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344
[GERMAN
BANKS AND BANKING

empire)[1] and notes of the issuing banks which are allowed to be reckoned as specie or discounted bills, must be held—maturing not later than three months after being taken—with, as a rule, three, but never less than two, good indorsements. There is also a provision that at least one-third of the notes in circulation must be covered by current German notes, money, notes of the imperial treasury, and gold in bullion or foreign coin reckoned at £69, 12s. per pound fine. The Reichsbank is bound by law to redeem its notes in current German money. It is stated that this may be gold coin or silver thalers, or bar-gold at the rate of 1392 marks (£69, 12s. reckoning marks as 20 = £1) the pound fine of gold. In practice, however, facilities have not always been given by the Reichsbank for the payment of its obligations in gold, though the importance of this is admitted. In the balance-sheet for 1906 the bills held amounted to £67,000,000, and the loans and advances to £14,200,000. The notes issued averaged for the year £69,000,000. The gold held amounted, 30th December 1906, to £24,069,000. If the condition of business requires that the notes in circulation should exceed the limits allowed by the law, the bank is permitted to do this on the payment of 5% on the surplus. In this respect the German act differs from the English act, which allows no such automatic statutory power of overpassing the limit of issue. Some good authorities consider that this arrangement is an advantage for the German bank, and the fact that it has been made use of annually since 1895 appears to show that it is needed by the business requirements of the country. Of late years the excess of issue of the Reichsbank has been annual and large, having been £25,267,000 on the 29th of September 1906 and £28,632,000 on the 31st of December of the same year. The amount of the duty paid on the excess issue in the year 1906 was £184,764, and the total amount paid thus from 1876 to 1906 was £839,052. The increase of the uncovered limit (untaxed limit of issue called in Germany the "note reserve") has not been sufficient to obviate the need for an excess of issue beyond the limit.

In accordance with a law passed in 1906 the Imperial Bank issues notes (Reichsbanknoten) of the value of 20 marks (£1), and 50 marks (£2, 10s.) in addition to the 5, 10, 100 and 1000 mark notes (5s., 10s., £5, £50) previously in circulation. Imperial paper currency of the value of 20 or 50 marks (£1 and £2, 10s.) had previously existed only in the form of treasury notes (Reichskassenscheine); these will in consequence be withdrawn from circulation.

The amendment of the banking law of Germany, passed in 1899, not only affects the position of the Reichsbank, but that of the four other note-issuing banks. The capital of the Reichsbank has been raised by the bill of that year to £9,000,000. The reserve fund has been raised out of surplus profits to £3,240,000. This exceeds the amount required by the act of 1899, which was £3,000,000. The amending act further diminishes the dividend receivable by the stockholders of the Reichsbank and increases the share which the government will obtain.

The arrangement with the four note-issuing banks is designed to cause them to work in harmony with the Reichsbank when the Reichsbank has to raise its bank-rate in order to protect its gold reserves. The official published rate of discount of the Reichsbank is to be binding on the private note-issuing banks after it has reached or when it reaches 4%. At other times they are not to discount at more than ¼% below the official rate of the Reichsbank, or in case the Reichsbank itself discounts at a lower rate than the official rate, at more than ⅛% below that rate. If the Reichsbank discounts below the official rate, it is to announce that fact in the Gazette.

The subject being important, we quote from the amending act the sections governing the discount rate:—Gesetz, betreffend die Abänderung des Bankgesetzes vom 14. März 1875; vom 7. Juni 1899, Artikel 7, S. 1. The private note-issuing banks are bound by Artikel 7, S. 2, after the 1st of January 1901:—"(1) Not to discount below the rate published in S. 15 of the bank law, so long as this rate attains or exceeds 4%, and (2) moreover, not to discount at more than ¼% below the Reichsbank rate, published in S. 15 of the bank law, or in case the Reichsbank itself discounts at a lower rate, not to discount at more than ⅛% below that rate."

It remains to be seen whether the note-issuing banks will find these conditions too onerous, and rather than be bound by them will give up their right of issuing notes. The object of the enactment is apparently to protect the specie reserve of the Reichsbank, but it may be doubted whether, considering the importance of the other banks of Germany—none of which is bound by similar conditions—relatively to the note-issuing banks, the restrictions put on the note-issuing banks will have any practical effect.

Since 1870 banking has made immense progress in Germany, but it may be some time before the habit of making payments by cheque instead of specie or notes becomes general.

Authorities.—Parliamentary Papers: Report, together with Minutes of Evidence and Accounts, from the Select Committee on the High Price of Gold Bullion, House of Commons, 8th of June 1810; Reports, Committee of Secrecy on Bank of England Charter, House of Commons, 1832; Select Committee on Banks of Issue, House of Commons, 1840; First and Second Reports, Select Committee on Banks of Issue, House of Commons, 1841; First and Second Reports, Secret Committee on Commercial Distress, House of Commons, 1848; Report, Select Committee on Bank Acts, House of Commons, 1857; Report, Select Committee on Bank Acts, House of Commons, 1858; Report, Select Committee on Banks of Issue, House of Commons, 1875; Report from Secret Committee of the House of Lords on the Causes of the Distress which has for some time prevailed among the Commercial Classes, and how far it had been affected by the Laws for regulating the Issue of Bank Notes payable on demand, session 1847-1848; Analysis of the Minutes of Evidence taken before the Select Committee of the House of Commons on Banks of Issue, 1875, with a selection from the evidence, by R. H. Inglis Palgrave, London, 1876 (printed for private circulation).

General Information.—Articles on banking, &c., Dictionary of Political Economy, edited by R. H. Inglis Palgrave (Macmillan & Co., 1894-1906); Handwörterbuch der Staatswissenschaften, edited by Conrad, Elster, Lexis and Löning, 1899; Wörterbuch der Volkswirthschaft, 2 vols. (ed. Elster, 1898); Dictionnaire des finances, edited under the direction of Léon Say, by L. Foyot and A. Lanjalley (1889); Dictionnaire du commerce, de l'industrie et de la banque, edited by A. Raffalovich and Yves Guyot; Bankers' Magazine, commenced 1844, to present time; Journal of the Institute of Bankers, commenced 1879, to present time; Bankers' Magazine (New York); Economist newspaper, commenced 1843, to present time; Banking Almanac, commenced 1845, to present time; Reports of the Comptroller of the Currency (Washington).

Early.—De Monetarum Augmento, variatione et diminutione, Tractatus varii (1509); A proposal to supply His Majesty with twelve or fourteen Millions of Money (or more if requir'd), by A. D. of Grey's Inn, Esq., and some Others, his Friends (1697); Hayes' Negociators' Magazine of Monies and Exchanges, 1730; Lord King, Thoughts on Bank Restrictions (1804); The Theory of Money with considerations on the Bank of England (1811); William Cobbett, Paper against Gold and Glory against Prosperity, 2 vols. (1815); Circulating Credit with Hints for improving the Banking System of Britain, by a Scottish Banker (1832); W. Leckie, Bank Restriction (1841); Debates in the House of Commons on Sir R. Peel's Bank Bills of 1844 and 1845, reprinted verbatim from "Hansard's Parliamentary Debates," 1875; Gilbart's Works, 6 vols. (1865); The History, Principles and Practice of Banking, by J. W. Gilbart, edited and revised by A. S. Michie, 1882; Thomson Hankey, Principles of Banking (1867); Walter Bagehot, Lombard Street (1873), a brilliant picture of the city at that date (new ed., 1906); A. S. Cobb, Threadneedle Street, a reply to "Lombard Street" (1891); John Dun, British Banking Statistics (1876); R. H. Inglis Palgrave, Notes on Banking; George Rae, The Country Banker (1886), and several editions later (many sound hints on practice); J. George Kiddy, The Country Banker's Handbook, 4th ed. (1903); C. F. Dunbar, Chapters on the Theory and History of Banking (1891); Charles Gairdner, The Making of the Gold Reserves (1891); J. B. Attfield, English and Foreign Banks (1893) (refers to management of banks); T. B. Moxon, English Practical Banking, 10th ed. (1899); A. Crump, The Key to the London Money Market (1872); W. Y. Duncan, Notes on the Rate of Discount in London, 3 vols., 1822-1856, 1856-1866, 1866-1873, privately printed, Edinburgh, 1856, 1867 and 1877; R. H. Inglis Palgrave, Bank Rate and the Money Market in England, France, Germany, Holland and Belgium, 1844-1900 (1903); Ernest Seyd, The Bank of England Note Issue and its Error (1874); Ernest Seyd, London Banking and Bankers' Clearing House System; Ernest Seyd, The Silver Question in 1893; Walter Bagehot, Depreciation of Silver (1877); Ernest Seyd, Bullion and the Foreign Exchanges (1868); Clare, The A B C of the Foreign Exchanges (1895, 2nd ed. 1895); Tracts, by Lord Overstone (1837-1857); Select Tracts on Money, &c., reprinted privately by Lord Overstone, 1856-1859 (containing much valuable and interesting information on early history); A. Crump, A Practical Treatise on Banking, Currency and the Exchanges (1866); Bonamy Price, Currency and Banking (1876) (the interest of this volume to the student of banking is found mainly in the correspondence between Mr Henry Hucks Gibbs (Lord Aldenham) and Professor Bonamy Price on the reserve of the Bank of England); R. H. Inglis Palgrave, On the Influence of a Note Circulation in the Conduct of Banking Business, read before the Manchester Statistical Society, 1877; Edgar Jaffé, Das englische Bankwesen (Leipzig, 1905); A History of Banks (1837); D. Hardcastle, Banks and Bankers (1843); W. J. Lawson, The History of Banking (1850); R. Baxter, The Panic of 1866 (1866); F. G. H. Price, A Handbook of London Bankers (1876); Conant, History of Modern Banks of Issue (New York, 1896); History of Banking in all Leading Nations, 4 vols. (New York, 1896); Viscount Goschen, Essays and Addresses on Economic Questions, 1865-1893 (1905), (arts. on "Seven per cent," "Two per cent," "Our cash reserves and central stock of gold"); C. F. Dunbar, Economic Essays, edited by O. M. W. Sprague (1904), (containing many articles on banking, particularly in the United States).

Bank of England.—T. Fortune, A Concise and Authentic History of the Bank of England (1802); John Francis, History of the Bank of England (1847); J. E. Thorold Rogers, The First Nine Years of

  1. The imperial treasury is bound to pay the state notes in cash at any time when this is required, but an independent fund of cash set apart for this purpose does not exist. See Handwürterbuch der Staatswissenschaften, vol. v. art. “Papiergeld," p. 97 (Jena, 1893; ed. J. Conrad, L. Elstei, W. Lexis and E. Lösing.