A BANK RETURN

ISSUE DEPARTMENT.

Notes Issued            L56,908,235 Government Debt        L11,015,100
                                    Other Securities         7,434,900
                                    Gold Coin and Bullion   38,458,235
                                    Silver Bullion             ---
                        -----------                        -----------
                        L56,908,235                        L56,908,235
                        -----------                        -----------

BANKING DEPARTMENT.

Proprietors' Capital L14,553,000 Government Securities L11,005,126 Rest 3,431,484 Other Securities 33,623,288 Public Deposits 13,318,714 Notes 27,592,980 Other Deposits 42,485,605 Gold and Silver Coin 1,596,419 Seven Day and other Bills 29,010 ----------- ----------- L73,817,813 L73,817,813 ----------- -----------

With the Bank of England thus acting as a centre to the system, there has grown up around it a circle of the great joint stock banks, which provide credit and currency for commerce and finance by lending money and taking it on deposit, or on current account. These banks work under practically no legal restrictions of any kind with regard to the amount of cash that they hold, or the use that they make of the money that is entrusted to their keeping. They are not allowed, if they have an office in London, to issue notes at all, but in all other respects they are left free to conduct their business along the lines that experience has shown them to be most profitable to themselves, and most convenient for their customers. Being joint stock companies they have to publish periodically, for the information of their shareholders, a balance sheet showing their position. Before the war most of them published a monthly statement of their position, but this habit has lately been given up. No legal regulations guide them in the form or extent of the information that they give in their balance sheets, and their great success and solidity is a triumph of unfettered business freedom. This absence of restriction gives great elasticity and adaptability to the credit machinery of London. Here is a specimen of one of their balance sheets, slightly simplified, and dating from the days before the war:--

LIABILITIES.

Capital (subscribed)   L14,000,000
                        ----------
Paid up                  3,500,000
Reserve                  4,000,000
Deposits                87,000,000
Circular Notes, etc.     3,000,000
Acceptances              6,000,000
Profit and loss            500,000
                       -----------
                      L104,000,000
                       -----------

ASSETS

Cash in hand and
  at Bank of England   L12,500,000
Cash at call and
  short notice          13,000,000
Bills discounted        19,000,000
Govt. Securities         5,000,000
Other Investments        4,500,000
Advances and loans      42,000,000
Liability of customers
  on account of
  Acceptances            6,000,000
Promises                 2,000,000
                       -----------
                      L104,000,000
                       -----------

On one side are the sums that the bank has received, in the shape of capital subscribed, from its shareholders, and in the shape of deposits from its customers, including Dr. Pillman and thousands like him; on the other the cash that it holds, in coin, notes and credit at the Bank of England, its cash lent at call or short notice to bill brokers (of whom more anon) and the Stock Exchange, the bills of exchange that it holds, its investments in British Government and other stocks, and the big item of loans and advances, through which it finances industry and commerce at home. It should be noted that the entry on the left side of the balance sheet, "Acceptances," refers to bills of exchange which the bank has accepted for merchants and manufacturers who are importing goods and raw material, and have instructed the foreign exporters to draw bills on their bankers. As these merchants and manufacturers are responsible to the bank for meeting the bills when they fall due, the acceptance item is balanced by an exactly equivalent entry on the other side, showing this liability of customers as an asset in the bank's favour.

International Finance Page 12

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