paid for in bills on London at two or three months' date; those bills we pay to our bankers, and receive from them bills or cash when we have occasion for either, to make our payments. The bank notes or gold we require for our ordinary purposes and charges of merchandise of every description. The account is kept floating. The interest on both sides is calculated at the same rate, at present five per cent. Last year the rate was reduced to four; and the banker charges a commission of a quarter per cent. on the amount of one side of the account; that charge is his remuneration, and that of his bankers in London, for paying our acceptances there, both inland and foreign. The account fluctuates, depending on the confidence the banker may have in his customers; if that confidence is entire, the customer is occasionally in his banker's debt, but more frequently the balance is in his favour.

"Does that extend to the whole of Lancashire?-I believe the system at Manchester, Preston, and the other principal towns, is similar; I am not aware of any other. There are some small country bankers in the neighbourhood of Manchester, who issue promissory notes, but I do not know anything of their practice: none of the more respectable banks in Lancashire do issue them."

"If I sell a thousand pounds' worth of goods to a wholesale grocer, or any other person who again distributes them to his customers in the country, when he comes to pay me the 1,0007. he will do so in bills, running from 10. to any other sum; the 1,000l. may be paid in twenty or thirty bills of exchange, drawn on London, and generally at two and sometimes three months' date."t

Mr. Lewis Loyd, of the firm of Messrs. Jones, Loyd & Co., estimated in 1826 that the circulation of Manchester consists of nine parts bills of exchange, and the tenth part gold and Bank of England notes. Others think the proportion is as high as twenty to one, or even fifty to one. Mr. Loyd stated he had seen bills of 107. with 120 indorsements upon them; and when the stamp duties were lower, bills were drawn of a less amount. He gives the following criteria of accommodation bills. "Bills that are issued for speculation generally travel to London very rapidly, with very few indorsements upon them; they are wanted to be converted into bank notes immediately, and come quite clean, and without any marks of negotiation upon them; and besides that, we know the parties upon them pretty well." In Scotland an accommodation bill is called a wind bill.

It may be mentioned, that after the establishment of branches of the Bank of England at Manchester and Liverpool, the bill circulation of Lancashire was considerably diminished. Most + Lords, 227, Gladstone.

*Lords, 216, Gladstone.

See Evidence of Lewis Loyd, Esq., and of Mr. Henry Burgess, before the Committee of the House of Lords, pp. 234, 298.

of the banks made agreements with the branch bank, stipulating that, in consideration of having a certain amount of discount, at a reduced rate of interest, they would not issue for local circulation any bills they had discounted for their customers. These agreements have been modified since the Act of 1844; but still the main circulation of Lancashire consists of Bank of England notes. It would not now be possible to find a bill with 120 indorsements.

SECTION VI.

THE ADMINISTRATION OF A BANK WITH REGARD TO THE

EMPLOYMENT OF ITS SURPLUS FUNDS.

THE means of a London banker consist mainly of his capital and his deposits. A certain portion of this sum is kept in the till, to meet daily demands; another portion is advanced in the way of discounts or loans to his customers. The remainder forms his surplus fund, of which a part will probably be invested in Government securities; loans to bill brokers, payable on demand; in short loans on the Stock Exchange, or in firstrate bills obtained through the bill brokers, and hence styled brokers' bills. The Government securities are the more permanent of these investments. The amount will seldom vary. It is not deemed creditable for a bank to speculate in the funds, or to buy and sell stock frequently, with a view of making a profit by the difference of price; hence a banker sells his Government securities only in a season of pressure, as a means of precaution, or in order to meet urgent demands. On other occasions, he will, when necessary, reduce his short loans or brokers' bills. These form his fluctuating investments. In seasons when money is abundant his deposits will increase, and perchance, at the same time, the demand of his customers for loans or discounts will diminish. His surplus funds will thus increase. But these temporary surplus funds he will on no account invest in Government securities, as his deposits will be certainly, and perhaps suddenly, reduced, and he might have to realize his Government securities at a loss. He will in this case increase his loans to brokers, and his brokers' bills. And though he will get as much interest as he can, he will take a very low

interest rather than keep the money unproductive in his till, or invest it in a more permanent form. We will now take a short review of the different kinds of investment we have mentioned. The three grand points for consideration are, convertibility— -exemption from loss-and a good rate of interest. But first we will notice those circumstances which regulate the amount of cash to be kept in the till.

The amount of money which a banker will keep in his till depends upon circumstances. First, the amount of his deposits. It is natural to suppose that when his deposits are large, he will keep more money to meet them than when his deposits are small. Secondly, the amount of his daily payments. These will not at all times correspond with the amount of the deposits; for some accounts are more operative than others. On commercial accounts, for instance, the payments will be much heavier in proportion to the average balance than on accounts which are not commercial. The City bankers pay much larger sums every day, in proportion to the amount of their deposits, than the bankers at the West-end.-Thirdly, if a banker issues notes, he will keep a less amount of other money in his till. The popular opinion is, that he keeps more, as he has to provide payment for his notes as well as his deposits. This is true in seasons of pressure. But in ordinary times he keeps less, as he pays the cheques drawn on account of his deposits with his notes, and these notes often get into the hands of another banker, with whom he settles by a draft on London. His reserve to meet his notes is kept, not in his own till, but in London, where it probably yields him interest. Indeed, when his deposits are withdrawn in large amounts, they are more usually withdrawn by a draft on London than in any other way.-Fourthly, the number of the branches. If a bank has many branches, the total amount of cash kept in the tills of the head office and all the branches put together will be considerably more than would be required if the whole of the business were collected into one place. In the case of a run

the difference is considerable, as every point open to attack must be well fortified. The stoppage of one branch, even for a short time, would bring discredit upon the whole establishment. -Fifthly, in London the amount of notes to be kept in the till will be affected by the privilege of clearing. Those bankers that "clear," can pay bills and cheques upon them by the bills

and cheques they have upon other bankers. Those banks that do not clear must pay all the bills and cheques upon them in bank notes before they receive payment of the bills and cheques they have upon other bankers. Hence they must lock up every night with a larger amount of cash in their vaults.

We need hardly say, that with every banker the amount in the till will fluctuate from day to day. Though a banker has a certain average amount in his own mind, below or above which he does not swerve very widely, yet the cash-book will seldom be exactly this amount. Sometimes he will strengthen his till, in the prospect of large payments that may come upon him suddenly. At other times he will run his till low for a day or two, in expectation of large sums that will shortly be due to him. During the day, too, either the receipts or the payments may be heavier than he expected; and hence, now and then, the cashier reports to the chief clerk or to the banker the state of the till, in order that, if necessary, it may be replenished. The temperament of a banker, too, has some effect in this case. Some bankers are so cautious that they will "lock up" with a large amount of cash; others are so anxious to make profit, that they will keep their cash very low. The state of the money market will also influence the tills of the bankers. When money is abundant, a banker will lock up with more money than he wants, because he cannot employ his funds. When money is so scarce as to betoken a pressure, he will also lock up strong, so as to be prepared for any emergency. In fact, there can be no general rule for regulating the amount of the till. Every banker must be guided by the experience of his own bank. The directors of the Bank of England consider that their reserve in bank notes and gold should be equal to about one-third of their deposits. From the accounts published by some of the London joint-stock banks, it would appear that the "cash in hand" is equal to about oneeighth or one-tenth of their liabilities. Even this, we conjecture, is a higher proportion than that which is generally kept by London bankers, especially by those who settle their accounts with each other at the Clearing-house.

To resume:-After a banker has furnished his till, and supplied his customers with such loans and discounts as they may require, he has a surplus of cash. This surplus may be considered as being divided into two parts-though it is never

actually so divided-the permanent surplus, which the banker is not likely to require, except in seasons of extreme pressure, and the temporary surplus, arising from fluctuations in the deposits. We shall now notice those modes of investment to which we have referred.

With regard to Government securities, we have high authority from the testimony of practical bankers. The following are quotations given before the Joint-stock Bank Committee, in the year 1836, by the late Vincent Stuckey, Esq., the founder of Stuckey's Joint-stock Banking Company, in Somersetshire, and the late James Marshall, Esq., the Secretary of the Provincial Bank of Ireland.

Mr. V. Stuckey :-

"What is your reason for keeping so large a sum in Government stock?—I have always found from my experience, except two days in my life, that I could get money more easily upon those securities than any

other.

"Is it easier, in times of emergency, to obtain money on Government stock than on good Mercantile bills?—I have always found it so.

"You do not concur with any witnesses who state that they have found good negotiable bills more easy to obtain money upon than Government stock?--No: I have never found that with a good bill, even of the house of Baring, I could get money more easily than on Government stock.

"Do you consider that, generally speaking, in London the rate of interest at which you borrow money on exchequer bills and stock is notoriously lower than that at which you borrow on bills of exchange?— Yes, it is lower, and for that reason we generally adopt it."

Mr. James Marshall:

"Will you inform the Committee whether it is the usage of the Provincial Bank to invest any portion of its funds in the public securities ?— It has been its uniform practice so to do.

By public securities, what do you understand?-The Consols, for instance: there are various kinds of Government stock; exchequer bills, and Bank of England stock, are generally considered as a public sort of security.

"Do you hold stock in London only, or in Dublin as well as in London ?-In Dublin but to a limited amount, because it is not easily convertible there.

"On what ground is it that it is not easily convertible in Dublin?-From the limited nature of the market as compared with London; we could not sell even an immaterial sum without lowering considerably the price. "Have there not been at various times, from various causes, runs on the Provincial Bank, which rendered it necessary to supply large amounts of specie to that country?—There have, repeatedly.