WE have no authentic details of the rise and progress of country banking. It is generally understood that very few country banks existed previous to the American war; that they rapidly increased after the termination of that war; that they received a severe check in the year 1793, when twenty-two became bankrupt; and that they increased with wonderful rapidity after the passing of the Bank Restriction Act.
As banks of deposit, they allow interest upon deposits; as banks of discount, they discount for parties who keep with them a current account; as banks of remittance, they conduct their business through the agency of the London bankers; they also receive through the London agents the dividends on the public funds, on account of the stockholders in the neighbourhood. The holders of stock grant in the first instance to the London banker a power of attorney to receive the dividends, which, when received, are placed to the credit of the country banker, by whom they are paid to the holders. This facility of receiving dividends in all parts of the country, has, no doubt, induced many persons to become holders of government securities, and thus the country banks have assisted in supporting public credit.
The country banker pays his London agent either by a balance, by a commission, or by an annual fixed amount. Id the case of a balance, the country banker agrees to keep in the hands of the London banker a certain sum, for which he is to receive no interest. The amount of this deposit varies, according to the extent of the business. If the country banker keeps less than the stipulated amount, he is liable to be charged interest for the deficiency, as upon an overdrawn account; but as he frequently keeps more than this amount, the overplus is usually regarded as a set-off against the deficiency, and no interest is charged, provided it is seen that the spirit of the arrangement is fairly adhered to. In the case of a commission, the country banker pays at the end of each year a certain rate of commission on the transactions of the year; the charge is made upon the amount of the debit side of his account. Some country bankers, instead of a commission, prefer paying a fixed sum per annum. In this case the charge does not vary with the amount of transactions as in the case of commission, but whether the transactions be great or small the payment remains the same.
By 3 and 4 William IV. c. 83, passed in 1833, banks issuing promissory notes were required to make returns to the Stamp Ofiice of the average amount of notes in circulation in the quarters ending the first day of January, April, July, and October in each year. The quarterly average is to be formed from the amount in circulation at the end of each week. But the Bank Act of 1844 enacted that every issuing banker in England should, once a week, make a return to the Stamp Ofiice of the amount of his notes in circulation on every day during the preceding week, ending with Saturday, together with a return of the average amount in circulation during the same period. He was moreover required, on the completion of every successive period of four weeks, to annex to such return an account of the average amount of notes in circulation during the said four weeks, and also a statement of the amount of notes which he was authorized to issue under the provisions of the Act. The monthly average was to be ascertained by taking the amount of notes in circulation on every business day during the period of four weeks, and dividing the aggregate thereof by the number of working days during the same period.
The legislation with regard to the averages of the Irish and Scotch issues was somewhat different. By Acts 8 and 9 Victoria, c. 37 and 38, passed in 1845, it was enacted that every bank in Ireland and Scotland should once a week return to the Stamp Office an account of the notes in circulation at the close of business on the next preceding Saturday, together with an account of the gold and silver coin held at the head office of the bank on each day of the week ending with the same Saturday; and also an account of the total amount of gold and silver coin held by the bank each Saturday. And on completion of each successive period of four weeks each bank was required to annex to its return the average amount of notes in circulation, and the average amount of the gold and silver coin held at the head office during the said four weeks: each bank was also required to annex a statement of the amount of the authorized issue. The monthly average was to be ascertained by taking the amount of notes in circulation every Saturday during the four weeks, and then dividing the aggregate by the four weeks. The monthly average of gold and silver coin was to be ascertained in the same way.
In the memorial presented by the committee of country bankers to Earl Grey and Lord Althorp, June 12, 1833, they make the following observations upon the circulation of the country banks: -
"Your memorialists are prepared to prove that the issues of country bankers have less tendency to promote fluctuations in the country than those of the Bank of England; and that their effect in throwing the exchanges against the country is comparatively insignificant. The slightest attention to facts would indicate the truth of these positions. It has been established by parliamentary evidence that the issues of country bankers fluctuated much less between the years 1817 and 1826 than those of the Bank of England; and it is indisputable that adverse exchanges, which endanger the bank, always succeed great importations of foreign produce, and that they never can be occasioned by large exportations of domestic productions. Now it is notorious that the circulation of country bankers acts almost exclusively in promoting these productions: and that, when it is in an extended state, the direct and proper influence even of an alleged excess of that circulation, would be to provide the means of paying for the importations of foreign produce without causing so great an export of gold as to derange and endanger the monetary system of the country. This is looking at the separate and distinctive character of the issues of country bankers; if regarded as a part of a whole, any excess in which must bear its relative proportion of effect in producing derangement, that proportion can never exceed one-tenth; because, assuming that all paper currency has an equal bearing upon depreciation and appreciation, the issues of country bankers never amounted to one-tenth part of that which is used for effecting the interchanges of commodities and property in the country. All experience shows that great fluctuations have originated in the speculations of influential merchants, and never originated in the channels to which the issues of country bankers are confined; their source is in great mercantile cities, and they are promoted by the issues of the Bank of England. That this is the invariable course which fluctuations resulting in excess and derangement take, is proved by the evidence of Mr. Ward and others, before the bank charter committee, and is fully explained by the speeches of the king's ministers in the year 1826. The debts of a few speculative merchants who failed in a single year in the town of Liverpool, where country bankers' notes never circulated, amounted to between seven and eight millions sterling, and their bills were either lodged in the Bank of England for loans, or were current in all parts of the country, stimulating circulation and promoting excess.