;1 and the effects of bankrupts' estates are, in some instances, required to be lodged with the Bank. These may form the "other public accounts."

1 Chancery Balances were included in Private Deposits until 8th January, 1873; since that date, under Public Deposits.

The Private Deposits are thus

Railways .......................

30,000

London Bankers...........

963,000

East India Company..............

636,000

Bank of Ireland, Royal Bank of Scotland, etc....................

175,000

Other Deposits..............

5,631,000

Deposits at Branches................

1,209,000

8,644,000

With regard to both the public and the private deposits, a banker would inquire whether they were fluctuating or permanent; whether repayable at fixed periods, or liable to be suddenly withdrawn. He would thus ascertain what proportion could be profitably employed, and what amount should be kept in the till, to meet constant or occasional demands. He would observe, on inspection, that the balance of the "exchequer account" increases gradually during the quarter, from the receipt of the taxes, until the commencement of the next quarter, when it is largely reduced by the payment of dividends. He will, therefore, provide for these quarterly payments; but his provision will be less ample when informed, that, as the public deposits decline, the private deposits will increase, and more especially those of the London bankers. This is partly in consequence of the bankers holding powers of attorney to receive the dividends due to parties who reside in the country, and partly because the abundance of money caused by the payment of dividends increases their own deposits, and thus enables them to keep for a time larger balances in the Bank of England. We have already said that no rule can be given as to the amount of notes which any banker should keep in his till - the proper amount can be ascertained only by experience. But we should imagine that in ordinary times the deposits in the Bank of England are sufficiently steady to prevent any perplexity on the subject. We may be asked what we mean by "ordinary times," since now every year differs from its predecessor, and the steadiness and uniformity which heretofore characterized banking and commercial affairs are no longer known. We reply, that by "ordinary times" we mean those times that are the least affected by the foreign exchanges. For some years past it has been the practice to regulate the issue of bank notes by the foreign exchanges. When the foreign exchanges bring gold into the country, bank notes are issued against it, money becomes abundant, and the bank deposits increase. When the exchanges take out gold, the bank notes are diminished, and the bank deposits decline. This system has, in a great measure, been acted upon by the bank directors since the year 1832, and it is now rigidly enforced by the Act of 1344. These extraordinary seasons of great influx or great efflux of gold appear to be subject at present to no general rules. But at other times there seems to be no reason why the Bank of England should not profitably employ a large portion of her deposits. We may observe, however, that as the bank allows no interest on any of the deposits, it sustains no loss even when they are not employed; but were they to be employed the profits would be greater.