Another defect is, not to have an account in the general ledger showing the amount of bills reissued or redis-counted. The amount of these bills not due should appear on both sides of the account - on one side as a liability, and on the other as an asset. For want of doing so, some banks have not been able to ascertain easily what amount of bills they have under rediscount. But it is important to know this. For it may be expected that, during a season of pressure, no small portion of these bills will be returned unpaid, and the bank must find funds to take up its endorsements. If they fail to do this, it amounts to a stoppage of payment. In fact, the amount of such bills suddenly returned has in some cases been the immediate cause of a bank stopping payment.
We have no horror of numerous branches. When we see that the largest and most prosperous banks have each a large number of branches, we are led to believe that branches are not attended with any dangers which cannot be overcome by wise administration. At the same time, we are ready to admit that numerous branches require a peculiar mode of government, and a rigid system of discipline. The chief ofiicer of such a bank should be a good banker, and something more. He must be a good administrator; that is, skilled in the administrative department of good government.
In the first place, each branch must have a good system of book-keeping, and the system must be uniform at every branch. Secondly, Care should be taken to appoint efficient officers. Thirdly, A code of laws should be drawn up, and the branch manager should be distinctly informed as to the extent to which he may exercise his discretion, and what cases must be referred for the consideration of the directors. Fourthly, Weekly returns must be made to the head office of all the transactions, and a half-yearly balance-sheet, attended with full supplementary details. Fifthly, Special reports should be occasionally required, as special circumstances may occur, either with reference to the branches generally, or with reference to a branch individually. Sixthly, An inspector should be appointed for the purpose of visiting the branches. His duties will be to explain the instructions of the directors, and to see that they are properly observed - to maintain a uniform system of transacting business at all the branches - to instruct the officers of the branch in their duties when necessary, and to communicate the knowledge he has acquired in visiting the other branches - to answer any difficult or knotty questions that may be proposed to him by the manager, and to consult with the manager as to the best means of promoting the interests of the branch - to observe the talents and capabilities of the several officers, and to recommend for promotion any who seem to have qualities that might be usefully employed in a higher department in the bank. In large banks there are usually several inspectors.
Branches should always be kept in strict subordination to the head office. Prompt obedience to orders is a duty that must be rigidly enforced. The chairman of the Northern and Central Bank stated to the Parliamentary Committee, that at some of the branches where the heaviest losses had occurred, the managers had not obeyed the orders they had received from the directors. Similar accusations were made against some of the branch managers of the Commercial Bank of England. It is quite impossible for any bank to be well administered as a whole, if every branch is allowed to exercise an independent authority. Upon this ground some parties object altogether to the appointment of local directors at the branches. A local board, consisting of the branch directors and the manager, are more likely than the manager alone to assume independent authority - to postpone carrying out the directions they may receive from head-quarters - and to take upon themselves the responsibility of acting somewhat at variance with the strict letter of their instructions. And although local directors may sometimes be useful in extending the connections of the bank, or in aiding the managers with information or advice, yet, for the above or other reasons, they are now in England but very seldom appointed. The branch is under the sole care of a manager. The general manager of the bank is not merely the manager of the head office, but has authority also over all the branches. Whenever necessary or expedient, he issues circular letters of instruction to the branch managers, and these instructions the branch managers are expected to obey.
V. Some banks have been unfortunate in consequence of having made no provision to meet contingencies.
This class of banks has not fallen into any of the practices that we have enumerated. They have not, on the whole, been badly managed, but they have traded to the full amount of their means, and have kept no reserve, either in Government stock, exchequer bills, or bills of exchange, to meet those contingencies to which all banks are liable. One bank of this class had, during the railway speculation, received from some of these companies a large amount of deposits. A portion of these deposits was lodged, as its agent, with another bank. That bank stopped. This bank was, consequently, unable to payback the deposits to the railway companies. From this circumstance, and the known connection between the two banks having damaged its credit, it also was compelled to stop payment. Another bank had but a small capital, but for a number of years it was exceedingly well managed. In 1847 it had discounted, and again re-discounted, a large amount of bills on a first-rate London house that failed. The London house afterwards paid 20s. in the pound. But the directors concluded from this circumstance, that a bank with a small capital was not in a condition to bear a large loss, and they resolved to wind up the concern. After sustaining the losses and expenses of winding up (and in such a case some losses necessarily occur), the bank realized nearly the whole of its paid-up capital. We doubt not that some of the other banks that have wound up their affairs have done so from causes similar to those we have described.