What number of branches a bank ought to have, and what distance they ought to be from the head office, have been the subject of much discussion. No general rules can be given. The subject may very safely be left to the discretion of the banks themselves. The banks in Scotland have from twenty up to one hundred and thirty branches. The Provincial Bank of Ireland, and the National Bank, whose head offices are in London, have branches spread all over Ireland. I am not aware that in these cases any danger or inconvenience has been experienced. When branches are found troublesome or unprofitable, they will very soon be discontinued. In some instances, even in Scotland, the branches of the larger banks have been withdrawn, in consequence of being unable to sustain a competition with the local banks of the district.
Had the Act of 1826 permitted joint-stock banks of issue to be established in London, we should probably by this time have had ten or a dozen banks having their head-quarters in London, and extending their branches throughout the country. But as the law prohibited joint -stock banks of issue being established within sixty-five miles of London, it necessarily gave rise to banks occupying particular districts in the country. The advantages which are alleged to belong to the district system are the following: - That the bank will be better adapted to the wants and habits of the people - that a local feeling will be excited in its favour: hence the inhabitants of the district will take shares, and the occurrence of runs upon the bank will be less probable - that a better system of management may be expected, as it can more easily be governed, and will be more under control - that a panic in the district will not affect the other parts of the country, and hence supplies may be more easily obtained - that banks will be of a moderate size, and hence will be attended with the advantages arising from numerous banks acting as checks upon each other, instead of a few large banks who may combine for objects injurious to the nation; and that as each bank will have an agent in London, the bills they draw will thus have two parties as securities, and the public will have a pledge that there is no excessive issue in the form of kites or accommodation bills. On the other hand, it may be contended, that in Scotland the large metropolitan banks, which have branches extended throughout the country, have generally been more successful than the provincial or district banks - that there is a greater security to the public for the notes or deposits - that advances are not so likely to be made to speculative parties merely on account of their local influence - that the capital raised in one part of the country can be employed in another - rthat the transmission of money from one part of the country to another is more rapid and direct - that the establishment of the bank being on a larger scale, you have a superior class of directors, and can demand the services of higher talents in those who are employed as officers.
It does not appear that these two systems are necessarily at variance with each other. County or district banks have no doubt many advantages, but they do not seem to supersede banks on a larger scale.
VI. Joint-stock banks have half-yearly meetings of shareholders, to whom is usually exhibited a balance-sheet showing the assets and liabilities of the bank.
All banks do not exhibit a balance-sheet.1 The practice is said to be open to the following objections: -
1. That it is not a fair criterion by which you can form any judgment of the real condition of the bank. You might see that the bank had a certain amount of securities, or had advanced a certain sum upon loans; but whether those securities were available, or whether those loans could suddenly be called up, are points upon which the balance-sheet could give no information.
2. It lays the bank open to attacks from its rivals or opponents. The balance-sheet will show in what way the funds of the bank are employed, but it will not state the reasons why they are so employed. The opponents of the bank may attack every item of the balance-sheet, and the directors may not be able to repel those attacks without a breach of confidence that would be injurious to the establishment. Suppose, for instance, the balance-sheet should show that the bank had advanced a few thousand pounds upon mortgage. This might be justly considered as a departure from the sound principles of banking; yet it might in this case be justified by some peculiar circumstances, which, nevertheless, the directors could not publish without serious injury to the parties concerned.
1 All joint-stock banks, and most private banks, now issue balance sheets.
3. It causes a great deal of speculation in the shares. The shareholders and the public would form their opinions of the bank from the statements in the balance-sheet; and according to these opinions the price of the shares would fluctuate in the market. Suppose it were seen that the bank had invested a large portion of its funds in Government securities, and it was known that during the year the price of those securities had experienced a considerable fall, would not the bank shares immediately fall too? Again, suppose at the end of a year like 1836, it should appear that the bank held a considerable amount of overdue bills, the apprehension of loss would cause the bank shares to fall; soon afterwards these bills might be paid, and then the shares would rise again. - Thus, the publication of balance-sheets would keep the prices of shares in perpetual fluctuation, and furnish a most fruitful source of speculation and gambling.
4. It is perfectly inefficient as a protection against fraud. The balance-sheet, it seems, is to be a check upon the directors, and yet the directors themselves are to prepare the balance-sheet.1 They must be stupid knaves indeed, if they produce such a balance-sheet as shall expose their own knavery. Besides, the balance-sheet merely shows the state of the bank on one day in the year. Would it not be easy to put the bank on that day in such a condition as would give satisfaction to the shareholders?