Any or all of these banks might reorganise as new institutions for a fresh term of twenty years, but to do so would require the consent of every individual shareholder, as each is entitled to his share of the undivided profits. It is by no means certain that trustees, and others holding stock in a fiduciary capacity, would have power to subscribe to the new organisations. Again, whilst many would no doubt be anxious to continue the businesses they have acquired, they might at the same time desire the division of the surplus profits. We are not informed what proportion of these accumulations belong to the large number of banks whose charters will shortly expire; but we may safely conclude that they own by far the greater part of them.

The greatest accessions to the surplus funds were made in the half-years ending July, 1865, and January, 1866, and were chiefly the property of the banks organised or converted during 1864 and 1865. The banks dissolving before 1885 own seven-ninths of the whole national bank capital, and it is not improbable that they own also nine-tenths of the surplus funds. If these were distributed, and the new organisations started with their capital alone, the system would be in a very different position to that it enjoys at present; and, if there were any repetition of the severe losses of 1876-1879, without the accumulations by which they were then successfully encountered, the consequences might be disastrous.

Not only are the interests of the national bank system thus involved in this question of extension, but all the commercial interests in the country would be seriously affected by the great derangement of the currency that would be caused by the retirement of the circulation. These banks have fifty millions sterling of notes in circulation, and unless new powers be obtained, lawful money must be deposited in the Treasury to that amount. On one day alone, the 25th February, 1883, the amount of circulation whose legal existence is thus terminated is upwards of ten millions sterling. An equal amount of circulation might, indeed, be taken up by the new banks, but the whole proceeding would cause the gravest inconvenience.

A bill has been introduced to permit the extension of existing charters upon the assent of holders of two-thirds of the stock, and making due provision for the paying out to dissentients the approved value of their holdings. Another bill has also been introduced providing that no national bank charters shall be renewed, and that the circulation of those banks whose charters are on the point of expiring shall be replaced by issues of Treasury notes to be exchanged under certain conditions for the bonds on deposit.

Another consideration, more distant, perhaps, but of equal importance in relation to the continuance of the system as a system of local issues, is the security to be given for these notes. In the past ten years the public debt of the United States has been reduced by

about one hundred millions sterling; and they anticipate reducing it by at least a similar amount in the next ten years. Possibly, the saving to be effected in the annual charge for interest may even increase the rate of redemption, and they certainly contemplate frecing themselves from debt altogether. It can hardly be seriously contended that a state of indebtedness should be continued for the sole purpose of serving as a basis for the national bank currency. The principle of note issues upon the security of land is one that has been tried again and again, and has not given satisfaction; moreover the present Acts prohibit national banks from holding land, and we must suppose that has not been done without some experience of its necessity. As we have seen, too, there are not such large profits to be derived from the privilege of note issue as to make it certain that the banks would make any very strenuous efforts to retain it. These profits are also threatened with a further reduction by the gradual reduction of the rate of interest on the Government debt, and possibly too by enhanced values for the bonds, owing to their increasing scarcity.

At the same time, we must note that during the last three years, whilst the national bank circulation has been almost stationary, there has been a marked and important increase in their deposits; and as this has been accompanied by increase both in the surplus fund and the undivided profits, as well as in the dividends paid, we may perhaps regard it as an indication of the direction in which the system is likely to progress.

DISCUSSION ON MR. BARNETT'S PAPER.

Mr. JOHN B. MARTIN: I rise, not so much to make a speech as to ask a question. Mr. Barnett has referred among the offences enumerated on page 390, to "unlawfully certifying a cheque." He appears to have explained that later on, but it certainly seems to me that this is only an evasion of the law by what we call "marking a cheque," a nominal loan being placed to credit in order to cover what would be otherwise an over-draft. At the top of page 401 he says that "every bank is required at all times to hold, in lawful money, at least 15 per cent. of its deposits. In this may be included the redemption deposit of 5 per cent. on the circulation, treasury certificates for legal tender notes deposited and clearing house certificates; also balances due from agents in the reserve cities." May I ask if these clearing-house certificates inoludo certified cheques?

Mr. BARNETT: No. They are certificates issued by some of the Clearing House Associations, which have gold deposited solely for

the purpose of settling their own balances, thus avoiding the cost and trouble of handling the coin. There are, at present, only four clearing-houses that do this, namely, those of New York, Boston, Philadelphia, and Baltimore. These certificates represent gold

coin, and are allowed by law to be accounted as part of the cash

reserve.

32

Mr. J. B. MARTIN: We are all familiar with the language of the telegrams stating that the market for call money "closed firm," and that the commission is or, or whatever it may be. I imagine that is the way in which the usury law is evaded, and I shall be glad to know whether the existence of such usage in regard to the application of the usury law of the United States to the National Banks does enable them to evade the law, and allow them to charge whatever they please in the way of commission, in addition to the maximum rate of interest allowed by the usury law. We must be greatly indebted to Mr. Barnett for having presented us in this paper with a summary of an Act of such magnitude; and I heard with much interest his remarks on the bank note issue, which are worth the attention of anyone who takes an interest in matters connected with international exchanges, the transfer of gold, and matters of that kind. The effect of the reduction of the rates of interest on the United States Debt, and general fall of the rate of interest in the United States, must have a great effect upon the bank note issue, and when we have, in addition to that, the expiration of these numerous charters, a large number of which will lapse on the 25th February, 1883, I cannot but hope that some remedy will be found in the meanwhile. Such a state of things is deserving of the closest attention among all the banking classes of England, because it may seriously affect the circulation in our own country. Mr. Barnett has also made some remarks on the question of the small notes in use at the present time, and having had the honour of submitting to the Institute some tables on the currency of the United States two years ago, I am curious to know to what extent these small notes under $5 have been called in. What is the extent in proportion to the volume of the whole bank note circulation? I ask this question on account of the discussion which took place in the House of Commons a few days ago on the £1 note, which attracted a good deal of attention. There is also another point in connection with the banking circulation of the United States deserving great attention, that is the "silver certificate," about which Mr. Barnett has said nothing, no doubt because it does not directly affect the question of the national banks. Many people believe that these are certificates for a certain amount of silver deposited in coin or bullion at the Treasury, but they are in fact nothing more or less than bank notes (I do not remember their denomination), which are issued on the security of "Bland dollars," worth some 90 cents to the dollar. This point, I think, bears on

the currency question, and on the very interesting matter contained in the paper, a paper which has evidently taken a very great deal of time to prepare, and for which the Society is much indebted.

The CHAIRMAN (Mr. Tritton): Perhaps I may be permitted to say that the great difference between this national bank system in the United States and our own system must have struck everyone who has heard the paper read. The national banks are, it seems, only about one-third of the total number of banks in the United States. I think we may say there are 2,130 national banks, while the State and private banks and the various trust companies— ranking as banks, including these national banks-number 6,796. One of the most remarkable features of difference between the system of the United States and our system is this-that each one of these is a separate institution. Mr. Barnett has pointed out in his paper-and it strikes one as very singular-that there are absolutely no branch banks in the United States (Mr. Barnett: "There may be some branches of the State banks"). But practically we may say there are no branches, and this seems to prevent the aggregation of deposits in the hands of any one particular bank. Then the absolute supervision of the State over the national banks is also very remarkable. The government inspector, or comptroller, as he is called, seems to have a right of inspection at any time in addition to calling for returns on such days as he may select, without any notice beforehand.

The limitation by law of interest is got over by a side-wind, as has been pointed out by Mr. Martin, so that the interest charged throughout the national banks of the United States is probably considerably higher than ours, although we have no usury laws here. In spite, however, of all the fetters which the government of the United States has forged around this national bank system, it has no doubt attained very great perfection, especially in the State of New York. In London, it has been found that out of every £100 of transactions passing through the banks, 73 are in coin, 2.04 are in notes and 97-23 are in cheques, so that rather over 97 per cent. of the transactions are in paper, and it is interesting to find that these are very much like the proportions of the bank transactions in New York -the proportions being there: coin, 55; notes, 65 and cheques and bills, 98.8. So that, with the New York system of bankingin spite of all these fetters-there is a larger proportion of cheques and bills passing in each £100 than even under our own system; a fact which speaks strongly for the system adopted by the United States in its national banks. We are exceedingly interested as a nation in the system of banking on the other side of the Atlantic and in the legislation which must ensue during the next two or three years. I was surprised—as I daresay you were- at the large number of the concessions which will lapse in the United States

within the next two or three years. This country will look with great interest on the renewal or otherwise of those charters. I have, in conclusion, on behalf of the meeting to propose a hearty vote of thanks to Mr. Barnett for the Paper he has read.

Mr. BILLINGHURST: I have much pleasure in seconding the vote of thanks to Mr. Barnett for his very able Paper. He has given us in it much information which probably is new to most of us, and its preparation must have cost him infinite trouble. The Institute is to be congratulated on having among its Associates one who has shown such ability as is manifested not only in this Paper but also in the two Essays which he previously contributed and which gained the prizes offered by the Institute. Those Essays were excellent compilations and full of information. Mr. Barnett has evidently gone into the subjects con amore, and many of us may well be surprised that one who is actively engaged in one of our largest banking establishments in London from early morning until late at night could find sufficient time and courage to prepare a paper so full of research as the one to which we have been listening.

Mr. BARNETT, having acknowledged the vote of thanks, said :I will reply very briefly to the few points on which questions have been put to me. Mr. Martin referred to the manner in which the usury laws are evaded by charging a commission and by other practices. To a certain extent this is allowed, and perhaps I had better read you the section of the Act relating to it. It says, " And such interest may be taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to run." That of course increases the interest by the usual advantage appertaining to discount. Further, "And the purchase, discount, or sale of a bona fide bill of exchange, payable at another place than the place of such purchase, discount or sale, at not more than the current rate of exchange for sight drafts, in addition to the interest, shall not be considered as taking or receiving a greater rate of interest.” But beyond this there is no doubt that the banks do take greater rates of interest, and the Comptroller has said in one of his annual reports that he has been frequently solicited to bring actions for forfeiture of the charters of various banks, but he has not felt it desirable to do so. He has evidently in some sort similar ideas to our own on the subject, namely, that these matters are better left to general competition, or, at any rate, that the forfeiture of the interest is sufficient penalty. Then there is the method of getting over the restrictions relating to the certification of cheques, to which Mr. Martin has referred, a method which appears to be within the letter of the law, but is certainly not within its spirit. There has been great dissatisfaction expressed in New York about this matter and some talk of bringing it very seriously before the Government. As to the amount of money to be deposited for the circulation that will lapse if the charters are not timely renewed,