AT CLOSE OF BUSINESS OF TEX NO OCTOBER, 1883

The Reserve Cities, in addition to New York, Boston, Philadelphia, and Baltimore, are Albany, Pittsburgh, Washington, New Orleans, Louisville, Cincinnati, Cleveland, Chicago, Detroit, Milwaukee, Saint Louis, and San Francisco.

APPENDIX C.

RESERVES OF NATIONAL BANKS.

RESERVE
HELD.

CLASSIFICATION OF RESERVE.

Net

Reserve
re-

Deposits
Banks.

quired

Ratio to Other Due Redemp Amount Deposits Specie. lawful from tion per cent. money. Agents. Fund. £ £ £ £ £ £ £ £ Millions Millions Millions Millions Millions Millions Millions Millions

DISCUSSION ON MR. BARNETT'S Paper.

The PRESIDENT: With regard to the very interesting paper which we have just heard, there are one or two remarks I may make, and one is, we see that in America, as well as in this country, they are rather troubled with the definition of "What is a banker?" It seems it is a question we have been unable to decide here, and it has perplexed our council a good deal. We have taken the best advice we can get upon it, but we have not yet come to any conclusion on the point; though it sounds absurd enough when you see the way in which bankers have been mentioned in Acts of Parliament, the Bills of Exchange Act, and other Acts. Of course the ramifications of business are so great that it is extremely difficult to define what a banker is. I thoroughly agree, and I hope everybody here does, with the protest against over legislation, whether for bankers or anybody else. I hope this country, and any country over which the influence of England may extend, will protest against the idea that other persons can do their business better than themselves. Mr. Barnett's remarks on the subject are very sound indeed, and such as must commend themselves to every student, not only of political economy, but freedom of individuality. It is quite evident that the New York Clearing is very different from ours in many particulars, as, I believe, has been explained by Mr. Barnett in an article in our Journal.* Then, again, the travels of some of these country cheques are very curious, as shown in the diagram, but in England, where the whole transaction is practically covered by one post, such a complication could hardly occur. The recommendations on page 489 are also interesting, as showing that we on this side have very little, if anything, to learn from American banking, and that they have now arrived at the conclusion we have practically reached long ago.

Mr. J. B. MARTIN: I regret that my visit to America was prematurely cut short, because it prevented me from learning as much as I might otherwise have done about American banking and currency, but while I was there I endeavoured to pick up information about these subjects, and perhaps it may interest you if I tell you what I saw in the New York Clearing House. I was invited, by the courtesy of Mr. Camp, the inspector of the Clearing House, to witness the clearing. The clearing takes place at 10 o'clock in the morning; that is, the clearing for the day before. I may say that if Mr. Derbyshire and Mr. Pocock were to see the sumptuous magnificence of the New York Clearing House, and the comfort of the apartments in which the inspector of the New York clearing conducts the work, they would no longer be content with the miserable den in which we transact the largest banking operations in the world. It is a splendid building. The clearing is conducted in a large oblong hall, with a

*See Vol. III., p. 554.

gallery at one end, in which sits the inspector with one or two officials, and, I think, a representative of the Treasury. The hall is divided into four rows by two passages, or aisles as they call them, in which sit the representatives of the 87 clearing banks. They are so arranged according to their numbers on the list that, at 10 o'clock when they are in their places, messengers from all the banks-I think two from each-begin methodically to lay before each bank agent a sealed envelope, which contains the amount of charges on the bank to whom it is presented, and also a slip of paper tallying with the envelope. That envelope contains the clearing charge of the previous day, to which are added all items which have come in by the first post of the day. They are distributed in regular order by the messengers going down the passages, and so each bank in turn receives its 86 parcels. These are sent to the banks for examination, while the representative from the little slips of paper takes down on a long sheet the amount of the charges which he has received. It is therefore obvious that unless there is some mistake of arithmetic the clearing must at once balance when everybody has added up his sheet, and has found the true balance due to or from him. These balances, as soon as the totals are arrived at, are sent up to the gallery and taken down by the official, and a balance is struck. When a difference arises on the first trial, the official of the clearing house announces that the difference is so much, and then they have to find out the error. Some of the bank representatives, confident in their powers of arithmetic, and being sure they had given in their amount rightly added up, at a very early stage proceeded to assume that graceful and peculiarly American attitude of leaning back in their chairs, with their heels on the rails. The work of accounting for the difference begins about half-past ten o'clock, and at a quarter to eleven o'clock the balance ought to be found. The error of course rests with somebody, and when it is found he is made responsible in this way, that his bank is fined so much, according to the gravity or carelessness of the blunder. This fine is not levied on the clearing-clerk, but an account is sent in at the end of the month to the offending bank, and so they are kept in order. As soon as the balance is agreed they go home and examine the charges. Then of course there are returns, for which they account directly to each other not later than one o'clock, and that is the way the incident arose which Mr. Barnett has related. The balance struck in the clearing house could not be altered. A bank upon whom large cheques were presented, having stopped, the presenting bank had no opportunity of returning them, and in this matter I think they are behind us, because we somehow do manage to get our cheques cleared without leaving anybody out in the cold. That appears to be a weak point with them. Then they have to settle the differences payable to or receivable by them at the clearing house in money, that is, in gold, or gold certificates, or clearing house

certificates. These clearing house gold certificates are issued to the banks who have deposited at the Bank of America gold or gold notes, as surplus cash, in sums of not less than $10,000, which pass only among members of the clearing house for value. In this way, then, the clearing is adjusted, but it seems to be a little cumbrous, because we transfer our balances without any direct carrying about of cash, or its equivalent. Then the operation of the Treasury comes in. It is obvious that there is no such thing as the Bank of England is with us. The Treasury has to work the banking account of the Government, and so comes into the clearing house. There is also a practice in the clearing house of lending balances. A bank that happens to have a large balance over will lend a part of it to some bank who is indebted to the clearing house, and they seem to do it quite gratuitously, but I suppose they know with whom they are dealing. It is a little accommodation, and I suppose if one lends the other to-day, the other will return the accommodation the next day. I am not quite sure that I quite understand the details of this custom, but in Chicago, I understand, they charge 2 per cent. for the loan of a balance, which seems more economically sound. There is also the question of certified cheques, of which Mr. Barnett has taken notice. That is a system which, as he points out, is much abused, because a certified cheque goes into circulation, and is not presented for nobody knows how long. I believe opportunities have been sought for collecting certified cheques, and presenting them at once, at a moment favourable to the operator, and no doubt detrimental to the bank. That system of certified cheques has its advantages in one way, but, as practised in America, it is not a sound operation. Mr. Barnett has, greatly to our advantage, travelled a little beyond his text. Under the title of "The Action of the New York Clearing House Association during the recent crisis," he has given us an interesting article on the whole of American banking and currency. Now, with regard to the necessity of the action of the New York Associated Bankers, you can easily understand how it would be with us if we had no Bank of England to which, in time of pressure, not only bankers, but also their customers, can apply for accommodation. In America there is no such central institution, and any action of that kind is impossible. In a time of stringency the Treasurer of the United States Government buys Government Bonds, and so lets out some of the redundant gold which the national prosperity enables him constantly to store, and so a little money is thrown upon the market: having no such central channel as we have, they have_to_adopt that expedient. At the meeting of bankers at Saratoga, the President, Mr. Gage, laid stress on this phase of banking, and his advice was that greater reserves should be kept than are now kept, and that loans should be more freely given in times of panic. That is all very well, but if a banker depends entirely on his own resources, in time of panic he does not know to what extent he can go, and he cannot lend with freedom.