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place, I shall presume that each bank is a bank of deposit, of discount, of remittance, of agency, and of circulation. The claims upon each bank will then consist of_1. Cheques drawn against deposit accounts.
2. Its own notes. 3. Notes issued by its agents or other branches. 4. Letters of credit granted by agents or branches. These claims or obligations will get into the possession of the rival bank by some of the following ways:-1. As lodgments on deposit accounts. 2. In payment of local bills. 3. For bills or letters of credit on agents or branches. 4. Received for collection by post from some agents or branches. The exchanges will now be more or less favourable, according to the following circumstances :
1. The discounting of bills not payable in the place where the banks are established has a tendency to render the exchanges unfavourable.
If, for example, a country banker discounts bills payable in London, he issues his own notes for the amount at the time the bill is discounted, and some of these notes will get into the rival bank, and render the exchanges unfavourable. When the bills are due, the London agent receives the amount from the accepters, but this has no effect on the local exchange. Hence a bank that discounts a large amount of London bills must expect to have large sums to pay in the exchanges. There are some cases, however, in which the discounting of London bills will not affect the local exchange: these are-1. When the amount of the bill is not taken in notes, but in a draft on the London or some other agents. 2. When the amount of the bill is placed to the party's current account, the exchanges will not be affected so long as it remains on that account. 3. The exchanges will not be affected, if the notes issued for the London bill
should be retired either by the bank that issued them, or by any of its agents.
2. If a bank has to pay a large amount on letters of credit issued upon it by its agents or branches, the exchanges may become unfavourable.
The exchanges between any two banks may be affected by other circumstances than local connections. bank is drawn upon by agents or branches, or has to pay notes issued by agents or branches, and the other has no such connections, then the exchange will be unfavourable to the former bank and favourable to the latter. Some of these notes or letters of credit, and some of the notes issued for the letters of credit, will probably get into the possession of the rival bank, and appear in the exchange.
3. If a bank issues a large amount of bills, or letters of eredit upon its agents or branches, the tendency is to render the exchange favourable.
The bank receives the money for these bills or letters at the time it issues them. This money will often be composed of the notes chiefly in circulation, and a part of them will consist of the notes or obligations of the rival bank, and will be paid in the exchange: or if the bank receive from its agents or branches any claims upon the rival bank, or even any bills to be collected, the effect will be to render the exchange favourable in the same way as the granting letters of credit upon those agents or branches.
4. The increase of lodgments on current accounts has a tendency to render the exchanges favourable.
On these accounts money is received and money is paid out daily. The receipts of money tend to throw the exchange in favour of a bank, because some portion of these receipts will consist of the obligations of the rival bank. The payment of money tends to render the exchange
unfavourable, because some of the notes issued in payment will find their way into the other bank. When, therefore, the receipts are more in amount than the payments, the exchanges are likely to be favourable. When the total deposits lodged in a bank continue to increase, the exchange will probably be favourable during the progress of such increase; but after the deposits have ceased to increase, the exchange will not be more favourable than before the increase began. As long as the amounts of the deposits in the respective banks remain stationary, the operations on those accounts will not affect the exchanges, although the deposits in one bank may be twice the amount of those in the other. But if, from a transfer of accounts or from other causes, the deposits increase in one bank and diminish in the other, the exchanges during these operations will be in favour of the bank whose deposits are on the increase. But let the progress of increase be over, and the amounts of the respective lodgments become permanently fixed, then, as far as the operations on the current accounts are concerned, the exchanges will again be equal.
5. An increase in the amount of local bills under discount has a tendency to render the exchanges unfavourable. Local bills are bills payable in the place where the bank is established. The operations on the local bill account are similar to those on the deposit account. When these bills are discounted, notes are issued—when the bills are paid, notes are received. When the amount of local bills paid is greater than that discounted, the tendency is to render the exchanges favourable. Thus, to reduce the amount of local bills under discount is to render the exchanges favourable; and to increase the amount, is to render them the reverse. But though the operations on the local bill account are similar in their nature to those
on the current accounts, yet the effect is different as to their influence on the exchanges. For as the amount of the local bills under discount increases, the exchanges become unfavourable ; but as the deposits increase, the exchanges become advantageous. In the increase of local bills, the issue of notes will be more than the receipts; but in the increase of the deposits, the receipts will be more than the issues.
As the laws of the country circulation are the same, whether the notes are issued by private or by joint-stock banks, I have introduced the subject into this section.
COUNTRY JOINT-STOCK BANKS.
HAVING treated of the country joint-stock bank cir
culation, in conjunction with the country private bank circulation in the foregoing section, there only remains to be noticed in the present section, the Act of Parliament permitting the establishment of country jointstock banks.
By a clause in the charter of the Bank of England no partnership formed for carrying on the business of banking could consist of more than six persons, but by an Act passed in the year 1826, co-partnerships of more than six in number are permitted to carry on business as bankers in England, sixty-five miles from London, provided they have no house of business or establishment as bankers in London, and that every member of such co-partnership shall be responsible for all the debts of the company. They must also deliver to the Stamp Office the names and places of abode of all their members, and also a list of their officers. These lists are to be copied into a book which any person is entitled to see on paying one shilling, and to obtain a copy for ten shillings. The banks may sue and be sued in the name of their public officer, and execution upon judgment may be issued against any member of the co-partnership.
We take the following account of these banks from a Report of a Committee of the House of Commons, appointed in the year 1836, to inquire into the operation of