IX. LOSSES OF BRANCHES BY BAD DEBTS. they demand payment in coin or Bank of banking, which, doubtless, for the commerEngland notes. They take, without any cial interests of the country, [469,] is better difficulty, over their own [516] counter, the managed by individuals than by any public notes of any private banker, provided the body. But circulation ought always, accordbank hold securities from those banks for the ing to Mr. Palmer, to have reference to the payment of them. They accept also, in the foreign exchanges, and therefore to have one same way, the [517] notes of any private centre. banker in the town where they can send them for receipt immediately upon being paid in. But a York note, for instance, payable in With respect to the actual operation of the London, they would not receive, unless, under branch banks, since their commencement, it a particular regulation, it were tendered in appears that the amount of bills discounted by payment of the revenue. Latterly, in com- the branch at Exeter within the year 1831, pliance with the request of government, the for instance, was eighteen thousand pounds; [533] assessed taxes of certain districts have and that during the whole of the period of its been paid [532] into the branch banks; and existence there, the branch has made no bad the branch has sent an agent occasionally, debt. The same remark applies to Glouces within twenty or twenty-five miles, to meet ter, although the bills discounted there by the the collector, and receive the money from branch within the same year amounted to him. The system affords a considerable saving seventy-nine thousand pounds. A debt is set to the public, inasmuch as the revenue has down against Swansea of two thousand five credit for the amount [534] paid in the coun- hundred pounds, but it is reported as likely to try, upon the arrival of the mail in town. be recovered. The bills discounted by the Before the branches existed, the period of branch there within the same year amounted credit depended upon the agreement made between the tax-office and the country banks, in which the local collectors [535] deposited the revenue. The branches receive in discharge of revenue all notes payable in the town where the collection is made; they receive also, for the purposes of revenue only, all notes payable in London; but for the latter, by an arrangement agreed to with the tax-office, credit is not given to the exchequer until the notes are actually paid. Up to that period, the [544, 545] risk is taken by the government, who, in case of failure, would follow the private banker for payment; it is not [547] government money until paid in coin or Bank of England paper. VIII. EXPENSES OF THE BRANCHES. The whole expenses of the branch banks are estimated at about thirty-four thousand pounds per annum. [Palmer, 523.] Their present circulation, including five hundred thousand pounds of deposites, amounts to three millions. It is calculated that the total charge of the circulation of [522] the branch banks amounts to two and a half per cent. ; and that the bank derive from that circulation a profit of one half per cent. only; the issue, therefore, does [524] little more than pay its own expenses. The other advantages derived by the bank from the branch banks arise from deposites and agency, but the extension of the bank circulation is the main consideration. For [484] the attainment of that object, the branch system is a safe one; but [467, 468] it is admitted not to be a good system for to eighty-four thousand pounds. A recoverable debt of three hundred and forty-nine pounds is charged against Newcastle (down to 1830); the bills discounted by the branch there, within the year 1831, having amounted to thirty-eight thousand pounds. At Manchester, the bad debts of the branch have not amounted on the whole to five hundred pounds, although it discounted bills there within the same year to the amount of one hundred and ninety-four thousand pounds. At Liverpool, where the bills discounted by the branch amounted, within the year 1830, to sixtythree thousand pounds, the bad debts down to that period have not amounted to one hundred and sixty pounds. Within the year 1831, the discounts increased at Liverpool to the sum of three hundred and thirty-six thousand pounds; but no return of bad debt is given with reference to that town for the latter year. The bills discounted by the branch at Birmingham, within the year 1831, amounted to five hundred and ninety thousand pounds; the bad debts since the establishment of the branch are five thousand three hundred and thirtynine pounds. At Hull, the bills discounted by the branch within the same year amounted to sixty-two thousand pounds; the bad debts during the whole period to two hundred and fifty-one pounds. Within the same year, bills were discounted by the branch at Leeds to the amount of one hundred and twenty-eight thousand pounds, and in the bad debt account for that year, as well as for 1830, the returns are "Nil." For the two preceding years, they amount only to four hundred and sixty four pounds. The supposed irrecoverable | tee to the public for the solvency of the bank balance against Bristol amounts to ten thou to the whole amount of that capital, it must sand three hundred and ninety-five pounds, be looked upon as producing [Norman, 2,820] though the bills discounted by the branch a most important benefit to the institution, there, within the year 1831, did not exceed with reference to its commercial character. the sum of one hundred and two thousand Measured by the quantum of that advantage, pounds. But the case of Norwich is the most opinions may vary as to the amount of capital, unfavourable of all. The bills discounted by which it might be material for the bank to the branch there during the three years, 1829, hold in that shape. It should, unquestionably, 1830, 1831, did not, on the whole, exceed one [2,823,] be large enough to render the notion hundred and twenty thousand pounds; and yet of insolvency absurd, except the whole fabric the apparently certain losses sustained by the of national credit gave way. bad debts there are stated at the sum of convenience appears to be felt in any quarter No [2,825] inthirty-two thousand and fifty-five pounds. The from its present amount. bad debts thus enumerated are those only [2,821] The real working capital of the which are returned as not likely to be re-bank consists merely in what is called its covered; and they amount on the whole to" rest," which amounts at present to the sum forty-nine thousand six hundred and two pounds. [Note. The amounts discounted by the branch banks should have been stated as the average amounts throughout the periods referred to.-Author.] CHAPTER IV. of £2,880,000. [Rep. p. 4.] All the other funds which it employs [Norman, 2,822] are at large, who accept its paper as the most funds belonging to government and the public convenient representative of gold, and who, for the sake of greater security, deposite their money in its coffers. The bank has also dead stock of different kinds, such as the magnifi Capital of the Bank of England-Dividends-Its liabilities cent fabric in which its treasure is kept, and and assets-Annual expenses and net profits. 1. CAPITAL. We have already seen that when the Bank of England was constituted, in 1694, its original capital, which was lent to the government, amounted to £1,200,000. This sum was increased by a new subscription of one million, which was called for in the year 1697, but was returned to the subscribers in 1707. Within three years after that period, however, the capital was increased, by fresh subscriptions, to more than five millions and a half; which, in the year 1722, were swell. ed by similar means to nearly nine millions. New calls were subsequently made in the years 1742, 1746, and 1782, which raised the capital of the bank to the sum of £11,642,000. This amount was preserved, without any variation, down to the year 1816, when, in consequence of the profits realised by the bank, an addition of twenty-five per cent. was made to the stock of the several proprietors; thus enlarging their collective capital to the sum of £14,553,000, the amount at which it now remains. its business carried on; together with the fix. tures and furniture therein contained. II. DIVIDENDS. This The bank appears, in the year 1790,* to have paid a dividend of seven per cent. amount of dividend it continued during the subsequent fourteen years, and, in addition, presented the proprietors, within that period, with four several bonuses, amounting, in the whole, to £2,619,540. During the two years, 1805 and 1806, the dividend was raised to twelve per cent. It was reduced in 1807 to ten per cent., at which it remained until 1824, when it was further lowered to eight per cent., and so it has continued to the present day. III. LIABILITIES AND ASSETS. The amount of notes maintained in circulation by the bank and its branches, on the 29th of February, 1832, was Its government deposites on the same day And the private deposites in the bank and The whole of the capital thus raised from time to time was lent to the government, who pay the bank [Q. 4,341] interest upon it, at the rate of about three per cent., to the amount of £446,502 per annum. It may be considered as so much stock, yielding no pecuniary advantage to the bank beyond the interest. But inasmuch as the state is a pledged guaran- | E. Total liabilities £18,051,710 3,198,730 5,738,430 £26,988,870 The assets of the bank on the same day were as follow: *For the dividends prior to 1790, see Appendix, 37 Assets, Liabilities, £44,179,630 £44,179,630 . £17,190,760 Excess of assets of the bank over its liabilities, I. PAR OF EXCHANGE. It will have been seen that there is a differWhen a bill of exchange for one hundred ence of £133,800 between the amount of the permanent debt here stated as due from the pounds will purchase both in England and government, and the bank capital due to the France the same quantity of gold of a certain proprietors. This difference consists [Palmer, weight and fineness, then [Palmer, 133] a 44] of a sum which the government owe to par, or perfect evenness of exchange, may be If the bank beyond that capital, arising out of said to exist between those two countries. some settlement of a very old date, that has it be necessary, in order to purchase that not been explained. The total excess [Rop. quantity of gold in Paris, to add any given p. 4] of assets is stated by the committee at sum, five or ten pounds, to the English bill the sum of £17,433,000: the difference arises for one hundred, then the exchanges between from their having set down the "rest" capi-the two countries are said to be no longer at tal at the sum of £2,880,000, whereas the par; the scale is inclined to the disadvantage chief accountant's return, which, it should of England, and the measure of that disadvanbe observed, is dated the 29th of February, tage is the sum added to the bill. On the 1832, states the "rest" at £2,637,760. I other hand, a similar depression of the balance am informed that the [Palmer, 42] sum given by the committee was the amount of the "rest" on the 11th of August, 1832, the day on which their report was agreed to. is said to take place to the disadvantage of France, if the operation be in the reversethat is, if, instead of any addition being made to the English bill, an addition be made to the quantity of the gold, in order to purchase that bill in the Paris market. Then the turn of the scale is supposed to be pro tanto in favour of England. No allowance is made in the report of the committee [43] for the value of the bank itself, nor has any detailed estimate of that value been included among the accounts that This explanation of the exchange must be appear to have been laid before them. Having made enquiries on the subject, I have ascer- taken, however, in connection with certain It should always be tained that it would not be too much to state other circumstances. the amount of the "rest" at four millions and recollected, that the standard [136] coinage a half, including therein the value of the bank of France, and, indeed, of the whole continent, buildings and freehold property, the house [Rothschild, 4,829,] is silver,* whereas that furniture, fixtures, and dead stock of every of England is gold. It is necessary for the kind; and then the real excess of the assets bank to retain in its coffers a certain proporof the Bank of England, over and above all tion of gold bullion; and for that purpose a its liabilities to the public, will amount, in supply of the metal may be required in Enground numbers, to the sum of NINETEEN MIL-land when it is not wanted in France. The LIONS STERLING. IV. EXPENSES AND PROFITS. The ordinary annual expenses of the bank, including average losses by discounts, and by forgeries connected with the public funds, may be taken at about £500,000 per annum. Its ordinary net profits, after the payment of all expenses of every description, appear to be about £1,200,000 per annum; out of this sum the dividends arise, which amount to £1,164,235, leaving, therefore, about £35,000 a year to be added to the "rest" capital. premium on gold may chance to be low in Paris-that is to say, low in the estimation of a French banker, who would gladly exchange it for silver, in order to meet the demand of his customers. It might thus happen that the exchanges would be favourable to England at a period when they would not, in reality, be unfavourable to France. No perfect par of exchange, therefore, can possibly exist as [Palmer, 137] between two countries, * Gold is in France a legal tender; but a creditor cannot demand it without paying for it an agio, or Such is the present state of the Bank of premium. [138.] which have not the same standard metal for | Mr. Rothschild, for example, might embark their respective currencies. II. PAR BETWEEN ENGLAND AND FRANCE. in a financial [1,938] operation at Paris or Berlin, the profit of which he calculates at three per cent. It becomes reduced to two and three quarters, perhaps, by reason of that mode of remittance during an unfavourable state of exchange. Nevertheless, he has his two and three quarters per cent. profit, and thus the balance is materially in his favour. But these, again, are exportations of gold that only create a temporary demand upon our currency, and they are soon rectified by the profitable returns which ensue. When we say that a par of exchange exists between this country and France, we mean [Rothschild, 4,788] that we can then obtain twenty-five francs and twenty centimes in Paris for a sovereign. When for the sovereign we can get only twenty-five francs and fifteen or ten centimes, we then consider the exchanges as so much below par. The sterling value of the sovereign is thus so far reduced; and it is evidence of the fact, that we When, however, we happen to have a bad are sending gold abroad upon which we receive harvest, and a great quantity of corn is necesno premium. In this state of things the ex-sarily imported from the continent, it must be changes are [4,787] unfavourable to us. If paid for chiefly in gold, according to Mr. we calculate the value of the currency here Rothschild, whose doctrine, as I am informed, against that of the currency of France, we is not correct in practice. Most persons who may at any period ascertain the par pretty deal in corn have but limited credit: [Rothscorrectly, by adding to that value the premium child, 4,886,] the foreign agent draws his bills then payable for gold. The exchanges are immediately, and sells them without reference against the country which pays the higher to the exchanges, and that, perhaps, produces premium, and the amount of the excess is the an effect to a certain extent. measure of its loss. But, on the other hand, there are a great III. SIGNS OF UNFAVOURABLE AND FAVOUR-many merchants from the West Indies who ABLE EXCHANGES. Practically speaking, the exchanges may be said to be unfavourable to this country, when there is a more than ordinary continued demand upon our currency for gold; and unless that demand arise from political discredit at home, we may infer that the gold is going abroad in large quantities. A temporary demand [Palmer, 134] of that kind may exist at a high, as well as at a low, rate of exchange; as, for instance, when a supply of that metal to the amount of a million was sent out not long since for the supply of the Russian army. To a certain extent, that demand was injurious; but its action, being limited in point of time, was soon rectified. have bills running upon them here, for coffee, and different kinds of produce which they cannot sell in England; they, [4,802,] therefore, send it to the continent, and draw bills for it. Against those bills some remittances must come back; and as people of property here will not involve themselves in foreign acceptances, those remittances must be in gold. When that happens, the exchanges take a turn in our favour. IV. FOREIGN LOANS. It has been supposed that loans made in England, for the use of foreign states, have the effect of producing unfavourable exchanges; and so they would, most probably, if they were of any considerable amount, Since the repeal of the laws prohibiting the and if the remittances of the English subscriexportation of coin, and in consequence of the bers were all made to those foreign states in increased facilities, and the cheapness of tran-gold. But Mr. Rothschild states it as a matsit between England [Ward, 1,942] and the ter within his own experience-and who is a continent, merchants who have large remit-better authority upon such a subject?—that tances to make abroad frequently make them when loans are negotiated, they give rise in in sovereigns. [1,985.] They do so, because fact only to a change from one (Rothschild, they may not have time to purchase bills, and 4,804] stock into another. "If loans are it may be of importance to them to forward|made," says that gentleman," most of the the remittances without delay. They, more capitalists who hold funded stock, in general, over, thus avoid the risk of buying bad bilis, change one stock when they take others; so and it may be conducive to their advantage to that it is only a change of property. For the conceal the nature of their business from rival last four or five years I have found, that when speculators. The exchanges may happen at a new loan is made, most capitalists only the time to be unfavourable to this mode of changed one property against another, and payment, and yet it may, upon the whole very little property is wanted from this countransaction, be beneficial to the merchant. try • {4,885] I know," he adds, " that every foreign loan that has been made has fruits, and other commodities and articles of V. GENERAL STATE OF TRADE. Newcastle, and other places, and I send them to the continent to my houses. My houses purchase against them bills upon this country, What, then, it may be asked, is the princi- which are drawn for wine, wool, and other pal source from which the prevailing current commodities. But if there be not a sufficient of the exchanges really flows, and by the in- supply of bills abroad on this country, we are crease or diminution of the supply in which obliged to get gold from Paris, Hamburg, and the stream rises or falls as it passes through elsewhere." In this way there is, in point of the various commercial countries of the world? fact, in the [4,876] ordinary course of things, It is the general state of trade between the a regular payment of gold to this country nations; [Rothschild, 4,859,] and each nation from the whole world, which shows, that the drinks of a smaller portion of the current, in proportion to the quantity taken out of it by that with which it is more immediately in contact. In other words, as Mr. Rothschild puts it, the balance of payments as to those countries with which you trade is really and truly the only guide for the rate of exchange. [4,800.] If the balance of payments be against you, the exchanges are against you, and vice versa. bills drawn abroad are not equal to those COMBINED. If the general state of trade be the true guide of the exchanges, it follows, therefore, that no individual, or combination of indiviNow, the general excellence and cheapness duals, could succeed in influencing the exof our [4,856] manufactures attracts to Eng. changes for any considerable period of time. land customers from all parts of the world. A person of capital, if disposed to make such England is, moreover, the place of settlement an experiment, might undoubtedly go on the for whatever is wanted in India, China, Ger- exchange, and by buying bills on two or three many, Russia, the Brazils, and the Americas. post days very largely, he [Rothschild, 4,795] [4,799, 4,866.] If we import from Sweden might, to a certain extent, affect the market. £1,000's worth of iron, and manufacture it, But he cannot buy the bills unless they be in we raise its value to £10,000. So, also, the the market; and their presence there is the cotton, which we receive from America, costs result of the general state of [4,976] trade, three pence or sixpence a pound; but when it which it is not in his power to control. Even is manufactured, that pound of cotton is worth This statement, however, must be taken literally, four times as much. It follows, therefore, with reference to the par of exchange and the premium that, generally speaking, the balance of pay-on gold abroad. It appears, that between the 1st of ments as between England and all other parts February, 1820, and the 1st of June, 1832, the rate of of the world to which we send our manufac-exchange on Paris was never under twenty-five francs and twenty-two centimes, and that, during the whole of tures is in our favour. All the gold and sil-that period, gold bore a premium at Paris ranging bever of the world [4,871] have a tendency to tween one and seventeen francs per 0.00. Neverthecome here; but that tendency is, to a certain less, as compared with other periods, the [Ward, 1,908] extent, checked by foreign loans, by occasional exchanges have been considered adverse; perhaps, more properly speaking, we should say less "favour[4,872] importations of corn, and by the con-able" to this country, when they fell, in August 1824, stant importations of wool, wine, brandy, * I am bound to observe, that the whole of this state. ment should be received with great caution. Practical men say, that no country can for a continuance sell more than it buys. Upon this subject, I am happy to be able to refer the reader to an extract from Mr. Cock's adınirable pamphlet, Appendix F. from 25f. 624c. to 251. 40c.; and after ranging as low as 25f. 32c. did not rise again above 25f. 60c., until February, 1826. So, ugain, they were below 25t. 60c. between August 1827 and February 1829. From March 1829, they kept high until September 1830; they then continued looking downwards until March, [Gurney, 3,513,] 1832, when they recovered again, and rose gradually to 25f. 97c. |