THE means of a London banker consist mainly of his capital and his deposits. A certain portion of this sum is kept in the till, to meet daily demands; another portion is advanced in the way of discounts or loans to his customers. The remainder forms his surplus fund, of which a part will probably be invested in Government securities; loans to bill brokers, payable on demand; in short loans on the Stock Exchange, or in first-rate bills obtained through the bill brokers, and hence styled brokers' bills. The Government securities are the more permanent of these investments. The amount will seldom vary. It is not deemed creditable for a bank to speculate in the funds, or to buy and sell stock frequently, with a view of making a profit by the difference of price; hence a banker sells his Government securities only in a season of pressure, as a means of precaution, or in order to meet urgent demands. On other occasions, he will, when necessary, reduce his short loans or brokers' bills. These form his fluctuating investments. In seasons when money is abundant his deposits will increase, and perchance, at the same time, the demand of his customers for loans or discounts will diminish. His surplus funds will thus increase. But these temporary surplus funds he will on no account invest in Government securities, as his deposits will be certainly, and perhaps suddenly, reduced, and he might have to realize his Government securities at a loss. He will in this case increase his loans to brokers, and his brokers' bills. And though he will get as much interest as he can, he will take a very low interest rather than keep the money unproductive in his till, or invest it in a more permanent form. "We will now take a short review of the different kinds of investment we have mentioned. The three grand points for consideration are, convertibility - exemption from loss - and a good rate of interest. But first we will notice those circumstances which regulate the amount of cash to be kept in the till.
The amount of money which a banker will keep in his till depends upon circumstances. First, the amount of his deposits. It is natural to suppose that when his deposits are large, he will keep more money to meet them than when his deposits are small. - Secondly, the amount of his daily payments. These will not at all times correspond with the amount of the deposits; for some accounts are more operative than others. On commercial accounts, for instance, the payments will be much heavier in proportion to the average balance than on accounts which are not commercial. The City bankers pay much larger sums every day, in proportion to the amount of their deposits, than the bankers at the West-end. - Thirdly, if a banker issues notes, he will keep a less amount of other money in his till. The popular opinion is, that he keeps more, as he has to provide payment for his notes as well as his deposits. This is true in seasons of pressure. But in ordinary times he keeps less, as he pays the cheques drawn on account of his deposits with his notes, and these notes often get into the hands of another banker, with whom he settles by a draft on London. His reserve to meet his notes is kept, not in his own till, but in London, where it probably yields him interest. Indeed, when his deposits are withdrawn in large amounts, they are more usually withdrawn by a draft on London than in any other way. - Fourthly, the number of the branches. If a bank has many branches, the total amount of cash kept in the tills of the head office and all the branches put together will be considerably more than would be required if the whole of the business were collected into one place. In the case of a run the difference is considerable, as every point open to attack must be well fortified. The stoppage of one branch, even for a short time, would bring discredit upon the whole establishment. - Fifthly, in London the amount of notes to be kept in the till will be affected by the privilege of clearing. Those bankers that "clear," can pay bills and cheques upon them by the bills and cheques they have upon other bankers. Those banks that do not clear must pay all the bills and cheques upon them in bank notes before they receive payment of the bills and cheques they have upon other bankers.1 Hence they must lock up every night with a larger amount of cash in their vaults.
We need hardly say, that with every banker the amount in the till will fluctuate from day to day. Though a banker has a certain average amount in his own mind, below or above which he does not swerve very widely, yet the cash-book will seldom be exactly this amount. Sometimes he will strengthen his till, in the prospect of large payments that may come upon him suddenly. At other times he will run his till low for a day or two, in expectation of large sums that will shortly be due to him. During the day, too, either the receipts or the payments may be heavier than he expected; and hence, now and then, the cashier reports to the chief clerk or to the banker the state of the till, in order, that, if necessary, it may be replenished. The temperament of a banker, too, has some effect in this case. Some bankers are so cautious that they will "lock up" with a large amount of cash; others are so anxious to make profit, that they will keep their cash very low. The state of the money market will also influence the tills of the bankers. When money is abundant, a banker will lock up with more money than he wants, because he cannot employ his funds. When money is so scarce as to betoken a pressure, he will also lock up strong, so as to be prepared for any emergency. In fact, there can be no general rule for regulating the amount of the till. Every banker must be guided by the experience of his own bank. The directors of the Bank of England consider that their reserve in bank notes and gold should be equal to about one-third of their deposits. From the accounts published by some of the London joint-stock banks, it would appear that the "cash in hand" is equal to about one-eighth or one-tenth of their liabilities. Even this, we conjecture, is a higher proportion than that which is generally kept by London bankers, especially by those who settle their accounts with each other at the Clearinghouse.