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 THE COUNTRY BANKER
 
 THE 
 
 COUMTRY BANKER 
 
 HIS CLIENTS, CARES, AND WORK 
 
 FROM 
 
 AN EXPERIENCE OF FORTY YEARS 
 
 BY 
 
 GEORGE RAE 
 
 AUTHOR OF bullion's LETTERS TO A BANK MANAGER 
 
 No MAN IS SO FOOLISH, BUT MAY GIVE ANOTHER GOOD COUNSEL SOMETIMES; 
 AND NO MAN IS SO WISE, BUT MAY EASILY ERR, IF HE WILL TAKK NO 
 OTHER COUNSEL BUT HIS OWN. — Ben JonSOtt 
 
 WITH AN AMERICAN PREFACE 
 
 BRAYTON IVES 
 
 NEW YORK 
 
 CHARLES SCRIBNER'S SONS 
 
 1886
 
 COPYRIGHT, lS86, BY 
 CHARLES SCRIBNER'S SONS 
 
 GRANT ft FAJRK8 
 PHILADELPHIA
 
 PREFACE TO THE AMERICAN EDITION. 
 
 An extensive and flourishing system of banking is an 
 indisputable proof of the existence of great and general 
 wealth and material prosperity. There may be in- 
 dividual instances of success among those who act as 
 bankers in communities where the masses are poor, but 
 in such cases it will be found usually that their occupation 
 partakes largely of the nature of money-changing, which 
 is the first step beyond barter, or the beginning of all 
 mercantile transactions. While it will be remembered 
 generally that the first mention of money-changers occurs 
 in the Bible, it may not be known to so many that, in 
 Greece, the temples were the first banks. Delphi and 
 Olympia offered superior advantages, in the way of secu- 
 rity, as places of deposit for gold and silver, and, at the 
 same time, as the gathering places of pilgrims and devo- 
 tees, they gave both useful and profitable occupation to 
 the money-changers. Joint-stock banks are said to have 
 been suggested originally by Xenophon, who proposed 
 to stimulate, through them, commercial adventure. 
 
 Commerce cannot e.xist on a great scale without banks, 
 and as Italy and Holland acquired eminence in manufac- 
 tures and trade, Venice, Genoa and Amsterdam became 
 prominent centres of banking business. And then, as 
 England gradually wrested the commercial supremacy 
 from the continental nations she gained undisputed con-
 
 vi Preface to the American Edition. 
 
 trol of the financial world. Next to roj-alty, the most 
 famous and influential institution of the British Empire is 
 the Bank of England, or, in vulgar phrase, " The Old 
 Lady of Threadneedle Street." Connected with, and 
 both supporting and dependent upon it, are those great 
 joint-stock banks, which, with their numerous branches, 
 control the financial enterprises of England and her col- 
 onies. Tlicir transactions are enormous in magnitude, 
 and their influe;;ce on the prosperity of the communities 
 in which they are situated is beyond computation. 
 
 But while no one is indifferent to the attractions of a 
 plethoric bank account, or the indulgence of a liberal 
 banker, few have an accurate knowledge of the practical 
 working of the business, or care to read about it. To 
 the average reader, " discount," " balance sheet," " trade 
 bills," and " overdrawn accounts," suggest only dry and 
 uninteresting details, unless, indeed, he happens to have 
 a personal interest in the latter item. And it must be 
 admitted that the average writer on such subjects lacks 
 the ability to overcome their inherent difficulties and 
 treat them in an attractive manner. To this rule, how- 
 ever, it seems to me that " The Country Banker " is a 
 notable exception. Without being pedantic, or too tech- 
 nical, the author has given an accurate and minute 
 account of the methods by which the branches of the 
 London banks are managed, and, at the same time, he 
 has written a book which is so admirable in style that it 
 presents strong claims to public attention, viewed solely 
 from a literary standpoint. If there were no other merit in 
 the book, the excellent quotations from Seneca, Quarles, 
 Fuller, and others, would make it well worth reading. 
 The author's e\'[)ericnce of thirty-five years in a bank did 
 not convert him into a machine, nor make him unniind-
 
 Preface to the American Edition. vii 
 
 ful of everything except money-getting. Out of banking 
 hours he must have read many good books, and thought 
 carefully over their contents. We find everywhere signs 
 of his keen knowledge of human nature. He recognises 
 and demonstrates the fact that successful bankers must 
 have some, at least, of the cardinal virtues ; that they 
 must be courteous, honourable, prudent and industrious. 
 When the public become convinced that they possess 
 these, it accords them that mysterious confidence called 
 credit, the acquisition of which is absolutely essential to 
 the transaction of their business. It is mysterious because 
 it seems to follow no rule. Some men can never gain it, 
 and yet no one can point to an overt act on their part 
 which is dishonourable. Others, again, win it easily, and 
 seem to trifle with it, but it clings to them with tenacity. 
 In most cases, when once given it is not withdrawn, and 
 the reason is that it is usually deserved. W^ith com- 
 paratively few exceptions the history of banking is a 
 record of honourable dealing. 
 
 The business of banking in this country may be said to 
 be still in its infancy. It is only within the past twenty- 
 five years that it has had anything like a system. While 
 there were many rich and solvent banks previous to 
 i86i,the majority were far from strong and succum.bed 
 easily to commercial disturbances. To-day, however, 
 they work harmoniously, and with steadily increasing 
 influence. In connection with them and the trust com- 
 panies, private bankers bring to public notice, and foster 
 all the great enterprises of the country. Every }-ear the 
 relations of these organizations to the public become 
 more intimate, and it is of the highest importance that 
 they should be managed not onl)' with honesty but with 
 intelligence. The investigations which followed the fail-
 
 viii Preface to the American Edition. 
 
 ure of the Marine Bank in May, 1884, drove many weak 
 banks and banking houses into liquidation, and left the 
 others in better condition than before. While the recol- 
 lection of the acts of those who, either through weakness 
 or vice, wrecked the institutions under their control, is still 
 fresh in men's minds, the reading of wise, practical sug- 
 gestions, such as are contained in " The Country Banker " 
 must exert a beneficial influence, both on the public 
 and on those to whom the public intrust their money. 
 And it is a subject of congratulation that these words of 
 wisdom are written so skillfully that readers may gain 
 much useful knowledge, and, at the same time, enjoy a 
 literary treat. 
 
 BRAYTON IVES.
 
 PREFACE. 
 
 My purpose in writing this book is not to formulate 
 afresh the fundamental principles of banking, but rather 
 to show these principles in operation ; — to exhibit, so to 
 speak, the machinery of banking in motion. 
 
 In pursuance of this endeavour, I have availed myself 
 of illustrative matter, gleaned from the incidents of an 
 experience, now stretching over forty years, of the life 
 and work of Country Banking, in its relations with 
 customers and shareholders, the officials in its employ- 
 ment, and the general public. 
 
 My desire is less to advance special views of my own, 
 than to exemplify, from fresh points of observation, 
 the accustomed lines and recognised limits of prudent 
 banking ; a rational observance of which would have 
 rendered the bank failures of our time fewer in number, 
 less scandalous in their revelations, and less calamitous 
 in their results. 
 
 A small portion of the present work was published 
 anonymously thirty-five years ago. It was comprised in 
 a little book with a large title,* which has for many years 
 been out of print ; but such portions of the text as were 
 found available, after the lapse of a period exceptionally 
 fruitful of banking change and vicissitude, have for the 
 
 * "The Internal Management of a Countn- Bank, in a Series of Letters 
 on the Functions and Duties of a Branch Manager." By Thomas Bullion. 
 (1850.)
 
 X Preface. 
 
 most part been rewritten and abridged, and used as 
 material in the present publication ; the completion of 
 which, the occupations of a busy life have prevented 
 until now. 
 
 I use the epistolary form in the work because it gives 
 scope to a more familiar treatment of what most people 
 regard — mistakenly, I think — as a subject devoid of 
 human interest. 
 
 I desire to add that where I seek to elucidate precept 
 by example, which is the leading purpose of the book, 
 I do not draw upon imagination for my materials. 
 With slight modifications, in point of time, place, and 
 circumstance, the transactions quoted have had their 
 equivalents in fact; whilst my human exemplars, if they 
 have less claim to authentic history, are not wholly 
 indebted to these pages for their existence. 
 
 G. R. 
 
 Redcourt, Birkenhead. 
 April, 1885. 
 
 *^* The call for a Second Edition within a few weeks 
 of the date of publication of the first, has come upon 
 the Author so unexpectedly, that he has to crave the 
 indulgence of the reader if the present reprint be less 
 weeded of defects and otherwise amended, than it might 
 have been, had more time been available. 
 
 June, 1885.
 
 CONTENTS. 
 
 LETTER PAGE 
 
 Preface iii 
 
 I. The Function of Manager ... i 
 
 II. Personal Credit 6 
 
 III. The Testi^nony of a Balance-sheet . 14 
 
 IV. The Credit of Limited Companies . . 26 
 V. Cover for Debt 31 
 
 VI. Overdrawn Accounts . . . ,42 
 
 VII. Insolvent Trading 48 
 
 VIII. Occasional Overdrafts . . . .52 
 
 IX. Recall of Advances . . . . 57 
 
 X. Bankruptcy 62 
 
 XI. Trade Bills 68
 
 xii Contents. 
 
 LETTER 
 
 
 PAGE 
 
 XII. 
 
 Loa7i Bills and Notes ' . 
 
 • 77 
 
 XIII. 
 
 Negociability of Bills . 
 
 • ^Z 
 
 XIV. 
 
 Personal Security .... 
 
 . 89 
 
 XV. 
 
 Collateral Seairity : 
 
 
 
 Deposit of Title Deeds 
 
 . 94 
 
 
 Railway Stock .... 
 
 . 98 
 
 
 Securities to Bearer .... 
 
 • 99 
 
 
 Transfers in Blank 
 
 100 
 
 
 Local Shares ..... 
 
 102 
 
 
 Shipping Securities . 
 
 • 103 
 
 
 Bills of Lading .... 
 
 • 105 
 
 
 JLouse Property .... 
 
 . 106 
 
 XVI. 
 
 Securities which are not Security : 
 
 
 
 Life Policies .... 
 
 108 
 
 
 Bills of Sale 
 
 . 109 
 
 
 Second Mortgages .... 
 
 no 
 
 
 Building Land .... 
 
 • 113 
 
 
 Buildings and Machinery 
 
 115 
 
 
 Securities itwolving Liability 
 
 . 116 
 
 XVII. Deposits and Runs 
 
 XVIII. Interest and Discount : 
 
 Lnterest on Deposits . . . . -131 
 Discount on Bills . . . . . 134 
 Interest on Overdrafts . . . .138
 
 Contents. xiii 
 
 LETTER PAGE 
 
 XIX. Bank Charges: 
 
 On Lodgments . . . .140 
 
 On Payme7its to Debit . . . .143 
 
 Cojnmission on Overdrafts . . .145 
 
 XX. Circulation : * 
 
 Drafts after Date . . . . .150 
 
 Own Notes . . . . . .152 
 
 XXI. The Use of a Banker . . .156 
 
 XXII. Salaries . . . . . 161 
 
 XXIII. Office Expenses : 
 
 Premises . . . . . .167 
 
 Incidental Expenses . . . .169 
 
 Subscriptions and Charities . . • 171 
 
 XXIV. Routine Duties : 
 
 Attendance . . . . . .174 
 
 Private Conduct . . . . -177 
 
 Instructions from Head Office . . 179 
 
 Managerial Responsibility . . . 1 80 
 
 XXV. Correspondence : 
 
 With the Head Office . . . .182 
 
 With Customers . . . . .184 
 
 A Banker^ s Opinion . . . .185 
 
 XXVI. Covtpetitio7i i7i Banki7ig . .188 
 
 XXVII. A new Bank for Oxborotigh . . 193
 
 XIV 
 
 Contents. 
 
 LETTER 
 
 XXVIII. The Office of Chief Manager 
 
 XXIX. Banking Finance : 
 
 The Balance-sheet . 
 
 The Resettle .... 
 
 A Reseiue of 20 per Cent. 
 
 A Rese^-ve of One-third 
 
 Composition of the Reserve 
 
 Re-discounting . . . . 
 
 XXX. Advances : 
 
 PAGE 
 
 Li7nit thereof 
 Bank Credits 
 
 XXXI. Advances to Shareholders 
 
 XXXII. Large Accounts . 
 
 XXXIII. Bills of Exchange 
 
 Varieties of Bills 
 
 Kite-flying . 
 
 XXXIV. Reserve Liability . 
 XXXV. Capital and Shares 
 
 XXXVI. Profit and Loss : 
 
 Profits of Banking . 
 Risks of Banking 
 Provision for Loss . 
 Dividend and Bonus 
 
 203 
 206 
 207 
 213 
 216 
 218 
 
 221 
 
 223 
 
 227 
 231 
 
 238 
 
 242 
 
 252 
 258 
 
 266 
 
 268 
 270 
 272
 
 Co7iteiits. XV 
 
 .LETTER PAGE 
 
 XXXVII. The Rest 276 
 
 XXXVIII. opening of New Branches . . 282 
 
 XXXIX. The Di7'ectorate . . . .286 
 
 XL. Rights and Dimes of Shareholders 293 
 
 XLI. The Future Outlook . . .302
 
 THE 
 
 COUNTRY BANKER. 
 
 LETTER I. 
 
 THE FUNCTION OF MANAGER. 
 
 Let a man be sure to drive his business rather than let it drive 
 him. WJien a man is but once brought to be driven, he becotnes 
 a vassal to his affairs : they master him, which should by him be 
 commanded. Owen Feltham. 
 
 The management of the Branch in Oxborough of the 
 District Union Bank is an important position to have 
 reached before you have well left behind you the days of 
 your youth. Your advancement is hailed by your friends 
 with pardonable enthusiasm, and is naturally a subject 
 of honest pride and gratification to yourself But in- 
 creased rank and additional pay in the service of banking 
 have their drawbacks. You will find that they bring 
 with them a serious heritage of unaccustomed duties 
 and anxieties ; and it is certain that the success of your 
 management will largely depend upon your early recog- 
 nition of the fact, that the interests concerned in your 
 appointment far exceed your own in range and import- 
 ance. 
 
 To the good people of Oxborough you will stand in 
 the delicate relation of arbiter of credit. Thousands of 
 pounds will every week be paid across your counter 
 in discounts and advances to a variety of persons, and 
 you will have to satisfy your mind in every case, be- 
 fore parting with the Bank's money, that it is required 
 
 I
 
 2 The Country Banker. [let. i. 
 
 for legitimate business use, and not for rash and foolish 
 speculation. 
 
 It is hardly necessary to suggest that in your dealings 
 with the public there must be a total absence of bias — 
 religious, political or social. When a man brings you his 
 banking account, you do not require to know whether 
 he goes to church or chapel, nor how he voted at last 
 election, nor who his grandfather was. The hundred 
 pounds at the credit of honest Grimes the farrier, who 
 signs himself ' William Grimes X his mark,' are of the 
 same use in banking as if the money stood at the credit 
 of a peer of the realm. There is no respect of persons 
 in banking. Your doors are open to all sorts and con- 
 ditions of men, except that you draw the line at dis- 
 honesty. You will have no dealings with a rogue, if you 
 know it. You will not open even a deposit account with 
 a stranger unless he be satisfactorily introduced, lest you 
 find that you have been entertaining a rascal unawares, 
 who is making use of the cheque-book which you have 
 supplied him with, to victimize half a score of innocent 
 people. 
 
 You do not abate your rate of discount on Brown's 
 paper the fraction of a farthing because he is your friend ; 
 neither would you add a fraction to it if he were your 
 enemy. 
 
 In banking the scope for the feelings is limited. You 
 discount a bill, or you lend a man money, or you refuse 
 to do either, as the case may be, not as a matter of senti- 
 ment or affection, but purely as a matter of pounds shill- 
 ings and pence. 
 
 To your Directors you will stand in the fiduciary rela- 
 tion of manager of the funds which they may authorize 
 you to employ in discounts and advances at Oxborough 
 Branch. 
 
 As these ripen day by day and return in money to 
 your till, you replace them with fresh discounts and 
 advances, and these again with others, and so on in end- 
 less succession. In this way you turn your resources 
 over several times a year, and thereby incur a fresh
 
 LET. I.] The Function of Manager. 3 
 
 series of banking risks at every turn. Opportunities for 
 making bad debts will thus come to you in abundance 
 and variety. It is not too much to say that they will 
 offer themselves to you daily throui^hout the year. It 
 will be the daily study of your business life, therefore, to 
 learn to distinguish at a glance those transactions in 
 banking which are safe and legitimate, from those which 
 are unsafe and pernicious. 
 
 To acquire this knowledge and apply it with unfailing 
 success, and thus avoid the worst pitfalls which lie in 
 your business path, your perceptive faculties must be 
 acutely awake and your wits in faultless working order 
 all the year round. The slightest tendency to a mental 
 folding of the hands to sleep during banking hours must 
 be wrestled with at once and overcome. 
 
 The Manager who is not at all times vigilant to note 
 every change in the circumstances of his customers, the 
 aspect of their accounts, the quality of their bills and the 
 value of their securities ; but gives way to mental in- 
 dolence, and lends a loose ear to applicants of easy con- 
 science for plausible advances, cannot fail in time to 
 bring loss to his Branch and trouble upon himself The 
 needy drawer, the sanguine acceptor, and the ardent 
 indorser soon find him out, and he becomes their prey. 
 
 There is, no doubt, as you suggest, a possibility of 
 being over-cautious ; but in banking that is one of the 
 cardinal virtues, compared with the opposite evil and 
 mischief of being over-credulous. 
 
 On every occasion, when you have the shadow of a 
 fear as to the safety of any given transaction, there is 
 only one rule and it is without exception — you must 
 give the Bank the benefit of the doubt. When the 
 reasons for and against a proposed transaction are so 
 evenly poised in the scales of your judgment that the 
 balance hesitates to incline either way, a solution of the 
 difficulty will sometimes be foimd by making the enquiry 
 within — Would you make the advance if the money 
 were your own ? 
 
 In the course of your management you will not always
 
 4 The Country Banker. [let. i. 
 
 be the medium of pleasing intelligence from your 
 Directors to your clients. You have to intimate to Mr. 
 Bareacres, perhaps, that the loan of a few thousand 
 pounds for a year or two at three per cent, without 
 security, for which that gentleman has applied to the 
 J Directors, cannot be granted. The fact probably is that, 
 apart from other fatal objections to the transaction, Mr. 
 Bareacres is not safe for anything like the amount. But 
 you are not obliged to tell him so. Without impugning 
 his credit to his teeth, the refusal of the loan, even if 
 conveyed to him in the mildest language, will be dis- 
 appointment enough to a man of sanguine disposition ; 
 which I take to be the normal temperament of that 
 variety of borrower, who makes periodical applications 
 to bankers for ridiculous advances on impossible terms. 
 
 Mr. Bareacres will either accept the decision of your 
 Board with a good grace, or he may resort to irritating 
 comment, in which case it will be well to put a guard 
 upon your temper. Amongst other remarks he may 
 suggest perhaps that your Bank hasn't the money to 
 spare ? Nevertheless it would be a mistake to fly into 
 a passion or bandy words with him. Rather accept the 
 sneer as a drollery on his part, and offer to lend him 
 twice the money on approved security and rational 
 terms. He will thus be discomfited on ground of his 
 own choosing, and leave you master of the situation. 
 
 In a certain great English town many years ago, 
 there flourished two managers of banks, so widely 
 opposed in temperament and manner, that it was a 
 common saying in business circles that it was pleasanter 
 to have a transaction declined by the one than to have 
 your wish granted by the other. The one, people said, 
 was a courtier, the other a bear. It might be as well 
 perhaps if you took a note of this ; because even 
 ' manners and deportment ' would seem to count for 
 something in the final rounding off and finish of the 
 complete Bank Manager. 
 
 And whilst you are careful to curb your own temper 
 under any strain to which it may be exposed in the
 
 LET. I.] The Function of Manager. 
 
 course of your business, you will require from your 
 subordinates at the Bank the exercise of a similar re- 
 straint ; because no amount of affability on your part 
 will reconcile a client to its absence on theirs. Let it be 
 understood at once and with emphasis, that the 'inso- 
 lence of office ' shall have neither place nor tolerance at 
 Oxborough Branch. You have a right to expect from 
 your staff that courteous civility in their intercourse with 
 the customers of the Bank which, it is to be presumed, 
 they exercise in their intercourse with each other. 
 
 It would not be seemly, for example, that half a dozen 
 people should be kept waiting at your counter whilst 
 your cashier, Mr. Coigne, is absorbed in the morning 
 paper, or in a surreptitious volume from Mudie's, or in 
 correcting the proof of his forthcoming article on the 
 currency for the Oxborough Gazette. Neither ought he 
 to look calmly on, whilst a client from the country is 
 working himself into much heat and perplexity, in a 
 futile attempt to fill up one of your blank forms, which, 
 although in themselves of undeniable use, are not models 
 of clearness to the agricultural mind. Instead of holding 
 himself coldly aloof, Mr. Coigne would exercise a truer 
 dignity were he to accord a word or two of advice, or 
 even a helping hand, to a customer thus bewildered. It 
 would be little for Mr. Coigne to give, but much for a 
 nervous client to receive ; for, even amongst educated 
 people, some are to be found, to whom the simplest pro- 
 cesses of banking are still subjects of secret wonder and 
 curious misconception.
 
 LETTER II. 
 
 PERSONAL CREDIT. 
 
 My meaning in saying he is a good man, is to have you 
 understand that he is sufficient : yet his means are in supposition. 
 
 Merchant of Venice. 
 
 The leading subject of your daily education as a 
 banker will be to learn whom to trust. 
 
 Given a certain individual as principal or surety in a 
 proposed transaction, the question which you have to 
 solve is — how many hundreds, or how many thousands, as 
 the case may be, will he be * good for ' to the Bank ; at what 
 figure can you safely put his individual responsibility ? 
 
 To insure a reliable solution, you have first to ascer- 
 tain what the man is 'worth' — that is to say, what he 
 would have remaining for himself, in money or money's 
 worth, after clearing off the whole of his debts and 
 other liabilities. 
 
 For the most part you will have to rely for this 
 knowledge on hearsay and the opinion of others. You 
 will consequently have to sift the information which 
 you may gather as to the position of individuals, with 
 the utmost care, because on no other subject of daily 
 gossip is there a greater tendency to exaggeration or 
 mischievous credulity. 
 
 You will ha\'e early occasion to observe, amongst other 
 things, that the opinions afloat as to the means and posi- 
 tion of people are mostly of stereotyped character. The 
 origin of these opinions is always more or less obscure : 
 but when it once comes to be said — it does not seem to 
 matter when nor by whom — that So-and-so is good for 
 so much, his worth will pass current for that amount for 
 6
 
 LET. II.] Personal Credit. 
 
 years without challenge ; until some clay he collapses, to 
 the ruin of some, the injury of many, and the wonder- 
 ment of all. 
 
 When therefore you are confidently assured, by some 
 one who professes to know, that Mr. Bounderby, for 
 example, is worth twenty thousand pounds, put your 
 informant to the question. Let him tell you in what 
 form Mr. Bounderby's worth exists — whether in land, or 
 houses, or business capital, or shares, or money lent, or 
 otherwise, and whether his property, real or personal, is 
 free of charge or incumbrance. The probability is that 
 your informant can give you no such information ; and 
 that in that respect he is the mere echo of antecedent 
 echoes. His opinion will be found in most cases to 
 rest on that most unreliable of authorities — everybody. 
 Everybody says so : therefore it must be true. 
 
 If he seeks to cover a retreat from his first position by 
 a flank movement in the direction, let us say, of Mr. 
 Bounderby's expectations, and assure you that he will 
 have a large amount at his father's death, your informant 
 must still be put to particulars ; because this reversion 
 may not be absolute : it may be tied tightly up on 
 Bounderby himself for life and go to his wife and 
 children afterwards. 
 
 ' Let the greatest part of the news thou hearest,' says 
 Quarles, ' be the least part of what thou believest : lest 
 the greater part of what thou believest be the least part 
 of wliat is true.' 
 
 Ask the first farmer you meet next market day what 
 he considers Squire W — to be worth, and he will quote 
 you a figure, in all likelihood, absurdly wide of the mark. 
 You yourself know the Squire's rental to a pound, 
 because he banks with you. You also know that the 
 estate is strictly entailed and that his income dies with 
 him, and therefore that the worthy Squire's reputed 
 wealth is a popular delusion. 
 
 Ask your leading tradesman what he considers the 
 means of his customer Colonel H — may be, and he will 
 tell you that the Colonel must be rich, because he lives
 
 8 The Country Banker. [let. n. 
 
 like a gentleman, and never owes his tradesmen a 
 shilling. Nevertheless, when the good Colonel dies, 
 would it surprise you to learn that he has lived up to 
 his income all his life and left nothing ? 
 
 When you are assured that Maltby has made ten 
 thousand pounds in hops, do not believe it. Divide by 
 ten, and in nine cases out of ten you will be nearer the 
 mark. But register the fact in your memory, because if 
 Maltby has made money this time, he has an equal 
 chance of losing it next. 
 
 Be equally sceptical when you are assured that 
 Bouncer has lost a ' pot of money ' in something else, 
 until you have had the rumour verified ; because a gain 
 or loss in business, in these days, becomes magnified in 
 passing from mouth to mouth to ridiculous excess, and 
 is hardly surpassed in quickness of growth by Falstaff's 
 men in buckram. 
 
 When any rumour reaches you, therefore, either to 
 the credit or discredit of a man, have a care, before 
 acting upon it, to sift it to the bottom : carefully 
 weighing the probabilities for and against, and the 
 evidence on which they rest, as if you were hearing 
 a cause in a court of law. Business calumnies espe- 
 cially are of extraordinary vitality. You shall expose 
 and stamp one out as you imagine, and in a few 
 months it will come back to you again from some dis- 
 tant quarter as fresh and brazen as if you had never 
 crushed it under an angry heel. Whilst you have con- 
 ceived it dead and buried, it has been merely absent 
 on a tour of the district. 
 
 But in many instances the only information which 
 you will obtain will be of a nature which you cannot 
 put to the proof It will be of the vaguest kind and 
 often contradictory. One informant will appraise a 
 man as good for so much : another will value him at 
 half the money. Either may be right — you cannot tell: 
 or both may be wrong, and the truth lie midway between 
 them : but it will be mere conjecture either way. 
 
 In such cases a prudential rule to find the measure of
 
 LET. II.] Personal Credit. 
 
 a man's safety, from a banker's point of view, would be 
 to follow the method suggested in Maltby's case : given 
 the popular estimate of a man's worth, divide by ten, 
 and the quotient will be the result required. 
 
 You smile at this novel adaptation of the rule of 
 division : but give the figures a personal application, and 
 they will not perhaps look so entertaining. Given a 
 man reputed to be worth ^^5000, but of which you 
 have no actual proof, would you feel justified in lending 
 him more than .2^500 without security out of your own 
 pocket ? 
 
 Never trust to a man's means or safety as seen through 
 the telescope of rumour ; you will find his truer diameter, 
 as a rule, by reversing the glass. 
 
 As regards annuitants of all kinds, clergymen, na\-al 
 or military officers, professional men and salaried officials 
 of every degree, it has to be borne steadfastly in mind 
 that their incomes die with them. If, therefore, they 
 have laid nothing aside, and have no property beyond 
 their life incomes to fall back upon, they are manifestly 
 ineligible to a bank, either as borrowers on their own 
 behalf, or as sureties for other people. 
 
 If they are living within their revenues, the balances 
 of their accounts with you will always be in their favour: 
 but if their accounts once get on the debtor side of your 
 books, the means of repayment must be regarded as 
 obscure, and the date of redemption as indefinite. 
 
 Take O — , for example, a most respectable man, but 
 without property or means beyond his professional 
 income which he spends in full : out of what conceivable 
 fund is he to repay the several hundred pounds for 
 which he has been allowed to creep into your debt 
 without security? It cannot be the proper business of a 
 bank to enable any man who is wholly dependent upon 
 an income which terminates with his life, to anticipate 
 and spend that income, or any portion of it. in advance, 
 and thus assist the borrower in placing a burden upon 
 his back — a veritable Old Man of the Sea — which he can 
 never shake off.
 
 lo The Country Banker. [let. n. 
 
 In seeking to know whom to trust on the strength of 
 hearsay, it has to be confessed that we have not found 
 this source of knowledge to be altogether satisfactory or 
 conclusive. But in the case of people who bank with 
 you, you have in your ledgers a record which will enable 
 you, in many cases, to check and rectify the estimate of 
 their means and position which is current out of doors. 
 A man's bank account will not necessarily disclose what 
 he is worth : but its entries, debtor and creditor, will 
 serve as tracks to indicate with some degree of clearness 
 the line of progress along which he is moving towards 
 either failure or success. Your customers are un- 
 conscious diarists of a portion of their lives. Every 
 account in }'our books is a record, more or less graphic, 
 of the financial history and progress of the customer, 
 contributed by himself 
 
 In evidence of the teaching which your ledgers thus 
 afford, let us take the account of your client, Mr. Giles 
 Borax. He has recently retired from a lucrative 
 business, and his wealth is popularly rated at any 
 amount from a hundred and fifty to five hundred 
 thousand pounds, according to the more or less fervid 
 imagination of your informant. But the items on the 
 credit side of his account will be a safer guide to the 
 fact, than the most confident assertions of rumour. 
 These items mainly consist of dividends on money in 
 the Funds, or invested in leading railway and other 
 shares or debentures. It will be an easy task to 
 calculate from these the approximate value of Mr, 
 Borax's property. If his revenue from all sources be 
 ;i^iO,ooo a year, you will not be far from the mark if you 
 take it all round at twenty-five years' purchase, which 
 would put his worth at a quarter of a million — less mort- 
 gages or other charges, if any, upon his property. Semi- 
 annual debits, identical in amount, to the same payees, 
 will sufficiently indicate the existence of incumbrances 
 if there are any such. 
 
 If you are curious to know whether his net income 
 exceeds or falls short of his expenditure, you have
 
 LET. II.] Personal Credit. 1 1 
 
 merely to compare the balance with which he com- 
 mences the year with that with which he ends it: first 
 excluding any transactions on capital account from 
 your figures. He may have been laying money out on 
 loan or investments, for example ; or calling money in : 
 in either case, these items will be excluded from your 
 calculation. 
 
 It is, no doubt, possible, as you suggest, that Mr. 
 Borax may not pass all his rents and revenues through 
 his account, and that any estimate in that event, based 
 upon its figures, would be defective. So much the worse 
 for Mr. Borax ; but the defect will be on the side of 
 safety, so far as you are concerned. It will make 
 him appear to be, by so much, less opulent than he 
 really is. 
 
 You find serious difficulty, you say, in these occa- 
 sional readings of accounts ; because some of your 
 customers draw their cheques in blank — that is, in 
 favour of a number, or the initials of the payee, instead 
 of his name. It docs not follow, however, that cheques 
 are thus drawn with intention to deceive. The parties 
 may desire to keep their money transactions to them- 
 selves ; and, if they are never in your debt in any form, 
 they have a plain right to do so. But if they are debtors 
 to the Bank, and especially if their indebtedness be un- 
 covered by security, their right to work their accounts in 
 the dark ceases, and the habit should be given up. If 
 you trust them with your money, you have a right to at 
 least a general notion of what they are doing with it. It 
 is true that, even when an account is worked on the 
 anonymous principle, it is easy to gather from the in- 
 dorsements and other inscriptions on the cheques them- 
 selves, much of what you desire to know : but that is no 
 reason why the man who borrows the Bank's money 
 should be allowed to work his account in cipher, and 
 put you to the trouble of finding the cipher out. His 
 cheques ought to reveal their object by proper mention 
 of names or purposes, and not in the darkened speech 
 of numerals.
 
 12 The Country Banker. [let. n. 
 
 In your reading of any accovint you have carefully to 
 guard against a mere off-hand and superficial glance at 
 the figures. As a case in point, let us take the account 
 of Stokes & Co., by whom your Bank made a bad debt 
 in the time of your predecessor, Mr. Littleworth. What 
 misled Mr. Littleworth was the fact that the firm had 
 always a substantial balance at their credit. He inferred 
 from this that they had capital in their business even to 
 overflowing, and his astonishment was great when they 
 stopped payment one day with some hundreds still at 
 the credit of their cash account. Nevertheless it was so. 
 Stokes & Co. were dealers in timber, bought it on six 
 months' credit, and got immediate possession of the 
 article. This they proceeded to dispose of to their cus- 
 tomers, and drew upon them against sales, and the 
 proceeds of the bills thus drawn they placed straightway 
 to the credit of their bank account. They succeeded in 
 this way with the greatest ease in keeping a good 
 balance at their credit, seeing that they had always the 
 produce of their sales in hand, long before they had to 
 pay for the timber themselves. By reference to the 
 account, Mr. Littleworth might have noticed that the 
 acceptances passed through it during the twelve months 
 •preceding their failure reached i^20,000 ; and the ac- 
 ceptances, having each six months to run, it followed 
 that Stokes & Co. were constantly in debt some ;^io,ooo 
 for timber supplied, the bulk of which they had sold to 
 weak joiners and impecunious builders. When half a 
 score of these came to grief, by reason of a collapse in 
 building enterprise, the modest capital of Stokes & Co. 
 vanished, and gave place to a balance deficient of many 
 times the amount; whilst the ^500 at their credit on 
 your books still left the Bank to prove for an unpleasant 
 amount on a batch of worthless bills. 
 
 You have to beware, therefore, of placing too much 
 reliance on the balance usually at a man's credit as a 
 test of his means, until you have first seen how the 
 b^ilance is created. If you find that he pays mostly by 
 acceptance, and rarely in cash, you will conclude that
 
 LET. n.] Personal Credit. 13 
 
 his balance in your hands is merely fugitive, and virtually 
 in pawn to other people. It is money placed with 
 you in advance to meet coming liabilities. His trading 
 position, in other respects, may be perfectly sound and 
 solid : but the balance at his credit is not of itself con- 
 clusive evidence of the fact. It is, indeed, practicable for 
 a clever rogue so to manage affairs as to be insolvent for 
 years, yet all the while maintain a respectable balance in 
 his bankers' hands.
 
 LETTER III. 
 
 THE TESTIMONY OF A BALANCE-SHEET. 
 
 He that can tell his inojiey hath arithmetic enough : he is a 
 true geometriciat! can measure out a good fortune to himself : a 
 perfect astrologer, that can cast the rise and fall of others, and 
 mark their erratit notions to his own use. 
 
 AnatOiMy of Melancholy. 
 
 We have thus far taken count of the means which are 
 afforded us by hearsay of knowing whom to trust. We have 
 found in a man's bank account a useful corrective of in- 
 formation concerning him from without. In cases of men 
 retired from business, we have even found it an authentic 
 witness of the means of which they stand possessed. 
 
 But in the case of a man in business, or trade, althougli 
 his bank account will go far to show what he is doing, 
 it will not show what he is worth. Given his exact 
 position at a certain date, his account will indicate, with 
 some degree of accuracy, whether from that date on- 
 wards, he is improving his position, or receding from it; 
 but we have yet to learn, in actual figures, and on 
 authentic evidence, what that position is. 
 
 Even where an informant, in whose integrity you have 
 implicit reliance, assures you that he knows So-and-so 
 to be worth ;i^ 10,000, because he has seen his balance- 
 sheet, the information still comes to you at second 
 hand, and, as we shall see presently, may without inten- 
 tion be seriously misleading. It is not enough to be 
 thus assured, however truthfully, that a man has so 
 much capital in his business. To take the true measure 
 of his position, you must know, in addition, the total 
 amount of his liabilities, and especially the nature of his 
 assets : because the liabilities may be dangerously in
 
 LET. in.] The Testi7no7iy of a Balance-Sheet. 15 
 
 excess of his capital on the one hand, whilst the assets 
 may not be in a sufficiently available form on the other. 
 
 A man's duly certified balance-sheet is the one re- 
 liable voucher of Tiis actual position : all other informa- 
 tion that we can gain respecting him, must be more or 
 less at second hand and imperfect, and it may be 
 delusive. But there is no mistaking the figures of an 
 honest balance-sheet. Only, as a banker, you must see 
 and weigh them for yourself, and not through the eyes 
 and understanding of somebody else. 
 
 When a man comes to open an account at your Bank, 
 with the declared purpose of borrowing your money in 
 one form or another ; a reasonable opening, it appears 
 to me, presents itself for the suggestion, that an exact 
 knowledge of his position would greatly conduce to your 
 mutual comfort in the years to come. The business 
 connection thus commencing may be of lifelong con- 
 tinuance : the greater need, therefore, that there should 
 be entire confidence between you. You are prepared 
 to accept the figures of his balance-sheet as the basis of 
 that confidence, and if he is wise he will not reject your 
 condition. I say, if he is wise, because, for one thing, it 
 is certain that when you become his bankers, you will 
 be applied to from time to time for information as to his 
 means and standing. If you know what these are, from 
 actual figures, you can reply to such enquiries with a 
 confidence which would be wanting, had you to rest 
 your opinion upon mere hearsay or conjecture. Instead 
 of a balance-sheet, the intending customer may offer to 
 furnish you with referees ; and these gentlemen may be 
 entirely respectable and assure you of their unqualified 
 belief in his respectability, sufficiency of capital, and so 
 forth ; but all this will come to you second-hand, and 
 from parties who themselves have it only on report. 
 They may be in a position even to specify the sum of 
 his capital to a pound ; but, as we shall see, this is of 
 itself no certain guide to his actual circumstances, \\ith- 
 out a knowledge of the surrounding figures. 
 
 The solid man of business, who, from pride or pre-
 
 1 6 The Country Banker. [let. m. 
 
 judice, hesitates to disclose the position of his business 
 affairs to the confidential ears of his bankers, damnifies 
 himself in two ways : on the one hand, he lessens the 
 full measure of credit which he might obtain from them 
 should he ever desire to borrow : on the other, he fails 
 to furnish them with data whereon to speak of his 
 position, with knowledge and decision, in reply to 
 enquiries from without. A man lays bare the secrets of 
 his constitution with candour to his physician, lest, in 
 the absence of an exact knowledge of the case, inapt 
 remedies might be applied. For a like reason, a man 
 should be equally frank with his banker ; otherwise, in 
 the absence of a complete knowledge of his position, 
 you may ply him with stimulants, when purging would 
 be better; or bleed him to commercial death, when a 
 timely stimulant might save his existence. 
 
 There are those, no doubt, who have cogent reasons 
 for keeping the condition of their affairs a sealed book 
 from their bankers ; but it would be unsafe nevertheless 
 to assume, in every case, that because a man refuses to 
 show you his balance-sheet, he is therefore in a bad way. 
 There are people of secretive habit, who would regard 
 with dread the possibility of even their bankers getting 
 to know, not how poor, but how rich they are. But the 
 persons who take this peculiar view of things are few in 
 number. Men in large and active business, and requir- 
 ing at times large banking facilities, see the wisdom of 
 laying of their own accord their actual position before 
 their bankers, and having a friendly talk over the 
 figures. Every man should know that by this course he 
 secures to himself in times of pressure and panic a 
 larger measure of help, should he require it, than if his 
 capital, however ample it might be, were still an unknown 
 quantity to his bankers. 
 
 If it is asked on what ground we claim for banks this 
 intimate and exceptional knowledge of other people's 
 affairs, it might be sufficient to reply that we make no 
 exclusive claim to the information. We seek it for our- 
 selves, it is true, but we have no desire that it should be
 
 LET. in.] The Testimony of a Balance-Sheet. 17 
 
 withheld from everybody else, nor from a single person 
 who has a right to know it. The information thus 
 acquired you have constantly to impart in confidence to 
 other banks, for the guidance of their customers and 
 themselves. A Banker's Opinion of people, in business 
 or out of it, is in daily and universal request throughout 
 the land ; and as the reliance placed upon that opinion 
 is well-nigh absolute, it had needs be sound. It is always 
 as sound as the banker can make it, but not always as 
 reliable as he could wish it to be. 
 
 The materials on which he has to form a judgment 
 may, as we have seen, be imperfect. His customers may 
 be shy of giving him assurance of their actual position 
 in the only authentic way, that is, by the witness of their 
 balance-sheets. 
 
 He is thus left to frame his opinion, partly on hearsay, 
 partly on the testimony of his own ledgers, and partly on 
 his own observation. But in the absence of a genuine 
 balance-sheet, an opinion thus constructed must, as a 
 rule, be more or less conjectural. 
 
 We can understand the smaller class of country trader 
 having a coyness about showing his balance-sheet to his 
 bankers, because he may never have made one, or been 
 instructed how to draw one up, and, therefore, has no 
 balance-sheet to show. But in the case of men in larger 
 ways of business, who have to give much trust them- 
 selves, it is difficult to imagine a less judicious form of 
 reticence. It ought to be obvious to them that if every 
 bank knew the exact position of every customer, on the 
 evidence of actual figures, it would be known every- 
 where with certainty whom to trust and whom to avoid : 
 and thus our annual tale of bad debts in trade, now 
 mounting up to millions, would, beyond question, be 
 largely diminished. It would not exempt us from loss 
 consequent on unforeseen vicissitudes in trade or com- 
 merce : but it would give a check to that system of 
 blind credit, which leads us all round into a class of bad 
 debts, the more irritating because they could to a large 
 extent be made avoidable.
 
 1 8 The Country Banker. [let. m. 
 
 The prudent trader will balance his books, if not 
 annually, at least every second or third year, on the 
 same principle that the commander of a ship takes 
 soundings at times, to know whereabouts he is. There 
 ought to be no excuse for the trader who neglects a like 
 precaution. An honest man will desire to shorten sail 
 the moment he finds himself in difficulties. He will thus 
 round the cape of adversity in more hopeful trim than if 
 he drives blindly on to utter wreck, and the just wrath of 
 his creditors. He who will not be ruled by the rudder, 
 says the Cornish proverb, must be ruled by the rock. 
 
 A trader's balance-sheet has this supreme recommen- 
 dation to a banker : it does not rest on hearsay or con- 
 jecture. It gives you a man's exact commercial measure 
 in authentic figures. It shews you what liabilities he is 
 under, and the nature, as well as the sum of his assets, — 
 an essential point ; because, as we shall see, a man's 
 capital may be set forth — and honestly set forth — in 
 thousands, or tens of thousands, and yet consist of 
 materials without value or avail from a banking point 
 of view. 
 
 The printed form of balance-sheet, in use at your 
 Branch for many years past, is short, simple, and com- 
 prehensive. It has been the means of saving your Bank 
 from many a bad debt ; whilst it has enabled your 
 authorities to judge where to help, as well as to with- 
 hold, in trying times; and thus avoid the indiscriminate 
 rigours of panic. 
 
 Private and Confidential. 
 
 
 
 Rt 
 
 l8 
 
 Assets : — 
 Book Debts . . . 
 Stock in Trade . . . 
 Property 
 
 .£ 
 
 Liabilities : — 
 
 On Acceptances . . 
 On Open Account . 
 Owing to Bank . . 
 Other Liabilities . . 
 
 Total . 
 Surplus or Capital . 
 
 ■£ 
 
 Total 
 
 '£ 
 
 
 
 ■ £ 
 
 
 
 '£
 
 LET. III.] The Testimony of a Balance-Sheet. 19 
 
 The book debts must exclude all bad and doubtful 
 ones. The stock-in-trade may be taken, according to 
 circumstances, at prime cost or market value. The 
 particulars of the items compri-sed in the term Pro- 
 perty, are to be set forth at length, and at their present 
 values on the back of the document : whether they con- 
 sist of shares, bonds, or land, or of buildings, machinery, 
 plant, furniture, or fixtures. If any portion of the pro- 
 perty is incumbered, the amount and particulars of the 
 incumbrance are to be stated. 
 
 The assets insured against fire, and in what offices, are 
 likewise to be given — a point of special importance — 
 because there are many persons, both in trade and out 
 of it, who, rather than pay eighteen-pence a year on 
 every hundred pounds' worth of their property, will run 
 the chance of their goods and chattels vanishing any day 
 or night in flame and smoke — thus taking the hazard of 
 fire at the tremendous odds of 1333 to i. It is un- 
 necessary to remark that where stock-in-trade, plant and 
 machinery, furniture and pictures, or other aliment of fire 
 constitute the bulk of the assets, a man of good substance 
 might be reduced in a few hours to insolvency ; and an 
 estate worth fifty shillings to-day, be reduced to five 
 shillings in the pound to-morrow. 
 
 The Society of Friends have a custom whereby the 
 question is periodically put to each head of a family 
 in their communion — Have you made your will ? If 
 the larger community of English creditors, either 
 through their travellers or otherwise, were every now 
 and then to put the question to their debtors — Are you 
 insured against fire? they would be putting a question 
 of equal urgency and moment to their debtors ; whilst 
 the creditor himself might thus avoid having to look 
 for his debt some day amongst blackened walls and 
 smouldering heaps of calcined rubbish. 
 
 A man may have responsibilities outside his business, 
 which will ha\e no record in his books. He may be a 
 guarantor for other people's debts, or a friendly indorser 
 of other men's bills ; and as he anticipates no trouble
 
 20 The Country Banker. [let. m. 
 
 in respect of them, they will probably find no place in 
 his balance-sheet ; hence the heading, Other Liabilities, in 
 order that such contingencies may not be left out of sight. 
 
 The form of statement under review is sufficient for all 
 purposes : the merest tyro in book-keeping could fill it 
 up : and he who runs might read it. 
 
 When you are assured, therefore, by customers whose 
 balances are uniformly on the wrong side of your ledger, 
 that they cannot fill the form up, not knowing how ; 
 you will be apt to suspect that their book-keeping is not 
 what it ought to be, or that thc}^ have good reasons for 
 withholding from you an exact knowledge of their affairs. 
 
 Let us now see what the three balance-sheets selected 
 for analysis reveal to us. They each show the same 
 amount of capital, and the same indebtedness to the 
 Bank without security : but in other respects they differ 
 from each other more or less widely. 
 
 The first statement of the three, that of Mr. Daniel 
 Hyde, tanner, gives us the following figures, as the 
 summary of his position : — 
 
 Assets : — , Liabilities : — 
 
 Book Debts ;if 6,000 On Acceptances .... ;^2,500 
 
 Stock in Trade 6,000 1 On Open Account . . . 1,500 
 
 Property (Free) .... 3,000! Owing to the Bank ... 1,000 
 
 ;^i 5,000 
 
 Other Liabilities 
 
 ;^5.ooo 
 
 Surplus or Capital . . . ;i{^io,coo 
 
 Mr. Hyde, then, is 'worth' ^10,000. He could pay 
 every debt he owes, and still have that amount left of 
 his own. But that is not all : he could discharge his 
 debts at any moment witli the greatest ease, because 
 four-fifths of his assets arc in readily convertible form. 
 
 To put it differently, Mr. Hyde's means exceed his 
 liabilities in the proportion of three to one. He could 
 pay his creditors sixty shillings in the pound. Mr, 
 Hyde is of the stuff that safe bank customers are made 
 of. He is not only a substantial man, but his substan-
 
 LET. III.] The Testimony of a Balance-Sheet. 2 1 
 
 tiality is as available as it is ample. It is not such 
 advances as the overdraft on Mr. Hyde's account which 
 disturb a Manager's rest in the night watches. 
 
 We come next to the balance-sheet of Messrs. Railton 
 & Co., iron merchants : — 
 
 Book Debts . .i^3.ooo 
 
 Stock in Trade 24,000 
 
 Warehouse and Fixtures 
 
 (Free) 3,ooo 
 
 /30.000 
 
 Acceptances ,^(^1 6,000 
 
 Due on Open Account . 3,000 
 " to Bankers .... 1,000 
 
 ;^20,000 
 
 Surplus or Capital . . . ;^io,ooo 
 
 Liability on Bills discounted, /"i 5,000. 
 
 In amount of capital and debt to the Bank, this 
 balance-sheet is identical with the preceding one, and 
 the assets are as readily convertible into money. But 
 beyond these points all resemblance ceases. Messrs. 
 Railton & Co. are in a more extended position than 
 Mr. Hyde. Their stock in hand is four times as great 
 as his. A depreciation of 10 per cent, in its value 
 would cause them a loss of ^^2400, or one-fourth of their 
 capital ; whereas the same contingency would cause 
 Mr. Hyde a loss of only a sev^enteenth part of his. 
 
 Again, Mr. Hyde has no bills running. He never 
 draws a bill. He is therefore under no liability to you on 
 that score. But Messrs. Railton are responsible to you 
 on their indorsements to the extent of i;"i 5,000. What 
 amount of risk these may involve will depend upon the 
 quality of the bills, and the ability of the acceptors 
 to meet them : but if we put it roughly at ;^iOOO, for 
 the sake of argument, that must be regarded as so much 
 latent overdraft. Messrs. Railton therefore will virtually 
 be liable to you for ;^2000 in all ; nevertheless, other 
 things being equal, they would still hav^e resources suffi- 
 cient to pay their debt to you four times over. 
 
 But other things might not be equal. A not unex- 
 ampled fall in the price of iron might, as we have seen, 
 sweep away a fourth of Messrs. Railton's capital ;
 
 22 
 
 The Country Banker. 
 
 [let. III. 
 
 whereas an equal fall in the price of leather would hardly 
 make an impression on Mr. Hyde's. It has to be 
 obsei'ved, moreover, that whilst his capital is twice the 
 amount of his indebtedness, their indebtedness is twice 
 the amount of their capital. Not that their position, as 
 it now stands, involves risk to you or to anyone : but it 
 is less solid, less invulnerable than Mr. Hyde's, and more 
 subject to vital change in stormy times. 
 
 We now come to the balance-sheet of Mr. Abel 
 Trowell. builder : — 
 
 Book Debts ^^3,000 
 
 Stock, Buildings in pro- 
 gress, (S:c 5,000 
 
 Property . . ^30,000 
 
 Less Mortgages . 20,000 
 
 10,000 
 
 ^18,000 
 
 Acceptances ;i^5,ooo 
 
 Due on Open Account . 2,000 
 " to Bank 1,000 
 
 Surplus or Capital 
 
 ;^8,000 
 . ;^I0,000 
 
 Equally with the two preceding statements, Mr. 
 Trowell's shews a capital of i^ 10,000. His statement has 
 likewise another coincidence — he is owing you iJ"iooo 
 without security. But when you look at the nature of 
 the assets out of which your advance is to be repaid, you 
 may well have intermittent qualms as to the safety of 
 the account. 
 
 Mr. Trowell, you report, is nearly completing a block 
 of houses on his own account, and, when finished, he is 
 to raise a sum on mortgage of the property, which will 
 enable him to pay you off, and place a good balance to 
 his credit over and above. When this happy change 
 takes place in the aspect of Mr. Trowell's account, you 
 will no doubt think twice before you allow the balance 
 to go to the debit side again without security. His pro- 
 perty is already mortgaged to tiic hilt — that is to sa)', he 
 has raised all he can upon it. As far, therefore, as his 
 financial requirements are concerned, his property is 
 entirely unavailable. Whether there be any value in the 
 equity, will only be known when the property comes 
 to be realized; but, in the meantime, the ;i{J"io,ooo set
 
 LET. III.] The Testimotiy of a Balance-Sheet. 23 
 
 forth by Trowell as the value of this asset will be of as 
 little use as an equal number of brickbats in payment of 
 his acceptances, or his men's wages, or his debt to you, 
 or to other people. This item must, therefore, be struck 
 out of his ax'ailable assets. There will remain ;^3000 in 
 book debts, and a dubious asset of ;^5000, consisting of 
 materials and buildings in progress : making together 
 ^8000 to meet active liabilities of the same amount. It 
 is, therefore, manifest that if Mr. Trowell should fail to 
 receive any expected instalment under his building con- 
 tracts, or any sum promised on mortgage, he may find 
 himself in difficulties any day, even as to the payment of 
 his men's wages, to say nothing of the ;^IOOO he is in 
 debt to you or the ^^7000 he is in debt to other people. 
 It would be difficult to imagine a more noteworthy 
 example of a man nominally worth ;^io,000, but finan- 
 cially insolvent, from a banker's point of view. 
 
 In your private valuation of every trader's assets, as 
 set forth in his balance-sheet, you must take into account 
 the possibility of his failure, and the effect of that misfor- 
 tune upon their value. 
 
 The stock and book debts of Messrs. Railton & Co., 
 for example, would suffer little or no depreciation on 
 being realised ; but the realisation of the stock and book 
 debts of a country draper would have a widely different 
 result. The stock may be honestly set forth in the 
 balance-sheet at cost price, but much of it may have 
 gone out of fashion, and become un.saleable, except at a 
 ruinous discount ; so that, between the nominal value of 
 a draper's stock in trade and what it will fetch at auction, 
 you must provide for a very wide discrepancy. You will 
 likewise have to make a large abatement from the sum of 
 his book debts. Hisprincipal debtors will consist of traders 
 smaller than himself, the majority of whom will break 
 when he breaks ; and as regards the residue of his debts, 
 consisting of small sums owing here and there over a wide 
 district, the bulk of them will be absorbed in the cost of 
 collection. It has also to be considered, that a trader is
 
 24 The Cowitry Banker. [let. m. 
 
 not so rigorous in choosing whom he will trust, as you are 
 bound to be, and that he will regard as good many a 
 debt which you would look upon as more than doubtful. 
 It is to be feared, therefore, that, as a rule, he fails to 
 purge his balance-sheet sufficiently of these; so that on 
 the whole the realisation of a draper's book debts is a 
 disappointing and disastrous process. 
 
 The assets of an agriculturist have likewise to be 
 taken with a considerable margin for contingencies, be- 
 cause his growing crops may be blighted by unfavour- 
 able weather, or a murrain may make havoc in his sheep- 
 folds, or the foot and mouth disease decimate his cattle. 
 
 Again, when shares constitute a portion of the assets, 
 you have to take note of their quality, and their liability 
 to change in value. A customer whose holding of shares 
 consists of first-class English railway stocks, evidently 
 holds a security more solid in value, and stable in price, 
 than if his shares were in ships at sea, or at works, or 
 mines, or in the uncovenanted scrip which is trafficked 
 in beyond the pale of Capel Court. It is of conse- 
 quence, moreover, to note whether the shares involve a 
 liability to further calls, and, if so, whether the liability 
 is of definite amount. If unlimited, it will matter less 
 what the nature of his other assets may be, because this 
 form of liability may some day sweep them bodily away. 
 
 There are likewise assets of a perishable nature, and 
 there are those which a caprice in taste may render well- 
 nigh valueless : and it is certain that there are more 
 descriptions of property liable to waste and depreciation, 
 than to improvement in condition or enhancement in 
 price. 
 
 It comes in brief to tliis — that your estimate of a 
 man's position must rest not merely on the present, but 
 on the prospective value of his assets and property ; so 
 far as that value may be affected by the special causes 
 of change to which each form of asset may be liable. 
 
 You raise the point — whether a bank known to 
 place reliance on the balance-sheets of traders, as a
 
 LET. III.] The Testimony of a Balance-Sheet. 25 
 
 basis for advances, without security, would not ex- 
 pose itself to the arts of any schemer who chose to 
 victimize it, by a deliberate falsification of his position ? 
 No doubt any one who has the courage to play the 
 rogue, may construct a balance-sheet which shall induce 
 you to treat him as a man of substance, when in fact he is 
 a man of straw, and no better than a sharper. But as 
 he might equally persuade you of this by word of mouth, 
 his doing so by means of a balance-sheet will not at 
 all events place you in a worse position ; but it will 
 place him at a perceptible disadvantage. He will 
 have put his name to a statement on the shewing of 
 which you have lent him money. He has put his 
 liabilities down at perhaps half their actual amount, and 
 his assets at twice their actual value. The statement is, 
 therefore, false and fraudulent. Your cunning knave 
 has been too clever by half He has been obtaining 
 money under false pretences, and is liable to the conse- 
 quences of that offence, certified as it happens to be 
 under his own hand. From mere verbal lying and mis- 
 representation he might wriggle out : but not from a 
 balance-sheet proved to be false, bearing his own signa- 
 ture, and used for a fraudulent purpose. So far there- 
 fore from the unprincipled amongst the trading com- 
 munity seeking to hocus you in this way, they are more 
 likely to shun a bank which exposed them to this 
 dangerous formality. The commercial bird of prey will 
 not scruple to attack you whenever you give him the 
 chance ; but not in this way. He will avoid what he 
 will designate the ' balance-sheet dodge,' as the ex- 
 perienced rat will avoid an obvious trap. 
 
 The probability of your being decoyed into loss by the 
 lure of a spurious balance-sheet is so remote as to be 
 scarce worthy of serious thought. But even, if out of 
 every hundred of these statements one should prove 
 false — that would not amount to a reason for refusing all 
 belief in the other ninety-nine, and therefore dispensing 
 with their use.
 
 LETTETl TV. 
 
 THE CREDIT OF LIMITED COMPANIES. 
 
 Jarvis. He says he has been at a great deal of trouble to get 
 back the money you borrowed. 
 
 HoNEYWOOD. That I don' t k?i07o : but T m sure we were at 
 a great deal of trouble in getting him to lend it. 
 
 The Good-natured Man. 
 
 A LIMITED company, the capital of which is wholly- 
 paid up, is virtually in the position of an individual who 
 has put his all into his business. You cannot get any- 
 thing more out of him, nor out of the company, under 
 any form or force of pressure. 
 
 Let the three balance-sheets which we have just dis- 
 cussed be those of three limited companies, with their 
 capitals paid up in full : and the same rules of analysis 
 will apply. What is true of the balance-sheet of Daniel 
 Hyde would be equally true if it were that of Daniel 
 Hyde & Co., Limited; and so likewise of the other two. 
 The fact that in one case the capital has been paid up 
 by a number of people, and in the other by a single 
 person, does not of itself in any way affect the position 
 of things. Daniel Hyde & Co., Limited, so long as the 
 balance-sheet shall continue item for item what it is, 
 would be entitled to the same amount of credit as 
 Daniel Hyde himself 
 
 The majority of limited companies, however, leave a 
 portion of their capital uncalled. Your clients, the 
 Imperial Slab Co., do so, and their last balance-sheet 
 gives us the figures following : — 
 26
 
 LET. IV.] The Credit of Limited Companies. 2 7 
 
 Assets : — 
 
 Cost of quarry .... ^^lo.ooo 
 
 Cioodwill 5,cxx) 
 
 Book Debts 3,ooo 
 
 Stock 2,000 
 
 _^20,000 
 
 Liabilities : — 
 Due for Purchase 
 
 Money . . ;^9,ooo 
 " on Mortgage 
 
 Debenture . 5,000 
 " to Bank . . 1,000 
 
 15,000 
 
 Surplus, or Paid-up Capital 5,000 
 Capital still to call .... 5,000 
 
 ;;^I 0,000 
 
 The gross assets are ^20,000 : but to find the amount 
 of these which are axailable to pay the debts of the 
 company, you must strike off first the ^^"5000 for good- 
 will : a nebulous form of asset which may be worth 
 nothing. At the best, it is merely an asset in supposi- 
 tion — a charge upon the future profits of the company, 
 if any. There is no other fund out of which it can be 
 recouped to the shareholders. 
 
 From the gross assets, thus reduced to ;^i 5,000, you 
 have next to strike off the co.st of the property : because 
 you cannot pay the purchase-money, or the debentures, 
 or the Bank balance, with the lease and plant of a 
 quarry, however valuable they may be. They will 
 first have to be turned into money, and that may not be 
 the work of a day nor of many days. The available 
 trading assets of the company are thus reduced to 
 ;^5000, to meet liabilities more or less deferred, but 
 which have to be met some time, amounting to three 
 times that sum. The liabilities, in fact, exceed the 
 immediately available assets by /" 10,000. 
 
 To proxide for this deficiency, the company, as a first 
 step, will have to call up the remaining ;^5000 of its 
 subscribed capital, because it has already exhausted its 
 legal power of borrowing on debenture. Whereupon 
 the point which first presents itself for inquiry is this: 
 Are the shareholders good for the money? To solve 
 the question, with even a distant approach to accuracy, 
 you will have to procure a list of their names and places 
 of abode, together with the number of shares held by
 
 28 The Country Banker. [let. iv. 
 
 each. You will then have to enter into correspondence 
 with banks in all parts of the country, to ascertain the 
 ability of each shareholder to pay his quota of the call ; 
 a process not always rewarded with conclusive informa- 
 tion, but undeniably troublesome. Moreover, there may 
 be able, but unwilling contributories, who, rather than pay 
 up, may force the concern into liquidation : in which 
 event, the exact date for the repayment of your advance 
 will become, to say the least, obscure. 
 
 And there is a worse danger than this possible. The 
 whole of the ^^5000 may be already under notice of 
 call, and mortgaged to some other bank or finance 
 company, without your knowledge : and such a mort- 
 gage, as the law now stands, would hold good as against 
 you and all other outside creditors. 
 
 But let us assume that the uncalled capital is not 
 mortgaged in the case of the Imperial Slab Company : 
 and that the liquidation is a friendly and inexpensive 
 one. Let us further assume that the call and the 
 trading assets, amounting together to ^10,000, on being 
 realized, shall yield within ten per cent, of their nominal 
 amount ; although the likelihood of such a result makes 
 a severe demand on one's doctrine of probabilities. 
 There is, therefore, ^^9000 in Court to deal with. 
 
 But the whole of this will be required to pay the 
 balance of the purchase-money, for which the vendor has 
 no doubt a first lien. It is not likely he would have 
 parted with the property on any other condition. There 
 is still, it is true, the property itself to fall back upon ; 
 but when you come to realize a quarry, or any other 
 description of property, which can only be worked at a 
 loss, the price originally paid for it ceases to be a factor 
 in any reliable estimate of its worth. Moreover, what- 
 ever may be the result of a sale, the debenture holders 
 have a prior claim to yours on the proceeds. It is con- 
 ceivable that these may be sufficient to satisfy their 
 claims, but the probabilities with one accord point all 
 the other way. In any event, they have no interest in 
 the property fetching a single farthing beyond what will
 
 LET. IV.] The Credit of Lwtited Companies. 29 
 
 suffice to pay themselves, and will only be too thankful, 
 wiien the biddings reach that point, to see the hammer 
 fall without more ado. In any probable event, therefore, 
 you will be left out in the cold, without a penny piece 
 towards your debt, or any one to proceed against for a 
 farthing of it. 
 
 In thus dealing with this balance-sheet of a limited 
 company, we have taken everything at the worst that 
 could happen to its shareholders or the Bank; unless 
 indeed, the Bank were to buy the quarry in, and take 
 to working it on its own account. The future of its 
 advance from that moment would pass beyond the reach 
 of human estimate. 
 
 It is only fair to admit that the Imperial Slab Co. 
 is one of an exceptional class. In ratio of number, 
 there are probably as many sound limited trading 
 companies as there are sound private firms, or individual 
 traders. Nevertheless, the difficulties, complications, and 
 risks, which we have been reviewing, should be present 
 to your mind, whenever you seek to measure the trust- 
 worthiness of any limited company by the shewing of 
 its balance-sheet. 
 
 There is yet another risk w^hich you have to consider 
 when you make advances to a limited company, which 
 is this: — Its articles of association may not give it the 
 power to borrow from a bank ; but even if they do, the 
 exercise of the power may be hedged round with difficult 
 forms of legal observance, of the due performance of 
 which you can never be perfectly assured. Even with 
 the exercise of the greatest caution, you may find some 
 day that you have made an advance to a limited concern, 
 for which neither the company itself, nor its Manager, 
 nor any one else, is legally res[)onsible. Except, therefore, 
 where the undertaking is one of acknowledged success, 
 with ample capital and immediately available trade 
 assets, sufficient at all times to discharge its trade lia- 
 bilities, you require the personal guarantee of its 
 Directors, when you make advances to a limited company.
 
 2,0 The Country Banker. [let. iv. 
 
 These gentlemen will know whether such advances are 
 within the scope and limit of their borrowing powers, 
 and what resources will be at hand to meet the advances 
 when due. They will always be on the right side of the 
 hedge, because they can protect themselves ; but, without 
 their guarantee, you may some day find yourself on the 
 wrong side of it, with fio debtor in tangible form betwixt 
 you and the horizon. In all other cases, there is usually 
 something to go upon, or somebody to go against, and a 
 residuum and dividend of some sort. But in tjie case 
 of a concern like the Imperial Slab Co., you find yourself 
 in the condition of an exhausted receiver, with the 
 vacuum for your debt.
 
 LETTER V. 
 
 COVER FOR DEBT. 
 
 Nor do we let fall our pen upon discouragement of contradic- 
 tion, unbelief, and difficulty of dissuasion from radicated beliefs 
 and points of high prescription : although toe are very sensible 
 hoiv hardly teaching years do learn, what roots old age contracteth 
 into errors, and such as are but acorns in our younger brows, 
 grow oaks in our elder heads and become inflexible unto the 
 poweffullest arm of reason. Sir Thomas Browne. 
 
 We have now explored the various paths of inquiry 
 which are open to a banker when he seeks to ascertain 
 what a man is worth and what this worth consists of. 
 You have to rely for this knowledge on hearsay, or on 
 the shewing of a man's bank account, or on the witness 
 of his balance-sheet. On one or other of these sources 
 of information you have to place your reliance, when 
 you seek to measure the responsibility of any individual, 
 as a borrower on his own account, or as a surety for others. 
 
 But although the information thus obtainable, as to 
 the sum and substance of a man's worth, may be exact 
 and true at the time, it may not continue to be true. 
 An advance may be safe at the time it is made, but the 
 circumstances of the borrower may readily change for 
 the worse without your knowledge. It is true, that in 
 the great majority of cases, you will have the means of 
 detecting this change, without further guidance than the 
 shewing of a man's bank account : but there remains 
 this difficulty — the knowledge may come too late. You 
 may come to the conclusion that a man's affairs are 
 going the wrong way, and call his account up : but his 
 affairs may by that time have drifted so far into 
 insolvency that your call cannot be responded to. The 
 knowledge that a man's circumstances are becoming 
 involved will doubtless have this value — it will put a 
 
 31
 
 32 The Country Banker. [let. v, 
 
 stop to any increase in your advance to him : and 
 in many cases the knowledge will come to you in 
 time to enable you with due diligence to recall and to 
 recover your existing advance: but, as I have just said, 
 the knowledge will not be available in every case : it 
 will not always come in time. 
 
 A man may commence business with ample capital, 
 conduct his bank account with the strictest regularity, 
 never exceed by a pound the limit of overdraft allowed 
 him without security, and yet, after a few years, shall 
 make a bad failure, to the dismay of his bankers, and 
 the surprise of all. He has been speculating secretly in 
 shares, or produce, or something else, and has managed 
 to keep all trace of such transactions out of his bank 
 account, and therefore from the knowledge of his 
 bankers. Whilst they are serenely reliant on the splendid 
 figures of his latest balance-sheet, one asset after another 
 has furtively melted away and disappeared in the un- 
 known depths of his 'differences.' 
 
 The case is fortunately exceptional. For one man 
 who suddenly abandons a sound and legitimate busi- 
 ness and a respectable position in life, to cast his all 
 into the vortex of speculation, there are tens of 
 thousands who are never afflicted with this form of 
 insanity : but although such cases are abnormal, they 
 cannot be left out of count, if you are to reckon with 
 and guard yourself against every contingency. 
 
 Our banking losses are always exceptional. We 
 never make an advance which we expect will become a 
 loss. It is always, therefore, the unexpected which 
 happens, when a bank makes a bad debt, and it arises 
 invariably at some point which has been left exposed, — 
 on some account which has been left unguarded by 
 security. And the only way effectually to safeguard 
 this, the weakest point of country banking, is never to 
 make an advance to any one, except on security of 
 approved quality and adequate value. 
 
 You act upon this principle when you employ the 
 Bank's money in the discount of bills. You do not part
 
 LET. v.] Cover for Debt. 33 
 
 with it on the individual security of the last indorser. 
 He virtually provides you with bail, in the persons of 
 the acceptor and other obligants on the bill. 
 
 This being so, when you employ your money in dis- 
 counts, it does not appear on what ground you should 
 ever lend it on overdrawn account without any security 
 at all. On the contrary, the need for cover is greater : 
 because in the case of a bill there is actual value behind 
 it, in addition to the personal security of the obligants : 
 whereas an overdraft need not necessarily rest on any 
 value at all beyond the responsibility of the borrower 
 himself. Moreover, the bill has a brief and definite term 
 to run. The circumstances of the parties to it will only 
 have some three months in which to change for the worse, 
 before it comes to maturity. But money advanced on 
 overdrawn account without security to an agreed-on 
 limit, is not usually subject to such prompt repayment. 
 The debtor on this form of advance has therefore a 
 longer time for getting into trouble, if his affairs should 
 tend in that direction. 
 
 It may be unpleasant* to have to refuse an advance to 
 a gentleman of good Hiniily but restricted means, with 
 whom you are on terms of friendly intercourse. But in 
 banking, as we had occasion to remark at the outset, the 
 scope for sentiment is limited. The feelings need no 
 more be touched by refusing to lend a gentleman money 
 without security, than by refusing to make abet, or to go 
 a cruise, or make a tour with him, or anything else that 
 is simply inconvenient. It may be an amiable weak- 
 ness to think otherwise ; but if a bad debt is to be 
 the fruit of this amiability, the sooner your disposition is 
 soured the belter. 
 
 You admit the principle of requiring cover to be 
 sound, but you hold that it would be unwise to enforce 
 it in every instance, unless you are prepared to see some 
 of your most valued accounts going over to your neigh- 
 bours, The Old Bank, Messrs. Ycwtrey & Co. 
 
 You are assured tiiat they seklom act upon the rule, 
 and act upon it in a liberal spirit when they act at all. 
 3
 
 34 The Country Banker. [let. v. 
 
 But if this assurance has come to you through customers 
 of your own, to whom a similar laxity on your part 
 would be an obvious convenience, you will no doubt 
 entertain it with a proper infusion of distrust. In the 
 ordinary course of your business, you must be prepared 
 frequently to hear, from one quarter or another, that 
 your terms are less liberal, and your conditions more 
 stringent than those of other banks. In almost every in- 
 stance the reproach, when inquired into, will prove to be 
 groundless. In some cases it will have arisen from mis- 
 apprehension : in others from idle talk : and in some 
 few from deliberate mis-statement. Nevertheless, a rigid 
 adherence to the rule in every case, would, no doubt, 
 result in a certain loss of business, which no bank is 
 willing to face, even although the loss should consist 
 exclusively of a batch of overdrawn accounts uncovered 
 by security. 
 
 As banking usage in the provinces prevails at present, 
 therefore, you feel obliged continually to depart from the 
 only rule which would render your advances safe under 
 all circumstances. You feel constrained, because other 
 banks do so, to depart from a principle which would 
 make each of your overdrafts secure, whatever reverse of 
 fortune should overwhelm the debtor himself. 
 
 You quote in reply the dictum of an old writer : ' He 
 ought to be well mounted who is for leaping the hedges 
 of custom.' That is true ; but the fact that you are 
 constantly forced by custom out of the safe lines of bank- 
 ing, affords no reason why we should not discuss the 
 usage on its merits. It may be that its unsoundness 
 and danger, if made manifest to all, might lead to its 
 gradual limitation, and in time to its final abandonment. 
 
 Let it be admitted then, as it may be, w^ithout con- 
 troversy, that there arc people in Oxborough who would 
 be safe beyond all doubt for advances without security : 
 nevertheless, it is equally beyond cavil that no one is as 
 safe without security as with it. If every advance on 
 your books were covered by adequate security, it is clear 
 that in respect of such advances you would stand abso-
 
 LET. v.] Cover for Debt. 35 
 
 lutely exempt from the risk of loss : but the moment 
 you begin to make exceptions to the rule, by granting 
 advances to this client or to that, without security, you 
 leave the solid ground of safety for the treacherous 
 swamps of banking risk. 
 
 Bear in mind that every advance which you make 
 without security, will rest for its safety on the unerring 
 accuracy of your own judgment as to the means and 
 character of the borrower. But in such cases is your 
 judgment — is any man's — infallible? Is it equal in any 
 case to good collateral security ? 
 
 In making your selection and choice of the trust- 
 worthy amongst your customers — in separating the 
 sheep from the goats — your experience will be more 
 than human, if you do not take to your bosom a black 
 sheep now and then. And the irony of the thing will 
 lie in this — your losses, when they do happen, will come 
 to you from your chosen ones — from those in whom you 
 have placed your business faith, and to whom unhap- 
 pily you have lent the Bank's money without security. 
 
 Let us suppose that you have advanced ;^iooo for 
 three months without security to a client believed at the 
 time by everybody, yourself included, to be a man of 
 substance, and undoubted for the amount. Let us 
 further suppose that this estimate of his means turns out 
 to have been a delusion, and that the man fails, and is 
 made bankrupt and pays five shillings in the pound. 
 Now your clear profit on the transaction, taking all things 
 into account, will not have much exceeded a £^ note. 
 To secure this modest recompense of reward, you have 
 risked ;i^iooo and actually lost £t^o. You will have 
 to make 150 fresh advances of a thousand pounds each 
 — that is to say, you will have to incur fresh uncovered 
 risks to the amount of ;^ 150,000 to redeem your loss. 
 
 Now, are the chances 150 to i in favour of almost any 
 man, that he will repay an advance when due? Or to 
 put it differently : out of any 150 unsecured ad\'ances, is 
 it a moral certainty that all will be repaid ? You may 
 be correct in 149 cases : but if you are wrong in one, the
 
 36 The Coimtry Banker. [let. v. 
 
 loss on that one will swallow up the profits on all the 
 rest and strip you of ev^en the semblance of reward for 
 all your risk, work, and anxiety. 
 
 The only rule, therefore, which insures safety in, every 
 case, is never to make any advance without security. It 
 is not enough that you may do so in hundreds of cases 
 with impunity, because, as we have just seen, the fruits of 
 your success maybe swept away at any time by one reverse. 
 
 And the proper time to stipulate for security, it has to 
 be observed, should be before the opening of an account 
 — not afterwards. To allow an overdraft to remain 
 unsecured for a time, and then require it to be covered, 
 will incense a client with the belief that you have heard 
 of something to his disadvantage : and it will be difficult 
 to persuade him to the contrary. You trusted me before, 
 he may fairly protest, — why distrust me now ? And 
 thus a requirement, which, if stipulated for at first, would 
 have been without offence, may become a grievance and 
 affront. 
 
 When a man of property borrows money from a 
 private person, the usual basis and condition of the loan 
 is a mortgage on the property of the borrower ; not as a 
 favour, but as a matter of course and ordinary business 
 custom. This being so, it is difficult to see on what 
 ground a banker is expected to lend his money to any- 
 one \\ithout a similar formality. 
 
 It may be argued that there is a material difference 
 betwixt a temporary advance, such as is generally 
 obtained from a banker, and the permanent loan which is 
 usually obtained on mortgage. There is this difference 
 certainly, — there is less chance of anyone wasting his 
 substance in three months than in three years. Never- 
 theless, the private lender can part with his money 
 with greater safety for years than you can for months, 
 because under all circumstances he has his mortgage 
 to fall back upon : whereas you have nothing. He 
 has protected his advance with sufficient cover against 
 all weathers ; whilst yours stands naked and exposed to 
 every wind of adversity.
 
 LET. v.] Cover for Debt. 37 
 
 It will not be wise, therefore, to lay much weight on 
 the temporary nature of your uncovered advances, as an 
 element of safety. Some of the heaviest bad debts 
 known to English banking had their inception as 
 temporary advances. 
 
 It is a point worthy of consideration, also, that if you 
 excuse certain of your customers from giving security 
 whilst you exact it from others, you can hardly fail now 
 and then to be guilty of injustice. You cannot in every 
 instance hope to draw with perfect exactness the line 
 which divides those who are safe, and those who are un- 
 safe, without security. You require security from Mr. 
 Smallfijld because you suspect him to be poor; but you 
 let Mr. Manifold have what he wants without security, 
 because you account him to be rich. You are justified 
 in this as custom rules at present : but would it not be 
 a less invidious course to require security from both 
 alike? Mr. Smallfield must know that you do make 
 adv^ances to other people without security, and he will 
 deem it a hardship that an old client, like himself, should 
 be denied a like indulgence. 
 
 Moreover, you will find that men of substance are less 
 opposed to giving security than men of limited means 
 are. The chief objectors indeed to giving security for 
 advances are those who have none to give. They will 
 tell you with calm effrontery that men of their standing 
 object to the thing on principle, and that to demand 
 security from men of refined commercial instincts is to 
 expose their feelings to moral outrage. You will know 
 how to deal with these susceptibilities when occasion 
 offers, and how to put them to a just appraisement. 
 
 If it were represented to Mr. Manifold that the giving 
 of security in his case would be purely a matter of form, 
 but that it would strengthen your hands in demanding 
 it in cases where security would be indispensable ; he 
 would at least appreciate your difficulty, and would in 
 all likelihood comply with your request. And what Mr. 
 Manifold would do, others would be equally ready to do, 
 if the reason of the thing were plainly and frankly put
 
 38 The Country Banker. [let, v. 
 
 before them. When it came to be understood by traders 
 and others of visible means, that by giving security for 
 advances, they placed you in a position to enforce the 
 same condition on traders and others of invisible means ; 
 it is reasonable to conclude that they would comply with 
 your rule in their own interests. 
 
 The unsecured advances of English banking, from the 
 outset, were doubtless made with an assured faith in 
 every case that the borrowers were individuals, or firms, 
 of acknowledged means and unimpeachable credit. It 
 is not to be imagined that any Manager or Board 
 of Directors, ever made an advance in the deliberate 
 expectation and belief of its becoming a bad debt. 
 Unfortunately, however, as we have seen, it is always in 
 the matter of advances made without security, that the 
 unexpected happens. 
 
 That would be a remarkable return, if it were to be 
 procured, which should shew the net result to English 
 banking of uncovered advances. Place in one scale the 
 aggregate of profit, and in the other the aggregate of 
 loss upon such accounts, and who can doubt for a moment 
 which scale shall instantly and with a vengeance kick 
 the beam ? The losses upon uncovered advances, within 
 recent memory, have been of a magnitude sufficient, one 
 might suppose, to impress upon the minds of bankers, 
 with an emphasis that should be lasting, the danger of 
 such ad\ances ; and the expediency of rendering security 
 henceforward an indispensable condition for money lent 
 or advanced. 
 
 To give general effect to the principle would, no doubt, 
 require a greater degree of concert and a livelier sense of 
 a common danger, on the part of English banks, than 
 exist at present ; because no bank can act upon the 
 principle rigidly, whilst its competitors play fast and 
 loose with it, without a certain loss of business. Those 
 persons who have come to regard an uncovered overdraft, 
 less in the light of a favour than as a matter of custom and 
 right, would no doubt exclaim against the adoption of 
 a system that would restrict them to a narrower range
 
 LET. v.] Cover foi'' Debt. 39 
 
 of operations : and they would without scruple take their 
 custom elsewhere, provided they found banks prepared 
 to take them at their own valuation, and adopt their 
 accounts on their own terms. 
 
 But against the loss of income thus occasioned place 
 the loss that might arise some day on one or other of 
 these uncovered accounts : and it is at least a possibility 
 that your present loss might prove an eventual gain. 
 Better lose the profit on a naked overdraft now, than its 
 principal amount hereafter. 
 
 It is at least a reasonable contention that a bank which 
 had the courage, in this matter, to take custom by the 
 beard, and resolutely decline, after a certain date, to make 
 any advance without security, would not be a loser in 
 the long run. It would necessarily do less business for 
 a time, but the profits made on its reduced business 
 would at least be beyond attack : so that its shareholders 
 would probably receive the same dividends as hereto- 
 fore, and with greater certitude of continuance, because 
 there would be no desolating inroad of bad debts every 
 now and then, to swallow profits up. 
 
 Would it be an impossible thing for the Banks in any 
 given town to come to an understanding that after a 
 certain date they would make no advances upon fresh 
 accounts without security? Such a course would leave 
 the existing business of the Banks intact, to work itself 
 out on existing conditions ; but it would lay a basis for 
 the business of the future, which would give it a degree 
 of safety and solidity in this particular direction which 
 the present system lacks. 
 
 The necessity, moreover, that all advances by banks 
 should be covered by security is increasing with the 
 increase of competition in banking. The continued 
 attenuation in the rates of banking profit in certain 
 directions, which is the outcome of this competition, is 
 graduall)^ narrowing the margin for bad debts. As 
 your profits diminish, so must your risks, and notably 
 that class of them which consists of advances without 
 security.
 
 40 The Country Banker. [let. v. 
 
 You ask whether character is not in itself a security : 
 whether there are not persons, even of limited means, to 
 whom it would be safe for a bank to lend money with- 
 out security — persons who would shrink with honest 
 repulsion from undertaking any liability which they 
 did not see their way rigorously to fulfil. 
 
 No doubt there is security, of a kind, in honest inten- 
 tion : but honesty itself may be overthrown by unfore- 
 seen disaster. A man may borrow money from you and 
 resolve with all his- might to pay it back again. He 
 sees his way, he believes, with perfect clearness, at the 
 time, to do so. But no amount of honesty will endow a 
 man with second sight ; it will not enable him to see 
 further than his neighbours through a stone wall ; 
 neither will it shield him from business misfortune. 
 
 To make advances on the strength of character, more- 
 over, requires the banker who ventures upon this line of 
 business to be a reader of men : but this is a faculty with 
 which bankers are not supremely gifted. On the con- 
 trary, my experience is that bankers have the full 
 average capacity of being taken in, when they go beyond 
 the safe line of advances on security, and venture upon 
 the quicksands of personal credit. 
 
 If a customer, even of slender means, applies to you 
 for a temporary advance without security, and can satisfy 
 you that his difficulty is accidental, and that the means 
 to recoup your advance will reach his hands immediately, 
 and you have dealt with him a sufficient number of 
 years to be assured of his integrity and righteous dealing, 
 you might be justified in making an exception in his 
 case. You are merely making an advance against money 
 virtually in sight and which will be in your hands in a 
 few days ; unless indeed he turn rogue at the last 
 moment, and cancel at a stroke the honest repute of a 
 lifetime. But such exceptional and temporary help is 
 a widely different transaction from lending such a man 
 money without security, to trade with and i)ut into his 
 business, practically for good. 
 
 You ask whether the profit on an account ought not.
 
 LET. v.] Cover for Debt. 41 
 
 in some measure, to regulate the amount of risk taken 
 upon it: that is to say — whether you would not be 
 justified in making a larger advance, other things being 
 equal, upon an account that brought you in ^^50 a-year, 
 than upon one which brought you an annual profit of 
 only ^10. 
 
 The advance upon any given account must be regu- 
 lated absolutely by its safety, and not by the return of 
 profit which the account may yield. When you find 
 yourself troubled with the fear of losing a good account, 
 unless you agree to continue, or enlarge the advance 
 upon it without security : the question will narrow itself 
 to this, — will you rather risk the principal of the debt 
 than lose the profit upon it ? Will you let the fear of 
 losing even the most profitable account on your books 
 induce you to continue or enlarge a risk upon it which 
 you would not otherwise take ? There can be only one 
 answer to the question, and the answer must be — No. 
 But the temptation is great, and therefore has to be 
 jealously watched and steadfastly resisted. It is one 
 of the most insidious allurements against which you will 
 have to set your face in the conduct of your business. 
 The profits on such accounts are pleasing to the eye : 
 but too frequently they prove bitter to the taste, and 
 become the Dead Sea fruit of banking. 
 
 But although you cannot allow the profit on the most 
 valuable account to obscure for a moment the cardinal 
 question of its safety, there is one important concession 
 which you make in the working of such accounts, — you 
 treat them as sacred from touch, even in the exigencies 
 of panic, so long as the circumstances of the holders or 
 their securities suffer no change for the worse. The 
 holders, thus exempted from the fear of having their 
 overdrafts called up, can make consecutive and more 
 lucrative use of them. In consideration of the larger 
 profit which you derive from such accounts, you enable 
 the operators upon them to reap a corresponding 
 advantage.
 
 LETTER VI. 
 
 OVERDRAWN ACCOUNTS. 
 
 As if shall 7wt be Imtful for each ftian to be a usurer who 
 will, so shall it not be lattful for all to take inoney at use — not to 
 prodigals and spendthrifts, but to merchants, young tradesmen, 
 and such as stand in need, or know hotiestly hozv to employ it. 
 
 Anatomy of Melancholy. 
 
 Given, you say, a responsible tradesman applying for 
 leave to overdraw his account to a certain limit, the 
 annual operations on the account chargeable with the 
 usual commission being ten times the amount of advance, 
 and the advance itself being secured by the guarantee 
 of persons safe for the amount; — given these conditions, 
 you desire to know why you may not accept such an 
 account as soon as offered, instead of having to refer it 
 in the first instance to your Head Office for approval. 
 
 It may at once be conceded that you do not stand 
 alone in your manifest leaning towards this class of 
 account. It contributes largely to the revenue of a 
 Branch : it has therefore a special attraction for officers 
 of spirit, who are still in the fervour of their managerial 
 youth. The larger the number of overdrawn accounts 
 — thus runs the argument — the larger the profits ; and 
 the larger the profits of a Branch, the higher the Manager 
 will stand in the estimation of the Board : therefore — the 
 nearer he will stand to the ne.xt rise in his salary. 
 
 The pleasing fallacies which this formula involves 
 will come up for hearing and judgment in due course. 
 Meanwhile, let us deal with the overdrawn account on 
 its own merits. 
 
 And first as regards the plea of safety. No doubt the 
 -42
 
 LET. VI.] Overdrawn Accounts. 43 
 
 paramount consideration with a banker when lie makes 
 an advance i.s the certainty of its repayment. It may be 
 taken for granted that no one in the possession of his 
 ordinary senses would lend his money without this 
 certainty — without a conviction that he would be repaid 
 his loan with interest to the uttermost farthing. But 
 with a banker, there are considerations beyond these. 
 The safety of any particular account or series of accounts 
 is one thing : the financial safety of his bank is another. 
 It involves no paradox to affirm that a bank may not 
 have a single unsafe account in its ledgers, and yet be in 
 an unsound position itself A bank, to be in a perfectly 
 sound financial position, should be able at all times to 
 meet, with ease and amplitude, the demands which may 
 be made upon it at any time by its depositors. If 
 therefore it has to look to ledgers-full of overdrawn 
 accounts — no matter how safe they may be — as its 
 principal means to meet a rush, or even a heavy drain 
 upon its deposits ; its position might conceivably be one 
 of actual peril. A drain upon the resources of a bank, 
 whose business was chiefly confined to the discount of 
 negociable bills, could be met by simply contracting the 
 volume of its discounts ; but you do not necessarily 
 diminish your existing overdrafts a single pound by 
 refusing to grant fresh ones. 
 
 No doubt the overdrafts, as a rule, hav'e been granted 
 on the understanding that they might be called up at 
 any time. But to call up an overdrawn account, and to 
 obtain payment of it, are distinct and not identical 
 operations. Between the date of recall and the receipt 
 of the money, there will lie an uncertain interx'al, 
 extending over weeks or months, or even years, as the 
 case may be. 
 
 If the borrower has accustomed himself to make use 
 of the overdraft only now and then, to meet a casual 
 excess of engagements over his means in hand to meet 
 them, repayment will be prompt. If he has used the 
 overdraft as a permanent addition to his floating capital, 
 repayment will be a slower, but still a measurable
 
 44 The Country Banker. [let. vi. 
 
 process in respect of time. But if he has fixed it in his 
 trade — in buildings or machinery, in plant, fixtures, or 
 book debts, the time of repayment will be altogether 
 uncertain ; and even highly lucrative overdrafts of this 
 description, you will confess, would be but a poor 
 resource from which to meet an active drain upon your 
 deposits. 
 
 You remind me that there are the sureties to fall back 
 upon. I will go further, and admit that they may 
 eventually be good for the obligation ; but this in no 
 wise proves their ability to redeem the guarantee when 
 required, I apprehend that no sane person puts his 
 name down as surety for a thousand pounds, or any 
 other amount, in the expectation that he will ever 
 have to pay the money. The consequence is, that 
 a surety as little thinks of providing for such a con- 
 tingency, as he does for paying off the National Debt. 
 As a rule, therefore, it is the nature of sureties to be 
 unprepared to meet such engagements. 
 
 Overdrafts, then, and especially those of a permanent 
 character, are deficient in that first requisite of a banker's 
 assets ; namely — ready convertibility into money in case 
 of need. 
 
 It is a further objection to permanently o\'erdrawn 
 accounts, that they limit the extent of assistance which 
 you might otherwise afford to the monetary wants of 
 your district. 
 
 Let us take the case of your customer A. B. by way 
 of illustration. He is allowed an overdraft of iJ"iooo, of 
 which he steadily avails himself to the full. Your 
 advance in his case is practically a dead loan. As long 
 as he retains the money, it is certain that you cannot 
 lend it to anyone else. But if you had conditioned with 
 him that his account was to be overdrawn only now and 
 then to the stipulated limit, the money would have been 
 at your disposal during each interval to lend to other 
 people. 
 
 Let us take the average duration of permanent over- 
 drafts at the moderate period of three years ; and con-
 
 LET. VI.] Overdrawn Accounts. 45 
 
 trast a thousand pounds thus advanced to an individual, 
 with a Hke amount advanced every three months to a suc- 
 cession of individuals. By the one process, it is obvious 
 that you assist one man only, to the extent of a thousand 
 pounds within the period ; whereas by the other you assist 
 a dozen men to the extent of a thousand pounds each. 
 
 Not that there must therefore be no more overdrawn 
 accounts — no more banking cakes and ale. Within 
 certain limits, which we shall have to discuss by and by, 
 they are an allowable and necessary feature of English 
 country banking. We are here taking account merely of 
 their financial incidence as banking assets. 
 
 And is the privilege of overdrawing one's bank 
 account uniformly of advantage to the person thus 
 favoured? The privilege wisely used is no doubt a 
 valuable one : but it is often misused, to the ruin of the 
 borrower himself, and the injury of other people. 
 
 Let us take from your ledgers a case in point. 
 Samuel Titson, draper, Oxborough, has been allowed an 
 overdraft on his account for so many years, without 
 question, that he has, practically, ceased to regard it as 
 a liability. The amount has consequently become as 
 'fixed' in his trade as the ;({^5oo with which he boldly 
 started in business ten years ago. A fatal ambition to 
 out-draper all Oxborough has brought him a prodigious 
 business, but it has raised his liabilities to correspond- 
 ing figures: so that when it dawns at last upon your 
 predecessor Mr. Littleworth, that the overdraft has 
 become excessive and ought to be reduced, and he 
 applies for its reduction accordingly, the astonished 
 Titson is on the eve of applying for its further 
 enlargement. 
 
 Now if Titson were wise, he would cease forthwith to 
 pile up stock and book debts on borrowed money. He 
 would reverse the process, and bring his liabilities within 
 safer compass. But he only cares to think how best to 
 meet this unexpected and upsetting demand of the Bank. 
 He therefore arranges with the travellers for the w hole-
 
 46 The Country Banker. [let. vi, 
 
 sale houses with whom he deals, for the renewal of his 
 acceptances to them due next ' fourth,' and thus gains 
 sufficient command of his daily receipts to effect the 
 required reduction in his overdraft. The Bank is 
 appeased for the time, and Mr. Titson thus completes 
 his first stage on the road to the Gazette. 
 
 He cannot have proceeded far, before he discovers that 
 the reduction of his overdraft has not diminished his 
 liabilities as a whole by a single pound. It has simply 
 varied their distribution. He has reduced his debt to 
 the Bank by going further into debt to other people. 
 His friends, the travellers, begin to come their rounds 
 again with remorseless punctuality, and if his difficulty 
 was great in fencing them off, the previous journey, it is 
 fourfold greater now : because whilst their demands have 
 doubled in amount, his excuses for delay have lost half 
 their force. He cannot now rely upon receiving much 
 from his book debts before the turn of the year ; but he 
 can draw upon his debtors for what they owe him, and 
 upon the more affable of them, no doubt, for a good deal 
 more. With these bills and a sprinkling of cash, backed 
 by promises of enlarged orders and payments in full 
 next time, Titson wheedles his travellers into unwilling 
 contentment, and thus finds his way to the end of the 
 second stage. 
 
 Early in the third, the Bank is again at his doors for a 
 further reduction; and the first batch of his renewed 
 acceptances are rapidly becoming due and must be met 
 in cash, come what may. Dealing as usual with his 
 difficulties as they arise, and taking no thought for the 
 morrow, Titson now decides upon a vigorous move : 
 he resolves to have a clearance sale. The lovers of 
 bargains at 50 per cent, below prime cost flock to the 
 shop, and enough is realized to meet all pressing claims. 
 Mr. Titson thus tides on ; but only towards increasing 
 difficulties and final collapse. 
 
 A distant creditor, exasperated at last by repeated 
 promises which are never kept, now issues a writ, and 
 even the stout heart of Titson sinks within him. A
 
 LET, VI.] Overdrawn Accounts. 47 
 
 traveller he could cajole, the Bank he might put off, an 
 acceptance he might renew ; but a writ, he knows, means 
 for him money down, debt and costs on the nail, or ruin 
 swift and irretrievable. Thus driven to the wall, money- 
 less and desperate, and giving ear to evil counsel, he 
 finds refuge in a cognovit, which pacifies the obnoxious 
 creditor for a time ; and thus Mr. Titson accomplishes 
 the fourth stage of his career. 
 
 The writ has barely been satisfied, when the bills 
 drawn by Titson upon his customers begin to return to 
 the holders with a persistent uniformity of dishonour — 
 the reason being, that they had for the most part been 
 accepted on the understanding that Titson was to meet 
 them when due — the acceptors, meanwhile, sending him 
 their 'takings' as they came in, without reference to 
 the bills at all. His own acceptances, further renewals 
 being denied him, now begin to be dishonoured. The 
 Bank, thoroughly alarmed, becomes increasingly urgent; 
 whilst creditors at a distance, finding that Mr. Titson's 
 signature to a cheque is no longer regarded even on a 
 second or third presentment, become uneasy and resent- 
 ful. Thus beset on all sides, and driven to the wall, an 
 assignment for the general behoof is wrung from him at 
 last. Several large creditors, however, finding that others 
 have been paid in full, whilst they have been left in the 
 lurch, decline to come in, and so the affair terminates in 
 bankruptcy and sixpence in the pound.
 
 LETTER VII. 
 
 INSOLVENT TRADING. 
 
 Debt! IVliy, thaf s more for your credit, sir; it is an ex- 
 cellent policy to owe much in these days, if you will note it. 
 
 Every Man out of His Humour. 
 
 The unprofessional reader of this correspondence, if 
 there be any such person, may regard this story of a 
 draper as a mere flight of the imagination ; but no 
 English country banker will have much difficulty in 
 recognizing in Samuel Titson a familiar acquaintance. 
 
 It has to be admitted that the blame of his career did 
 not rest altogether with Titson himself In respect of 
 the money lent him by the Bank, for instance, he merely 
 made the same improvident use of it which most persons 
 in his position and with his lights would have done. 
 That is to say, he put it into his trade as so much 
 capital. He never reckoned upon the Bank calling it up, 
 and made no provision for such a contingency. Had your 
 predecessor kept Titson's overdraft strictly to its original 
 and proper limit, he at least would have saved the Bank 
 from abetting Titson in his mania for extension. As it 
 was, Mr. Littleworth, good easy man, had unbounded 
 faith in Titson's energy and business habits. His 
 periodical report on the account might have been 
 stereotyped, for it invariably ran thus: — ' Perfectly safe, 
 business increasing, making money fast.' As a matter 
 of fact, the author of this report was Titson himself, who 
 gave it to Mr. Littleworth, who repeated it to the 
 Directors as his own ; which in one sense it was, because 
 there is no doubt that he honestly believed it to be true. 
 In this belief he allowed the overdraft to increase, not in 
 48
 
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 LET. VII.] Insolvent Trading. 49 
 
 proportion to a corresponding increase in Titson's capital, 
 duly ascertained, but in proportion to the operations on 
 the account. He appears to have divided these by ten, 
 to find the amount which the bank might safely advance 
 to Titson without security and without enquiry. When 
 the operations were ^5000, the limit of safety would be 
 reached at ,16^500. When they rose to ;^ 10,000, the limit 
 would be reached at ^1000, and so forth. He computed 
 Titson's success by the volume of his business, and 
 determined his stability by the rule of three. 
 
 It does not appear to have struck him that Titson's 
 principle of trade was the ' nimble penny,' and that 
 his only chance against the old-established drapers of 
 the town was to go in for small profits and quick 
 returns. Titson held that twenty transactions, on which 
 the profit was a shilling each, were equal to a single 
 transaction on which the profit was a pound. Working 
 on this maxim, the operations on his bank account 
 necessarily increased, hand over hand. But their rapid 
 increase held no warning for Mr. Littleworth. He was 
 content to measure Titson's stability by his spread of 
 canvas, rather than by his weight of ballast. 
 
 When the matter came to be looked into, it was seen 
 that the Bank had virtually been in partnership with 
 Titson for years, and doing an activ^e business in the 
 drapery line without knowing it. But the co-partnership 
 had this curious disadvantage : — the profits, if any, would 
 go to Mr. Titson : whereas the losses would fall upon 
 the Bank. 
 
 Now there are mercers on your books, who work their 
 business on capitals of their own, and seldom trouble you 
 for adv^ances : was it fair to them to enable a man of 
 straw, by means of excessive banking facilities, to half 
 ruin their business for a series of years ? 
 
 You suggest, in reply, that the man who has to pay 
 for the use of capital, cannot well undersell the man who 
 is working with his own. But Titson did, and thousands 
 do. Moreover, Titson did not pay for the capital lent 
 him by the Bank. He paid you neither principal nor 
 4
 
 50 The Country Banker. [let. vu. 
 
 interest. He fought his competitors in trade with what 
 was found money to him, although it was lost money 
 to you. 
 
 The man who is regardless how many shillings in the 
 pound he may some day pay his creditors, has a palpable 
 advantage over those who are scrupulous to pay their 
 debts to the last shilling. He has the difference — the 
 sum of his delinquency — to play with. If he is owing 
 ;^20,ooo when he calls his creditors together, and his 
 assets have shrunk to ^^"5000, he has manifestly had 
 ;!^i 5,000 to do with as he thought fit. He may have 
 added a ward to a hospital out of it, or a spire to the 
 church, or enlarged the parish schoolhouse, or done any 
 other act of munificence with other people's money. 
 To steal a sheep and give the trotters away for God's 
 sake, is an old Spanish saw. In the case of our 
 insolvent it has become a modern instance. He could 
 afford to be generous. Out of every sovereign owing to 
 his creditors, he has appropriated fifteen shillings to him- 
 self and left five shillings for them. But he may not 
 have devoted any portion of his deficiency even to acts 
 of spurious beneficence. He may have preferred to use 
 his creditors' money to speculate or gamble with, or to 
 settle upon his jkvife, or spend in riotous living, or to hide 
 away until the thing should blow over, — that is to say, 
 until the denuded creditors should have had their divi- 
 dend, and he his discharge. 
 
 But Titson, it has to be admitted, did none of these 
 things. He devoted the difference betwixt his debts and 
 his dividend — say nineteen and sixpence out of every 
 pound — to the single purpose of driving competition 
 out of Oxborough, by selling for years together below 
 cost price. No wonder his competitors in business 
 were indignant with your Bank, when the extent of its 
 advances to their aggressive rival became known. 
 
 You submit that the case of Titson is exceptional ; 
 because a man who uses borrowed money, not knowing 
 when he may have to pay it back, will, as a rule, be more 
 careful how he lays it out than if it were his own. It
 
 LET. vn.] Insolvent Trading. 5 1 
 
 may be so with borrowers of tender conscience ; but that 
 is not an universal quality, nor is it one on which it 
 would be prudent for a banker to lean exclusively for the 
 repayment of an ad\ance. 
 
 Moreover, there arc persons with a certain obliquity of 
 business vision, who profess to regard a loan from a 
 bank and a loan from a private person, as things morally 
 distinct. To an individual, they will tell you, the loss of 
 the money might be ruin : but to a great joint stock bank 
 it would be only so much to each proprietor, a mere 
 bagatelle, which he would never feel. ' In the name of 
 Mercury, the great god of thieves,' exclaims Sydney 
 Smith, 'did *any man ever hear of debtors alleging 
 the wealth of the lender as a reason for eluding the pay- 
 ment of the loan?' Advances, without the most ample 
 security, to persons holding these views, will no doubt be 
 marked in your private register as doubly hazardous, 
 and shunned accordingly with steadfast resolution. 
 
 We were once told by a man with whom we had made 
 a bad debt, — a man of fair intelligence and average 
 honesty, — that we need not be so angry with him, because, 
 if we would cast up the interest and commission he had 
 paid on his account during the last fiv-e and twenty years, 
 we should find that we had lost little or nothing by 
 him !
 
 LETTER VIII. 
 
 OCCASIONAL OVERDRAFTS. 
 
 IVJiat surprised me most was, that, though lie was a money 
 borrower, he defended his opinion with as much obstinacy as if he 
 had been my patron. Vicar of Wakefield. 
 
 It is not to be assumed that every one makes the 
 hke improvident use of an overdraft that Samuel Titson 
 did. As a rule, experience points the other way. The 
 customers of a country bank are not all Titsons. His 
 congeners in trade, no doubt, are to be found here and 
 there amongst the constituents of every provincial 
 bank ; but the majority of people in business have a 
 wholesome dread of getting beyond their depth. 
 They, therefore, avail themselves with thrift and only 
 upon occasion, of the facilities offered by the overdrawn 
 account. 
 
 The non-arrival of a ship when due, for example, the 
 detention of a mail, the non-receipt of a promised pay- 
 ment, and other such incidents in the daily course of busi- 
 ness life, are proper occasions for a timely advance from 
 one's banker. So, likewise, when rent day has come round 
 before the farmer has sold his wheat or his fat stock ; or 
 when the mercer, the woolstapler, the tanner, or any 
 other trader, is replenishing his stock of raw material or 
 manufactured goods ; in these and in like cases, the 
 banker may reasonably be expected to assist with an 
 advance, in proportion to the means of the borrower, his 
 habits of business, and the circumstances of the case. If 
 these are perfectly known to you, you will rarely make 
 an unwise advance. 
 52
 
 LET, VIII.] Occasional Overdrafts. 53 
 
 You tell me that there are persons of undoubted 
 means and position, who would not submit to be cate- 
 chised as to the object of an advance ; and that 
 sometimes the first notice you have of an overdraft 
 being required, is the presentment of the cheque which 
 creates it. But in nine cases out of ten you will 
 know, without asking, whether the proposed advance 
 will be in the strict course of a man's business : and 
 in the remaining case, if the borrower be of undoubted 
 means and position, there will be no need to catechise 
 him. He has probably overdrawn his account by 
 inadvertence. 
 
 Your active accounts are chiefly those of men engaged 
 in business or trade, and no man will lightly risk his 
 commercial credit by issuing a cheque that may come 
 back to him throufjh several banks, with the damaging 
 inscription — ' Refer to the drawer,' on the face of it. 
 
 No doubt there are persons of another stamp, whose 
 accounts have a constant tendency to get on the wrong 
 side of your ledger ; and who will trade upon your indul- 
 gence, not to the extent of their means, which would be 
 easy of estimate, but to the extent of their audacity, 
 which is incalculable. The short and easy method with 
 such is to dishonour, without scruple, the first cheque 
 which exceeds, by however little, the balance at their 
 credit. No doubt they will hector and bully. Mr. 
 Horace Larkyns, whose cheque you have dishonoured 
 for a ' dirty hundred,' will menace you with the direst 
 penalties of the law for this outrage to his feelings, 
 and stain upon his honour. But you have the sub- 
 stantial fact to set against this windy bluster, that 
 the hundred pounds are in your till, and not in 
 the outraged Mr. Larkyns' pocket. You can there- 
 fore regard the indignant closure of his account 
 with outward serenity, and the loss of it with inward 
 satisfaction. 
 
 And you will do wisely to make it a rule absolute, 
 whenever you are invited to lend the Bank's money, in 
 any shape or for any purpose, to satisfy your mind that
 
 54 The Country Banker. [let. vm, 
 
 the means will exist, in available form, to repay the 
 money when due. In most cases you will know this 
 without inquiry. You will know that the money you are 
 parting with, will go to purchase an equal value of pro- 
 duce, commodities or property, or to pay for purchases 
 of such already made. The means to meet the advance 
 when due, therefore, will be in the possession or control 
 of the party to whom you lend the money. In cases 
 where this is not apparent, it will be your business to 
 inquire. You are not obliged to lend money in the 
 dark. When a man comes to you for the loan of a few 
 hundreds, or a few thousands, as the case may be, unless 
 the transaction is clearly in the direct line of his busi- 
 ness, you have a right to know for what purpose the 
 advance is wanted. Without this knowledge, what 
 assurance have you that the money may not be spent in 
 furnishing a house, or dowering a child, or opening a 
 quarry, or sinking a mine, or in some other way which 
 shall be equally successful in locking your money up 
 beyond human reach ? 
 
 You cannot in every case, it is true, move in a right line 
 towards a given principle in banking. Circumstances, 
 like a contrary wind, may cause you at times to deviate 
 a point or two from your direct course ; but you can 
 always keep heading towards it. 
 
 When Squire Oakfield, for instance, sends his cheque 
 in without notice, and overdraws his account a thousand 
 or two, although he has thus violated one of the cardinal 
 principles of your Rules and Regulations, it would not 
 be wise, however regular it might be, to dishonour the 
 cheque ; because the Squire is at once a wealthy and a 
 choleric gentleman, and probably believed that by over- 
 drawing his account he was bestowing a favour rather 
 than receiving one. You cannot afford to quarrel with 
 the Squire. You will prefer to follow a famous example 
 for the moment, and turn your blind eye upon the strict 
 letter of your instructions ; because, in addition to him- 
 self, his agents and tenants, and many of his nearest
 
 LET. VIII.] Occasional Overdrafts. 55 
 
 relatives bank with you. There is a time for gathering 
 stones, and a time for throwing them away ; but this 
 would not be a prudent occasion for the scattering pro- 
 cess. Once cast away the Squire's goodwill, and drive 
 him to the other bank ; and without any hostile action on 
 his part, he will soon have a perceptible following. 
 
 Again : a certain account may of itself be less opera- 
 tive than your rules stipulate for ; and yet it may not 
 be politic to call the balance up. Like the Squire's, 
 certain accounts have roots. Your unprofitable client 
 may have friends and relatives amongst your customers, 
 and in pulling his account up, you may root others up 
 along with it. In this, as in the previous case, you will 
 guide your course, not by the value of the one account, 
 if it be absolutely safe, but rather by the value of the 
 group. 
 
 The ov^erdrawn account exists, as we have said, and 
 will continue to exist as a prominent feature in English 
 country banking. And to this there is no objection, 
 within certain limits. We have thus far been analysing 
 this form of advance, not with a view to its extinction, 
 but to its limitation. The objections to it rest on 
 financial grounds, and amount to this — that overdrafts, as 
 a rule, are the least convertible form of a bank's assets, 
 and therefore should never exceed a certain percentage 
 of its resources. What that percentage ought to be, we 
 shall have occasion to discuss when we come to the 
 management of a head office. Meanwhile the fact that 
 there is such a percentage and limit furnishes an answer 
 to your opening question. Why every proposal for an 
 overdrawn account must be referred in the first instance 
 to your Head Office for consideration : because it is mani- 
 fest that if all your Branches had the power of granting 
 overdrafts at will, the limits assigned by your Head 
 Office to the total overdrafts of the Bank, might at any 
 time be seriously overstepped. 
 
 The first question which a Branch manager puts to 
 himself in respect of a proposed transaction is. Will it be 
 safe ? And the second is. Will it pay ? But at head-
 
 56 The Cotmtry Banker. [let. vm. 
 
 quarters a third question lies beyond, and takes 
 precedence of these, and is this — Will it suit ? The limit 
 assigned by your authorities for any particular class 
 of transaction, may have been already reached, and 
 the door closed against further increase for the time 
 being.
 
 LETTER IX. 
 
 RECALL OF ADVANCES. 
 
 IVJiile the money is hoped for, and for a short time after it has 
 been received, he taho lends it is a friend and benefactor : by the 
 time tlie money is spent, and tJie evil hour of reckoning is come, the 
 benefactor is found to have changed his nature and to have put on 
 the tyrant and the oppressor. It is an oppression for a man to 
 reclaim his own money : it is none to keep it from Jam. 
 
 Defence of Usury. 
 
 The Portuguese have a saying, If you would make 
 an enemy, lend a man money, and ask it of him again : 
 and there is no country bank in England which has not 
 had occasion at times to digest the truth and pungency 
 of the adage. 
 
 When the building committee of a church, or chapel, 
 or school, come to you for an advance to complete the 
 structure, in anticipation of promised subscriptions, and 
 offer their joint and several guarantee for the ad\ance; it 
 will be difficult to refuse it, because the committee may 
 include some of your most valued customers, who might 
 resent your refusal as a slight to themselves. They will 
 be slow to comprehend why you should refuse to 
 advance a sum of money for a beneficent object, on the 
 security of gentlemen good for many times the amount. 
 Nevertheless, if the subscriptions do not come in, and 
 you have in the end to come upon the guarantors for 
 payment of the money, you will be fortunate if you do 
 not more or less offend them all. Your application will 
 be a provoking reminder to each, of his over-sanguine 
 trust in promised contributions. Some will offer to pay 
 their quota of the guarantee at once, provided you will 
 
 57
 
 58 The Country Banker. [let. ix. 
 
 free them from further responsibihty ; but this you can- 
 not do, because the habihty is joint as well as several, 
 and no one can be released, without vitiating the security, 
 until the whole is paid. Others will hold back, from a 
 natural indisposition to pay a debt for which, personally, 
 they have had no consideration, and for which they have 
 an indistinct notion, perhaps, that they are not morally 
 responsible. 
 
 Advances, therefore, for whatever object, on the se- 
 curity of a number of obligants, although they may be 
 abundantly safe, are not always expedient. They are 
 almost certain in the long run to bring you into un- 
 pleasant relations with some of the parties, and more 
 particularly with those who refuse to understand why a 
 large bank cannot permit a loan to outstand for any 
 length of time, so long as it is safe. They refuse to see 
 that the Bank is doing them a service in pressing for 
 early payment. It does not occur to them that their co- 
 obligants are mortal, and that every obligant who dies 
 practically bequeaths his liability to the survivors. The 
 signatory who would have the thing outstand for twenty 
 years, if need were, might find himself the sole surviving 
 debtor in the end; and would then see the thing, no 
 doubt, in a proper light, when it was too late. 
 
 You ask what is to be done in such cases ? You 
 cannot, you state, refuse such advances, and you cannot 
 recall them without giving offence. It only remains for 
 you to point out, at the time, the unpleasant possibilities 
 which such advances involve, and to dissuade committees 
 from borrowing at all, if you can. If they disregard 
 your advice, as they probably will in most cases, the 
 consequences will be of their own seeking. You will 
 thus acquit yourself of having been a silent observer of 
 •the transaction, or an accessory to their imprudence. 
 
 There are borrowers in plenty who do not trouble 
 themselves to reflect how or when an advance from a 
 bank is to be repaid. 
 
 The proper business and use of a bank, in their 
 estimation, is to lend money to any amount, no matter
 
 LET. IX.] Recall of Advances. 59 
 
 for what length of time, nor for what purpose. They 
 cannot imagine why it should concern a bank how the 
 money is laid out, nor how long it may remain unpaid, 
 so long as the loan yields interest, and is covered by 
 security. You will have to reason such people out of 
 delusions like these. If you fail, you have a conclusive 
 argument alwaj's at command — you can refuse to lend 
 the money. You can refuse to countenance transactions 
 which may lead the parties into trouble. You are not 
 obliged to furnish people with weapons to break their 
 own heads with. 
 
 When overdrafts are allowed for specific periods, be 
 it for weeks or months, or ,any other sections of time, 
 you will have to' see that such advances are repaid when 
 due. If your practice in this respect be lax, the ma- 
 jority of }'our customers will not be slow to profit by 
 your example. If you are loose and inexact in your 
 requirements, they will not strain after rigid punctuality 
 themselves. They are not likely to assail you with 
 reminders that their debts to you are overdue, and 
 implore you to call them up. 
 
 It is no doubt possible, as you suggest, to be over- 
 exacting in this particular ; but that is on the assump- 
 tion that you act in the matter without discretion. This 
 is not required of you. A certain latitude is allowed to 
 every Manager. You cannot in every case, as we have 
 seen, enforce the strict letter of your instructions without 
 respect of persons, circumstances or results. The law of 
 successful management should not possess the rigidity 
 of cast iron : it should rather have theproperty of highly 
 tempered steel. It should have a certain degree of 
 flexibility — a certain margin within which to play. 
 
 In the application of this particular rule, you will find 
 that there is a time to bind and a time to loose. There 
 are those amongst j-our customers, and they are the 
 great majority, who must be held strictly to their 
 engagements in respect of time : but there are others, 
 who may safely be left to fulfil such engagements at 
 their own time, even if it should vary a little from yours.
 
 6o The Coiuitry Banker. [let. ix. 
 
 But there are people, who have had the use of the 
 Bank's money, it may be for years, who will resent your 
 calling it up, whenever you do so, as an injury and 
 affront. It matters not that the ad\'ance may be long 
 overdue, or that the security has become depreciated, or 
 the transactions on the account insufficient, or that you 
 wish to reduce such advances generally. The borrower 
 will refuse to be conciliated. Is it possible — he will ask 
 you, with unconscious insolence — that a large bank like 
 yours can want the money ? If not, why put him to 
 inconvenience, so long as he pays you good interest for 
 it? Have you lost confidence in him? If not, why 
 disturb an arrangement which has gone on for so long 
 without a word of objection on your jDart ? The man 
 who takes this perverted view of things will be trans- 
 formed into a life-long enemy, whenever the Bank shall 
 insist upon having its own again, whether his position 
 be sound or the reverse. If sound, he will impute the 
 withdrawal of your advance to personal spite. If, on the 
 other hand, he has to go into the Gazette, he will revile 
 the Bank for having rendered that step necessary. It 
 would not be an unheard-of thing if he went a step 
 further and charged you and your advance with his ruin 
 — a rancorous accusation, when your accuser is about to 
 repay your good nature by a dividend the minuteness of 
 which is a satire on your credulity. 
 
 It betrays a curious twist of moral vision, but it is not 
 the less a fact, that when one of your customers fails, 
 and compounds with his creditors, certain of your other 
 clients have a feeling that they, too, are entitled in some 
 vague way to consideration. They would try a little 
 failure of their own, perhaps, but unfortunately they are 
 perfectly solvent, and known to be so. This is certain : 
 that if you let Sharpies off with half his debt to the 
 Bank — that is the way they will put it — they will have 
 an indistinct notion that they ought not to be overlooked 
 altogether, and will persuade themselves that the obliga- 
 tion to pay twenty shillings in the pound is, in their 
 case, inequitable, and of the nature of a hardship.
 
 LET. IX.] Recall of Advances. 6 1 
 
 Persons subject to this infirmity of commercial vision, 
 would look upon the plunder of a bank by a fraudulent 
 nei<^hbour as scarcely amounting to an impropriety. 
 
 You tell me, indeed, that joy is openly expressed in 
 certain quarters in Oxborough over every bad debt you 
 make, and that popular s)'mpathy is always with the 
 debtor. You think it hard that the evil which your 
 predecessor did should live after him, and be visited 
 upon you. 
 
 The business conscience of Oxborough is evidently 
 deficient in tone, and needs a corrective ; and this you 
 can administer best, by the simple process of making no 
 more bad debts. Instead (5f furnishing your detractors 
 with periodical occasion for rejoicing, you will thus put 
 their malice to diet on emptiness, and achieve a lawful 
 revenge. Happy are they, says Benedick, that can hear 
 their detractions, and put them to mending.
 
 LETTER X. 
 
 BANKRUPTCY. 
 
 If, like ati ill venture, it come unluckily home, I break ; and 
 you, my gentle creditors, lose. . . . Bate me some, and I will pay 
 you some, and, as most debtors do, promise you infinitely. 
 
 Epilogue to Henry IV. Part 2. 
 
 It is right on principle that a man should reduce his 
 account on the very day he promised to do so ; but it is 
 not incumbent on you to serve him with a notice in 
 bankruptcy on the very morrow of his default. He may 
 have failed to keep his promise through the default of 
 others. You will at least give him a hearing before you 
 hand him over to the rigours of the law. If Black has 
 died penniless, with a balance against him on your books 
 of some ^^"20, and his principal assets consist of the beds 
 his widow and children lie upon, I conclude that you will 
 rather write the debt off as bad, than sell the forlorn 
 creatures up — on principle. 
 
 You remind me that I have urged that the scope for 
 the feelings in banking is limited. That is true. I held 
 and still hold that you do not lend money, neither do you 
 recall it, in obedience to the emotions. If men are en- 
 titled to credit, you give it to them ; if they are not, you 
 refuse it. If they are able to pay you back and will not 
 do so, then put the law upon them without scrui)le and 
 without remorse. I was not referring to the sli])pcry 
 cu,stomcr who has sufficient means to pay his debts, but 
 a persistent repugnance to doing so. There need be no 
 parleying with defaulters of this type ; the shortest rope 
 of procedure will be long enough for them. My remark 
 had reference solely to the involuntary and helpless 
 62
 
 LET. X.] Bankruptcy. 63 
 
 debtor — to cases where the quality of mercy would yield 
 a preferable result to the pound of flesh. 
 
 It is, no doubt, possible to be over abrupt in calling up 
 an advance. If it has existed for years, and the borrower 
 has had no reminder that it might be called up at any 
 time, he has just ground for complaint, if, without 
 reasonable notice, you peremptorily demand repayment 
 of the money. If by this course you drive him to 
 extremity, and compel him to file his petition, and it 
 turns out that he was in a position to pay everybody 
 twenty shillings in the pound, but for your insistance, 
 you will have aroused the enmity, not only of the debtor 
 himself, but of all his friends, and the business of the 
 Bank might thereby suffer detriment. A bank that 
 should acquire the reputation of forcing solvent people 
 into the Gazette, would certainly lessen the number of 
 its better class of applicants for advances. 
 
 Nothing more retards the progress of a bank than 
 unpopularity ; nothing, on the other hand, brings it a 
 steady accession of business with more certainty than its 
 standing well with the community. The bank which has 
 the good will and the good word of every one is sure to 
 make progress. But to insure this kind of popularity, it 
 must be incapable of harsh dealing. It must not be 
 over-grasping or too insistent in every case upon its exact 
 legalright — the strict letter of its bond. In banking, as 
 in other things, there is a law within the law : and that 
 bank will do best for itself and its shareholders which 
 can at times be generous as well as just. 
 
 Where an advance therefore has existed for years, it 
 will be politic, as well as just, to give reasonable time for 
 its repayment, provided the advance be fully covered by 
 security. Even in cases where no security is held, it 
 may be expedient to exercise forbearance, when the 
 customer can satisfy \-ou beyond a doubt, that his estate 
 would yield a substantial surplus, even under a forced 
 realisation. But when he cannot assure you of this, and 
 is obviously in difficulties, or drifting towards them, the 
 sooner his affairs are taken in hand by his creditors, the
 
 64 The Country Banker. [let. x. 
 
 better for himself and them. Beware of nursing the 
 account of a needy customer, whose solvency you have 
 the slightest reason to doubt, however confidently he 
 may affirm, or seek to prove, that a little more help will 
 see him through. 
 
 It is in the nature of a man in difficulties to take a 
 sanguine view of his position. Do not let him persuade 
 you to look at matters through his spectacles. Use your 
 own eyes. By using his, you may be induced to place 
 yourself in his position, adopt his liabilities, and be 
 morally fathered with his delinquencies. Neither be 
 persuaded into paying other creditors off who are press- 
 ing him, from a fear that their persistence may embarrass 
 him and imperil your own debt You will not improve 
 your position by letting them out and yourselves further 
 in. When a man's affairs get into confusion, it is not 
 the business of a bank to provide him with the where- 
 withal to pay the urgent in full, and leave the less urgent 
 to take what they can get. If your debt has become 
 doubtful, do not add to its amount, even on good security, 
 unless it be rendered clear to you beyond all question, 
 that by help of a further advance, every one, yourselves 
 included, will receive twenty shillings in the pound. 
 
 When the balance of an account or bill stands over- 
 due, and the debtor has taken no notice of your demand 
 for payment, more than once repeated, your steps for 
 recovery must be prompt ; otherwise a more energetic 
 creditor may step in before you, or the defaulter himself 
 may abuse your indulgence, by secretly making away 
 with what means he has. Unhappily there would be 
 nothing strange in this : but even where parties are in- 
 capable of this form of dishonesty, if their affairs are in 
 a bad way, the sooner they are wound up the better for 
 all concerned, the parties themselves included. If 
 traders and others were brought to book at the first 
 symptom of insolvency, they would be deprived of the 
 power of dissipating their assets in satisfying the claims 
 of peremptory creditors, or giving fraudulent preferences 
 to friends or relatives, or making secret hoards against
 
 LET. X.] Ba7ikrtiptcy. 65 
 
 the rainy clay to come. Their assets, if put under arrest 
 in time, and placed beyond the reach of wasteful sacri- 
 fice and unlawful distribution, would enable the parties 
 to offer a reasonable composition to their creditors, and 
 start afresh, with the help of some, and the good wishes 
 of all. 
 
 And better, surely, a composition in almost any case 
 in these days, than see a small estate thrown into bank- 
 ruptcy, there to undergo the process of liquidation by 
 that unrivalled absorbent, and see it come forth again, 
 after many years, the mere skeleton and shadow of its 
 former self 
 
 For the helpless English creditor, the choice would 
 seem to lie betwixt legal absorption on the one hand, 
 and illegal plunder on the other. The dishonest knave 
 who offers you half your debt in payment of the whole, 
 and who, you have reason to suspect, has most of the 
 other half hidden away, richly deserves the knout ; but 
 there are difficulties. Before you can punish, you must 
 establish your suspicion, which may possibly be incapable 
 of legal proof You may thus waste the substance of the 
 estate and not even scotch your snake. To punish a 
 fraudulent debtor nowadays involves the process of 
 splitting one's nose to spite one's face. To put a small 
 estate into the Court of Bankruptcy, is to imperil all 
 chance of a reasonable dividend ; so that the much 
 enduring creditor is almost tempted to exclaim, — 
 Better ten shillings in the pound v/ith robbery, than 
 bankruptcy with nothing. 
 
 The Comptroller in Bankruptcy, in his report for 
 1 88 1, gives the total of bankruptcies for that year as 
 9727. Of these 15 per cent, paid dividends of two and 
 sixpence each and upwards : 24 per cent, paid dividends 
 ranging from two and si.xpence each downwards to two- 
 pence halfpenny : whilst 61 per cent, of the whole — sixty- 
 one estates out of every hundred — paid nothing at all, 
 but vanished bodily and for ever from the sight of men. 
 To the eyes of English creditors wistfully expectant of 
 dividends, the portals of our Court of Bankruptcy might 
 5
 
 66 The Country Banker. [let. x. 
 
 aptly bear the inscription on that other place of shadows 
 — Abandon hope all ye who enter here. 
 
 Such being our experience of bankruptcy, as a machine 
 for the realization and distribution of insolvent estates, 
 it has occurred to many that the less we have to do with 
 it the better. Some would even go the length of 
 abolishing it altogether and making a fresh start. But 
 this is not the view of others, who have given much 
 thought to the subject, and whose capacity of judgment 
 is unimpeachable. They believe that the working of the 
 institution can be improved. Its present machineiy is a 
 labyrinth of complication, a cover for fraud, a very sink 
 for costs, and a contrivance for procrastination and delay 
 only rivalled by the Court of Chancery itself 
 
 It is the intention of the new Act, and the hope of its 
 promoters, to change all this. Nevertheless, even under 
 it, every estate of the value of iJ"300 and upwards, may, 
 by possibility, at one stage or another, engage the atten- 
 tion of the Chief Judge, or the services of the Official 
 Receiver, the creditors' trustee, the committee of inspec- 
 tion, and the auditors of the Board of Trade. 
 
 It will appear to some that to subject the liquidation 
 of a small estate, even to the action of this modified 
 apparatus, is suggestive of breaking a fly upon the 
 wheel. 
 
 The new Act, if successful, will largely increase the 
 transactions of the Court, and the moneys of bankrupt 
 estates in its hands. The balances of provincial insol- 
 vencies have heretofore been kept with the local banks : 
 but these institutions will no longer have the exclusive 
 use of these moneys, to lighten the inconvenience and 
 pressure which arise from local failures. Under the new 
 Act, they will have a formidable competitor in the 
 Government itself, for the holding of these funds in 
 future. It is in fact virtually provided that the funds 
 shall in every case go to the Bank of England, unless 
 the creditors shew cause to the contrary. How often 
 they will take the steps required to shew cause, and how
 
 LET. X.] Bankruptcy. 67 
 
 often they will prevail upon the Board of Trade, to allow 
 the funds of an insolvent estate to be banked on the 
 spot, has yet to be seen. 
 
 It is too late to raise the question whether a simpler 
 method of dealing with insolvency might not have been 
 devised. The evils of the old system were manifold and 
 flagitious. Let us hope that, in our haste to rid our- 
 selves of these, we have not created others instead ; and 
 that in avoiding Sc}'lla we have not chanced upon 
 Charybdis. One thing is certain, whatever the end may 
 be: in casting off the unspeakable Trustee, we have put 
 ourselves under the heel of the Board of Trade.
 
 LETTER XL 
 
 TRADE BILLS. 
 
 Mistrust no man without cause, neither be thou credulous 
 without proof e ; be not lyght to follow every man's opinio7i, nor 
 obstinate to stande in thine owne conceipt. Euphues. 
 
 When your client, Mr. Vincent Cartridge, the paper 
 manufacturer, offers you for discount his bill for 
 ^^256 135. d,d. at three months' date, on Messrs. Booker 
 & Co., of Birmingham, wholesale stationers ; he proposes 
 a transaction which you could dispose of at a glance, if 
 it were the only bill betwixt the parties which you 
 would hold, and the only responsibilty which either of 
 them would be under to the Bank. In that case, you 
 would merely have to satisfy yourself as to the respon- 
 sibility of drawer and acceptor. If that w^ere unquestion- 
 able, you would discount the bill : if it were not, you 
 would decline the transaction. 
 
 But this is not the only bill, by a good many thousand 
 pounds, which you would hold from Mr. Cartridge : 
 neither will the present be his first and only draft on 
 Booker & Co. : there are already several of them in your 
 hands. You cannot deal with the bill now offered, 
 therefore, as an isolated transaction, but as forming a 
 portion of a larger liability. 
 
 And in taking the measure of this liability, it is not 
 enough to look at its mere total, or to be satisfied with 
 the individual safety of the various obligants on the bills. 
 There may be other features in a man's account and 
 bills, in which you may detect matter for question, and in 
 respect of which you may require enlightenment. 
 
 In evidence of this, let us take the account of a former 
 68
 
 LET. XI.] Trade Bills. 69 
 
 client of your Branch, Mr. Philip Bargood. The history 
 of his trading is written in your books with much clear- 
 ness and force to those who care to read it. The leading 
 facts, indeed, may be said to be set forth in capitals. 
 
 Mr. Bargood commenced business in 18 — with a 
 capital of ^^5000. For the first two years, he carried on 
 a moderate trade, and bought nothing on credit. But in 
 the third year he began to extend ; he became still more 
 extended in the fourth, and in the fifth year reached 
 a degree of inflation which rendered eventual explosion 
 inevitable. 
 
 The considerable balance which stood at his credit 
 with you for a good portion of the first two years, 
 becomes rapidly diminished in the third, disappears 
 altogether in the fourth, and in the fifth year is replaced 
 by a balance against him. His acceptances, mean- 
 while, exhibit a corresponding swiftness of growth in 
 number and amount. He no longer buys for cash. He 
 buys on credit, and accepts for everything. His discount 
 account shares in the general tendency of his affairs to 
 expansion, and shews a large and rapid increase. Mr. 
 Bargood, whilst availing himself to the full of his own 
 credit, is giving credit far and wide to other people. 
 
 But apart from these leading features of the account, 
 there are minor incidents to be noted, the significance of 
 which alone, might have opened Mr. Littleworth's eyes 
 to the headlong course along which Bargood was hurry- 
 ing. To those who have the capacity and the will to 
 look, there are ' eye-openers ' to be met with, even in a 
 bank ledger, although not of a mirthful cast. They incite 
 the observer rather to wide-eyed and angry astonishment. 
 
 The amount of bills drawn by Bargood on Laxey & 
 Co., for example, ought to have challenged attention. 
 Instead of being drawn to the extent of a few hundreds 
 in all, which was their original and sufficient limit, they 
 came in the end to be drawn for as many thousands. 
 
 But if the increase in the total of these bills held no 
 warning in it for your predecessor, the regularity with 
 which each was discounted, a few days before another of
 
 70 The Country Banker. [let. xi. 
 
 similar amount became due, ought to have awakened 
 him to the fact, that the paper on Laxey & Co. was being 
 kept afloat by a series of renewals. 
 
 Nor is this all. There appears amongst Bargood's 
 acceptances, an occasional one to Laxey & Co., thus 
 indicating the existence of cross-paper between the 
 parties. Whilst Bargood at Oxborough was raising 
 money, by drawing fictitious bills on Laxey & Co. — bills 
 for ' value received ' in nothing — they, on their part, were 
 hocussing their bankers with bills drawn by them on 
 Mr. Philip Bargood for a like consideration. It never 
 occurred to Mr. Littleworth that these bills were being 
 manufactured, simply to raise the wind ; still less, that 
 they would be represented by that element alone, when 
 the wrecks of the two estates came to be marshalled for 
 final distribution. 
 
 On 5th January, 18 — , to refer once again to the 
 account, you will find a debit of unusual amount — To 
 A. B., ;^I500. A few months later on, this mysterious 
 payee figures for another ^1500; and once again a 
 cheque in his favour for a similar sum is debited. Now 
 the other cheques drawn upon the account, from first to 
 last, are of moderate amount ; in no instance exceeding a 
 few hundred pounds. These abnormal debits, therefore, 
 would have justified the inference, that they represented 
 transactions lying outside the regular course of Bargood's 
 business. And why drawn in blank ? His other cheques 
 are openly drawn in favour of somebody, or in payment 
 of something ; but who was A. B., and why his initials 
 only, and not his name ? 
 
 The dark horse — the A. B. of the cheques — was, of 
 course, Mr. Bargood himself 
 
 The money went into a mine, which he and his 
 co-adventurers ardently believed would prove a second 
 Golconda, and make village Rothschilds of them all ; 
 whereas, the mine proved to be only rich in water. It 
 yielded that in fathomless quantity ; the pumps were 
 worked night and day for years, and the shareholders 
 were pumped out, but the water never.
 
 LET. XI.] Ti'ade Bills. 7 1 
 
 When Barf^ood came to a stoppage and final break- 
 down, and the facts which we have glanced at became 
 known to the Directors, Mr. Littleworth was allowed to 
 resign the position which you now occupy. 
 
 The moral to be drawn from his experience is this — 
 that the manager of a Branch, to be fit for his position, 
 must look deeper into a customer's account, from time to 
 time, than merely at the balance at its debit, or the sum 
 of its activity. He must read between the lines, now and 
 then. The man's balance may be in order, and his 
 bills within their authorized total ; but the Manager is 
 not therefore to shut his eyes to every other feature of 
 the account, until certain of its aspects become so 
 ominous, that they are challenged from head-quarters. 
 The Manager has the supreme advantage of being on 
 the spot. Every transaction on every account, is open 
 to his inspection from day to day. He has opportunities, 
 therefore, which your chief Manager and Directors have 
 not, of detecting those irregularities which indicate the 
 departure of a man from the straight line of his busi- 
 ness, and are often the incipient symptoms of in- 
 solvency. 
 
 Had Mr. Littleworth thus supervised the account and 
 bills of Philip Bargood, and drawn the attention of the 
 directors to each irregular or disquieting transaction as 
 it aro.se, the curb would have been applied in time, and 
 Bargood saved from ruining himself and a score or two 
 of other people, besides landing the Bank in a serious 
 bad debt. 
 
 You suggest that Mr. Bargood, instead of retiring his 
 acceptances to Laxey & Co. through his account at 
 Oxborough, might have done so through some other 
 bank, and have thus effectually concealed from Mr. 
 Littleworth and everybody else the fact of their being 
 renewals. That is true : but the difficulty would have 
 been to find a bank in all England that would transact 
 this more than questionable description of business. 
 
 You are distinctly required, by 3'our code of instruc- 
 tions, to refuse to advise or take up the drafts or accep-
 
 72 The Country Banker. [let. xi. 
 
 tances of any but your own customers. This is only in 
 pursuance of an old principle of English country bank- 
 ing, that a man should only have one banker. 
 
 Many years ago, it is true, a bank took up for some 
 years running, for a man who did not bank with it, his 
 drafts upon a distant acceptor. When it transpired, at 
 last, that the bills thus provided for as they fell due, 
 were a series of forgeries, which the drawer had dis- 
 counted with his own bankers, and which the other 
 bank had thus enabled him to keep afloat ; it became 
 apparent, that a departure from sound banking usage 
 had betrayed one bank into rendering possible a felony, 
 which resulted in the plundering of another bank of 
 many thousand pounds. 
 
 In applying the various tests which are suggested by 
 the instructive account of Mr. Bargood, to the draft of 
 Cartridge on Booker & Co., the fate of which is still in 
 abeyance, you may find that the paper under discount to 
 Cartridge is already at the highest point sanctioned by the 
 Directors. Or it may be, that the bills of the acceptors, 
 already in your hands, have reached an amount beyond 
 which you are unwilling to go. Or, again, it may happen 
 that a bill for the same amount, between the same 
 parties, is about due ; which might imply, although not 
 necessarily, that the bill now offered is a renewal. It 
 may be drawn against an entirely fresh transaction, to 
 which it has merely a chance nearest in amount. The 
 drafts of Bargood on Laxey & Co. were not open to this 
 construction. They were so uniformly alike, in point of 
 date and amount, for several years running, as to pre- 
 clude the idea of accidental likeness or fortuitous 
 identity. Or, finally, you may have remarked amongst 
 the bills retired by Cartridge a stray acceptance of his 
 to Booker & Co. — a circumstance which could not be 
 accidental, and would have to be challenged forthwith. 
 
 It may be, that the Bookers make it part of their 
 business, to purchase rags for Cartridge and to draw 
 upon him for the cost. To this there would be no objec-
 
 LET. XI.] Trade Bills. 73 
 
 tion, so long as the bills were drawn against actual trans- 
 actions : but this system of reciprocal drawing is open to 
 flagrant abuse, as we shall have occasion to see by-and-by. 
 
 But let us now assume that the draft of Cartridge on 
 Booker & Co. has been subjected to the tests which we 
 have indicated, and that it has successfully run the 
 gauntlet of objection. You can now address yourself 
 to the fundamental question of safety, with a mind at 
 rest on all side issues and outlying points of doubt. 
 
 And first, as regards the acceptors. You find a 
 satisfactory account of them in the confidential character- 
 book of the Branch ; but it is open to the objection that 
 the record is now some years old. 
 
 Without disparagement to Messrs. Booker & Co., it is 
 allowable to conceive that a firm, which was safe and 
 sound a few years ago, may not be in the same position 
 now. Every kind of business is subject to occasional 
 loss, and as a rule the loss is borne in secret. No one is 
 in haste to proclaim his trading mishaps from the house- 
 top. They may be known or suspected on the spot, but 
 the knowledge will not necessarily travel far beyond it. 
 You know, because you have the means of knowing 
 in several ways, how people thrive in business in 
 Oxborough ; but you cannot exercise this supervision, 
 in the case of persons who are following their avocations 
 in distant towns and far-away cities. 
 
 If Hobson of Oxborough has made a mess of it in 
 something, you are more than likely to hear of it, 
 although he may not speak of it himself, nor put it 
 in the newspapers : but if Trevethick of Penzance, or 
 Macpherson of Cromarty, has been quietly going to 
 the bad in business, the fact will not necessarily reach 
 Oxborough at all. 
 
 It follows, that the opinions which you have received 
 as to the position of acceptors or others out of 
 Oxborough, will require frequent revision. You are not 
 to await the on-coming of a general crash, before you 
 commence the revisal of your register ; otherwise you
 
 74 The Country Banker. [let. xi. 
 
 may find a score or two of its reputations in the Gazette, 
 before you have run your pen through records concern- 
 ing them of fabulous misconception. 
 
 And now, as regards the safety of the parties for 
 whom you discount bills. The drawer and indorser of a 
 trade bill is ordinarily the same individual, as in the 
 present case. Mr. Cartridge draws on Booker & Co., 
 and indorses the bill to you, and you consider him good 
 for ten times the amount of the bill. This would be 
 conclusive of the whole matter, if the bill now offered 
 were the only bill you would hold of his : but you already 
 hold Cartridge's drafts upon a variety of people, to the 
 considerable total of iJ"io,ooo. 
 
 You report the whole of his bills as good on their 
 merits : that is to say, as being drawn upon acceptors 
 believed to be able, in ever>' case, to meet the bills as 
 they mature. But acceptors do fail at times, although 
 their selection has been the subject of diligent inquiry 
 and the utmost circumspection beforehand. 
 
 It is difficult to estimate the exact amount of risk 
 which thus attaches itself to Cartridge's indorsements ; 
 but the risk is not the less real, because it is not 
 presentable in exact figures. 
 
 The question remains — will the ;i^2 500, which you 
 consider him good for, provide a sufficient margin for 
 this contingent risk ? A rough method of answer 
 will be found, in a synopsis of his bills current. Place 
 those which are beyond all doubt in one column, those 
 which are considered safe in a second, and the weaker 
 bills in a third ; and let us assume that we have the 
 following figures as a result : 
 
 First Class ;^5,000 
 
 Second " 4,000 
 
 Third " 1,000 
 
 ;^ 1 0,000
 
 LET. XI.] Trade Bills. 75 
 
 Take the first class at twenty shillings, the second at 
 ijs. 6d., and the last at los. in the pound; and Cartridge 
 would stand to suffer a conjectural loss of i^iooo on the 
 whole. That would be the measure of your floating risk 
 on his bill account. 
 
 The factors here used are purely arbitrary; they may 
 be put higher or lower, as circumstances may direct: but 
 the method of the computation, although it will not 
 furnish you with figures of precision, will at least enable 
 you to form a rough estimate of the risk you are running 
 with any given discount account. 
 
 And the amount of this risk, by whatsoever process it 
 is arrived at, has to be looked upon as forming a mental 
 addition to the overdraft of the customer, or a deduction 
 from the balance at his credit, as the case may be. 
 
 But in addition to bills drawn by Cartridge on other 
 people, you hold ^1000 in bills drawn by other people 
 upon him. 
 
 Now a banker, as a rule, would rather not keep both 
 sides of a man's account. If he discounts a customer's 
 bills to an agreed-on total, he would rather not be 
 weighted with his acceptances as well : because, for one 
 reason, the safety of the drawers of these bills may not 
 in all cases be without question. The people, for 
 instance, who draw upon Mr. Cartridge for rags collected 
 and delivered, are for the most part of small means, and 
 could not take up his acceptances which you have 
 discounted for them, should he himself fail to do so. In 
 estimating your position with him as a whole, therefore, 
 you have to look upon such weak bills as being little 
 better titan so much overdraft without security. 
 
 It is true that you may thus find yourself in a diffi- 
 culty. If you allow his margin for discounts to be par- 
 tially absorbed, by transactions of which he is ignorant, 
 he will have just cause for complaint; on the other hand, 
 if you refuse to discount his acceptances, by whomsoever 
 drawn or presented, you may seriously damage his 
 credit.
 
 ^6 The Country Banker. [let. xi. 
 
 The only means of escape from the horns of this 
 dilemma would seem to be — nev^er to get between them. 
 Let there be a distinct understanding with every 
 customer, from the outset, that you must treat such of 
 his acceptances as are brought to you for discount, as an 
 addition to his liabilities on bills, where the drawers are 
 good ; and as so much overdraft, where they are weak. 
 If this be clearly understood, your customers will see 
 the unwisdom to which some persons are addicted, of 
 sending their acceptances to their own bankers to be 
 discounted : especially if the drawers are weak. 
 
 If you have any difficulty with my paper at your 
 Bank, says Bounderby, try mine : I flatter myself you 
 will find it all right there. Although Mr. Bounderby, 
 by this advice, may seek to magnify his own credit in 
 the eyes of drawers, his intention towards the Bank is 
 entirely friendly. He believes he is doing you a good 
 turn, and is without a suspicion that he is thereby 
 running up a secret score in your bill ledger against 
 himself 
 
 We have now gone the round of inquir}', to which the 
 bill of Cartridge on Booker & Co. has given occasion, 
 and you are in a position to regard the transaction in all 
 its bearings, and to deal with the bill accordingly. 
 
 You have a feeling, you remark, that your customers 
 would hardly await your reading up of the general sub- 
 ject after the laborious fashion herein proposed, before 
 giving them your decision. Probably not. They will 
 expect, and are entitled to an immediate answer, yes or 
 no. You will therefore have to do the reading up 
 beforehand. You will have to keep your memoi^' freshly 
 posted up, from day to day, on all the points which we 
 have had under review, so that you may have alwa}'s at 
 your fingers' ends, the data whereon to rest the fate of 
 almost any bill at a glance. The faculty of distinguish- 
 ing a bill which is eligible and to be desired, from one 
 which is to be avoided and cast out, becomes developed 
 by cultivation, to a degree bordering on instinct.
 
 LETTER XII. 
 
 LOAN BILLS AND NOTES. 
 
 And pray, sir, said mv friend, do you want all this mo7iey ? 
 Indeed, I never wanted it more, returned I. I am sorry for that, 
 cries the scrivener, with all my heart : for they who want money 
 when they coyne to borrow, will always want money when they 
 should come to pay. Citizen of the World. 
 
 The bill of Cartridge on Booker & Co. being now dis- 
 posed of, and added to the contents of your bill case, 
 your attention may next be invited to a discount opera- 
 tion of quite another stamp, but of some prevalence in 
 the agricultural districts. 
 
 Mr. John Bowdler, then, has looked in to borrow a 
 couple of hundred pounds, for a few months — he is not 
 particular to a month : and he proposes to draw for 
 the amount on his friend and neighbour, Mr, David 
 Starkey, who accompanies him. Not that Starkey owes 
 the money ; that is not pretended : but he has agreed to 
 go bail for the amount without consideration, except that 
 of good fellowship. You know Bowdler to be a substan- 
 tial man. He has sums out at interest, he has a low- 
 rented farm, a valuable stock, his manner of living is 
 frugal, and his expenses are moderate. Starkey also is 
 a man of considerable means and one infirmity — an 
 easy-going readiness to lend his name to oblige a neigh- 
 bour. In short the two men are safe for many times the 
 amount of the proposed bill. 
 
 But bill it is not, in the strict sense of the term. A 
 genuine bill of exchange represents value given by the 
 drawer and received by the acceptor: but Mr. Bowdler 
 draws simply on Mr. Starkey's good nature for the 
 
 77
 
 78 ^ The Country Bmtker. [let. xn. 
 
 amount, and means in due time to pay the bill himself. 
 The document, it is true, has the semblance of a bill. 
 It is dated at Oxborough, and drawn in regular form for 
 value received. It is accepted by Mr. Starkey, and 
 domiciled at your bankers in London, although it has to 
 
 be confessed that he knows as little about & Co. as 
 
 they do about him. 
 
 But this counterfeit presentment of a bill of exchange 
 would never pass muster in Lombard Street. However 
 cunningly got up, it would still be Bowdler on Starkey 
 — pig upon bacon — to the comprehension of the 
 meanest capacity in the bill market. 
 
 Not that such bills are never re-discounted. In easy 
 times, when money is a drug, they may find discounters 
 at a price. But such paper will become as foolishness 
 in the eyes of brokers, and as chaff before the wind, 
 in the winnowing of the first monetary squall. 
 
 A further objection to the class of bills now under 
 review, is the irregularity with which they are met when 
 due. Now the property which, next to safety itself, raises 
 the bill of exchange to the foremost rank amongst bank- 
 ing securities, is the certainty of its being paid in money 
 the day it matures. But on this point it has to be 
 admitted that Mr. Bowdler is unreliable. 
 
 When he puts his name to a bill, he determines its 
 currency by what he calls a rough guess. If you cannot 
 let him have the money for six months, he thinks he can 
 manage it in three — a month or two either way being of 
 no account from his point of view. His engagement to 
 meet the bill when it falls due, imposes no greater tie 
 upon his conscience than a promise to visit a friend in 
 the course of the summer. 
 
 A merchant is acutely sensible that he must meet his 
 acceptances to the day, or hopelessly blast his credit ; but 
 this is an unknown sensation to Mr. Bowdler. The pro- 
 cesses of presentment, dishonour, and noting for non-pay- 
 ment, arc as inscrutable to him as the order of procedure 
 in Chancery. He cannot think why there should be so 
 much ado about nothing, and will ask you almost with
 
 LET. XII.] Loan Bills and Notes. 79 
 
 heat, if you fancied him likely to make a purposed 
 journey to pay the bill on a particular day, when he was 
 coming to Oxborough Fair the Friday week following, 
 whether or not. 
 
 Not that it will be always so with Mr. Bowdler. It is 
 almost an even chance that he meets the bill a week or 
 two before it is due, as that he takes it up a fortnight 
 afterwards, and meanwhile lights his pipe with your 
 notice of dishonour. 
 
 It is another feature of this class of bill, frequently to 
 require renewal. The chief obligant and actual debtor 
 on the bill finds, or pretends to find, when it reaches 
 maturity, that he has miscalculated or been disappointed, 
 or had some unlocked for demand to meet, or has not 
 effected sales, or something else. If you are satisfied 
 with the excuse, you will renew the bill ; provided always 
 that no change for the worse has arisen during its currency 
 in the affairs of the man himself, or the other parties to 
 the bill. But in all cases the first renewal, as a rule, should 
 also be the last. The circumstances must be exceptional 
 which would justify your taking a third or fourth renewal 
 of the same bill. Miscalculation, disappointment, and 
 so forth, may be accepted as excuses once, but they pall 
 on repetition. A man may, by inadvertence, book his 
 acceptance as due in May instead of April ; but that he 
 should repeat the inadvertence several times running, is 
 beyond rational belief 
 
 It is usual to designate paper of the description we are 
 now discussing, as accommodation bills, or kites ; but if 
 the epithet is just, it must be admitted that there are 
 diversities of kites. The draft of Mr. Bowdler on his 
 friend Mr. Starkey, for example, is not to be placed on 
 an equality of demerit with the bills of Bargood on 
 Laxey & Co, In Mr. Bowdler's case you knew the 
 transaction intimately ; there was no attempt at conceal- 
 ment : but in Bargood's case there was not only conceal- 
 ment, but something that would be deemed fraud, under 
 any less mild dispensation than the bankruptcy laws of 
 England. A less obnoxious term, such as Loan Bills,
 
 8o The Country Banker. [let. xn. 
 
 would better express the quality of Mr, Bowdler's paper 
 and its equivalents. 
 
 But you may be offered bills from time to time, the 
 origin of which may not be so apparent — bills which you 
 cannot * read.' When you are offered a bill, let us say 
 for ;[^95 io.y. 3^. drawn by Mr. Skinner, the currier, on 
 Mr. Scales, the grocer, the question will at once 
 suggest itself: What description of value can have 
 passed between the parties ? Mr. Scales does not deal 
 in shoe leather, and his personal consumption of that 
 article, even on the extreme assumption of his being 
 his own bootmaker, can never have involved such a 
 figure as is expressed in the bill. The presumption is, 
 that no value has passed in the transaction, and that the 
 value received is purely a figure of speech. The drawer 
 and acceptor, no doubt, intend to divide the proceeds 
 amicably, share and share alike, and to find the money, 
 when due, on the same principle of friendly regard and 
 mutual equality. 
 
 Again, — when a customer whose proper business, for 
 example, is that of a corn merchant, offers you his draft 
 on acceptors, whose business is entirely out of the path 
 of his own, the same question will arise — Why is the bill 
 drawn, and against what ? Be the acceptor concerned 
 with coal, or copper, or timber, or lead, the drawer can 
 have no legitimate dealings in such merchandise. He 
 is either having a speculation in it on his own behalf, or 
 in conjunction with the acceptor. 
 
 You will know without difficulty how to deal with bills 
 of this class ; whilst the fact of their existence will 
 heighten the regard which you will thenceforth give 
 to the accounts of their drawers, particularly if their 
 balances happen to be on the wrong side of your 
 ledgers. 
 
 And whilst you are careful to note on whom your 
 customers in business draw, you will be none the less 
 careful to observe to whom they accept. You will liave
 
 LET. XII.] Loan Bills mtd Notes. 8i 
 
 no difficulty in judging whether a man is accepting 
 against transactions which arc beyond the Hmits of his 
 proper business. You may thus detect irregularities at 
 their inception, and occasionally protect a customer 
 against himself. He will not care to be thus protected 
 perhaps : on the contrary, if he is a self-willed, sanguine 
 man, he will probably resent your interference and close 
 his account in dudgeon : nevertheless, it would not be 
 without precedent, if he lived to thank you in the end, 
 and humbly make offer of his custom back again. Re- 
 pentant clients have had to thank their banker before 
 now, for the refusal of facilities which, if granted, would 
 have been their destruction. 
 
 Akin in some respects to Loan bills, are the promissory 
 notes of individuals, which are sometimes discounted by 
 country banks against security. Regarded as negociable 
 assets, they are valueless. You could not rediscount 
 them in the most plethoric state of the money market. 
 In any analysis of your financial position, for your 
 private guidance, therefore, you will have to treat them 
 as forming an addition to your overdrawn accounts, 
 rather than to your bills of exchange. Loan bills and 
 notes of hand are virtually overdrafts in disguise. 
 
 As a rule, a banker will prefer a short to a long-dated 
 bill. In the first place the risk is less. In the ordinary 
 course of things, more firms will give way in six months 
 than in three. It may be affirmed, without disparage- 
 ment, that there is always a greater chance of the first 
 house in England standing for three months than for 
 six. 
 
 In the second place, the banker, for every one bill at 
 six months', could discount two at three months' date, 
 within the same period, and with the same amount of 
 money ; ami thus render his resources doubly available 
 to his constituency. 
 
 Let us say that the limit for discounts at your Branch 
 is ;6"50,000. If you invested the money in bills with an 
 average currency of three months, your discounts would 
 6
 
 82 The Country Banker. [let. xh. 
 
 gross ;!^200,ooo in the year ; whereas they would only 
 reach half that sum, if the bills had six months to run. 
 
 Let us further suppose that, during a monetary 
 pressure, you have to contract your discounts, in order to 
 meet a drain upon your deposits reaching ;!^5000 a 
 month. Now if your bills are all at the longer date, 
 only i^Sooo of them will reach maturity within the 
 month. To meet the supposed drain, therefore, you will 
 have to contract your ordinary discounts to customers, 
 from iJ'8000 to ^^"3000 a month — an application of your 
 financial brake, sufficient, one would suppose, to spread 
 consternation among half the trading community of 
 Oxborough. 
 
 But if your bills were of the shorter currency, then 
 ;;^l 7,000 of them would ripen monthly : in which event, 
 you could meet the drain of ^5000, and still be able to 
 continue your discounts to customers, at the rate of 
 ;^i2,oooa month. There would be pressure even in 
 this case ; but in the other it would be semi-strangulation. 
 
 It has also to be considered that, in times of commer- 
 cial panic and money pressure, even A i paper, if it has 
 six months to run, ceases to be negociable in the 
 rediscount market. 
 
 As a matter of fact, no banker's bill case is filled 
 exclusively with either short or long-dated bills. The 
 most exclusive bill case must hold some admixture of 
 the latter. No doubt the fewer the better. If the 
 proportions were as 10 per cent, of long, to 90 per cent, 
 of short paper, the banker would be perceptibly nearer 
 the point of financial .safety, than if these proportions 
 were reversed.
 
 LETTER XIII. 
 
 NEGOCIABILITY OF BILLS. 
 
 It is not by augmenting the capital of a country, but by rendering 
 a greater part of that capital more active and productive than 
 would otherivise be so, that the most judicious operations of banking 
 can increase the industry of the country. \Vealth of Nations. 
 
 The transaction out of which the draft of Cartridge 
 on Booker & Co. arose, is one of universal occurrence in 
 the every-day course of business and trade. Cartridge 
 has sold and delivered to Booker & Co. certain goods, 
 against the invoice value of which he has drawn this 
 bill ; which is at once an acknowledgment of debt, and 
 an undertaking on the part of the acceptors to pay the 
 debt at the end of three months. 
 
 But it suits the arrangements of Mr. Cartridge better 
 to have the use of the money at once. He therefore asks 
 you to give him cash for the bill now — less interest or 
 discount on its amount, for the time you will be out of 
 pocket by the transaction. If you decide to discount 
 the bill, the effect of the operation will be a virtual 
 addition to the working capital of Mr. Cartridge for the 
 time being, equal to the proceeds of the bill. 
 
 This fact of itself may hardly seem worthy of note : but 
 when you reflect that every bill thus discounted by a 
 bank becomes an addition, for the time being, to the 
 working capital of the country ; and that the average of 
 bills under discount in England may be safely put at 
 250 millions of pounds sterling,* the fact broadens into 
 
 *Mr. Liglis Palgrave, in hLs Notes on Banking, estimates the average 
 circulation of Inlantl Bills at 2IO millions, and of Foreign Bills at 
 141 millions for the United Kingdom. It will not therefore be an 
 excessive estimate to put the figures for England alone at 250 millions. 
 
 S3
 
 84 The Country Ba7tker. [let. xm. 
 
 significance. If these facilities were withdrawn, there 
 would be that amount less of business done in the land, 
 in the course of every three months or so. In other 
 words, that portion of the business of the country, which 
 depends exclusiv^ely on the discount of bills of exchange, 
 would have to be curtailed, other things being equal, to 
 the extent of some twenty millions a week ; and suffer the 
 enormous shrinkage of a thousand millions a year. 
 
 But the money employed by the banks in the annual 
 discount of this prodigious aggregate of bills is not the'ir 
 own. It is held by them from multitudes of depositors, 
 at short notice, and much of it at call, and therefore 
 must be employed in securities of negociable character. 
 The desired class of security is chiefly found in bills 
 of exchange ; because they can be negociated and con- 
 verted into money at all times, provided they are accepted 
 payable in London — but not otherwise. 
 
 Messrs. Booker & Co. make their acceptances to Mr. 
 Cartridge payable in London, in accordance with English 
 usage ; and the whole of your business clients do the 
 same, with one or two exceptions. 
 
 Mr. Howard Bagster is one of these, and is accounted 
 an authority in Oxborough on matters of finance and 
 currency. Mr. Bagster is a provision merchant by trade, 
 and can distinctly trace his last failure to the operation 
 of Peel's Act and the monopoly of the Bank of England. 
 Hence his normal attitude towards banks and bankers, 
 which is inimical. He holds that all traders have a 
 right to make their acceptances payable where they 
 please, and that by making them payable at their own 
 shops, they save a commission on retiring the bills when 
 due : but that, as we know, is a fallacy. When an accept- 
 ance of Mr. Bagstcr's, for example, ncars maturity, it is 
 sent to you for collection, by the bank which discounted 
 it, and you charge your usual commission for paying the 
 proceeds over in London. By seeking to evade the pay- 
 ment of one commission himself, therefore, Mr. Bagster 
 subjects the drawer of the bill to the payment of two, — 
 one to his own bankers, and one to you. That the
 
 LET. xiii.] Negociability of Bills. 85 
 
 drawer will ignore this fact, in adjusting accounts with 
 Mr. Bagster, is not within tlie lines of business usage, 
 nor the limits of reasonable probability. 
 
 But we may let that pass ; because, even if drawers 
 were found willing to humour Mr. Bagster in this caprice, 
 at their own expense, their bankers are not likely to 
 countenance a form of eccentricity, which is of no advan- 
 tage to the acceptor himself, and which, if unchecked, 
 might render them, in time, the holders of an undesirable 
 percentage of unmarketable paper. 
 
 There is no law to prevent the acceptors of bills 
 making them paj'ableat their own shops, or on their own 
 doorsteps, or, for that matter, at the parish pump, if they 
 are so minded. It is not a question of law, or legal right, 
 but of expediency. The custom which in England re- 
 quires bills of exchange to be made payable in London, 
 is a necessity of its banking system. The Banks could 
 in no other way continue the daily use of ;^2 50,000,000 
 of their deposits to the public, in the form of discounts, 
 unless they chose to disregard and imperil their own 
 stability. 
 
 The vital requisite of the securities in which the Banks 
 invest this portion of their deposit money, is negocia- 
 bility, — the securities must be readily convertible into 
 money, in case of need; and to render bills of exchange 
 thus convertible, they must be pa)'able in London, the 
 discount centre of England. 
 
 Bills not payable in London are simply unmarketable. 
 You could not rediscount them at the Bank of England, 
 nor in all Lombard Street, in the easiest of times. They 
 are only a shade more eligible, as banking assets, than 
 equal amounts in overdrafts would be. 
 
 If eveiy acceptor were to humour his fancy in the 
 'location ' of his bills ; not only every city, town, and village, 
 but every office, shop, and dwelling-house in the three 
 kingdoms might, in turn, become points of redemption 
 for trade paper, and our banking system would be re- 
 volutionized. 
 
 To meet this new condition of things, a member of
 
 86 The Country Banker. [let. xm. 
 
 your staff would have to be on the wing, day by day, from 
 street to street, and shop to shop, and from one dweUing- 
 house to another, wherever the bills had to be presented 
 for payment. In this respect, it is true, he would be no 
 worse off than a telegraph boy, or the penny postman : 
 but he would have troubles of his own, which happily for 
 them, they know not of 
 
 If he receives payment of a bill in legal tender, that is 
 to say, in Bank of England notes, or gold of standard 
 weight — well and good : there will be nothing to charge 
 and nothing to discuss. But in nine cases out of ten, he 
 will be tendered in payment, cheques on other Banks, 
 Country notes. Post Office orders, light gold, or loose 
 silver, in varying proportions. If he declines to accept 
 these promiscuous elements of the circulating medium as 
 standard money of the realm, and insists upon making a 
 charge, to cover the expense of their conversion into legal 
 tender, there will be a wrangle in every case. His pocket 
 gold-weigher will be derided, its use contemned, and its 
 accuracy disputed. His refusal of cheques drawn on dis- 
 tant Banks, by persons of whom he knows nothing, will 
 be resented. He will be dared by some, at his peril, to 
 refuse the payment tendered. He will be requested by 
 others to call again later on. He will have to await his 
 turn at every counter, and abide the reception which is 
 usually accorded to the man who calls for an account. 
 
 Now by the simple expedient of having all bills made 
 payable in London, the whole of this egregious waste of 
 time, trouble, locomotion, and temper is avoided. You 
 thereby create a common centre of liquidation, towards 
 which the bills from all parts of the kingdom gravitate as 
 they become due, and quietly sink into the great stream 
 of transactions which daily flows through the London 
 Clearing. 
 
 You have thus, instead of countless thousands of 
 scattered points, one central and all-sufficient focus 
 of liquidation ; and thus, bills in thousands, and repre- 
 senting millions of pounds in the aggregate, are daily 
 met, and their separate amounts distributed amongst
 
 LET. XIII.] Negociability of Bills. 87 
 
 their multitudinous holders, with less friction than 
 would accompany your ambulatory clerk in his daily 
 round. 
 
 It is not the usage, nor is it the province of a bank, to 
 wait upon the acceptors of bills, or upon the indebted of 
 the community in general. It is the business of the 
 debtors to bring the money to it. If a bank had to 
 wait upon every customer who had an acceptance to 
 meet, an advance to re-pay, or money to lodge, or a 
 cheque to cash ; there would be a speedy end of banking 
 altogether. Its machinery would suffer dead-lock, and 
 its business come to a stand-still. A hundred persons, on 
 the average, transact their business across your counter 
 at Oxborough every day, with ease and mutual affability : 
 there is no difficulty, no wrangling, and no friction. Mr. 
 Coigne, your cashier, is equal to the work were it twice 
 as much : but even if he had the shoes of swiftness, it 
 would be impossible to reverse the operation. He would 
 enter upon it at the disadvantageous odds of a hundred 
 to one. The customers one by one come to him with 
 perfect ease ; but for him to go to them, individually, 
 and transact every variety of banking business, at a 
 hundred different points, in the same day, would be a 
 performance transcending human ability. 
 
 Akin in one respect to bills not paj'able in London, 
 are certain instruments known as Cash Orders, drawn 
 by some of the wholesale dealers in a few of our larger 
 cities, upon retail customers in the smaller towns, and 
 sent to local banks for collection. Like locally accepted 
 bills, these orders are ostensibly redeemable at the shops 
 of the parties drawn upon. 
 
 But it is not the business of banks to act as house-to- 
 house collectors of trade debts. The regular customers 
 of a bank, to whom it may be supposed to be under 
 some obligation, do not expect it to wait upon them 
 when they have a payment to make, a debt to pay, or 
 an acceptance to meet : they come to the Bank. It is 
 hardly reasonable therefore to expect you to wait upon
 
 88 The Country Banker. [let. xni, 
 
 the parties on whom these orders are drawn, and thus 
 afford faciUties to non-customers, which you do not 
 extend even to your regular cHents. 
 
 Parties thus obUgingly waited upon, will be able to 
 dispense with keeping bank accounts altogether. They 
 will make treasuries of their tills and money boxes, and 
 become their own bankers — with what advantage to 
 themselves we shall have to discuss hereafter. 
 
 You therefore, on receipt of one of these orders from 
 another bank to collect, send notice to the shopkeeper it 
 is drawn upon, that it lies with you for collection, and 
 will be sent back to the drawer next day, unless taken 
 up in the meantime. 
 
 No doubt a lower salaried class of man would suffice 
 as commercial traveller, were country banks to take his 
 duties as collector and cashier off his hands : but whether 
 the saving thus effected by the employer, will be equal to 
 the collateral disadvantages, is at least open to question. 
 All is not gain, it has been said, that is got into the 
 purse. 
 
 In numbers of cases, a wholesale house has to depend 
 entirely upon a banker's opinion, as to the trustworthiness 
 of its more distant customers. When the parties keep 
 bank accounts, there is little difficulty in obtaining a 
 reliable opinion : but when they do not, a banker has no 
 greater means of knowledge than any other member 
 of the community. The creditor, therefore, who assists 
 a debtor in doing without a bank account, is shutting a 
 door against himself: he is depriving himself of a means 
 of information, which might be of substantial service to 
 him at times, and perhaps save him every now and then 
 from a bad debt.
 
 LETTER XIV. 
 
 PERSONAL SECURITY. 
 
 Be very taary for whom thou become st securify, and for no 
 more than thou art able to discharge, if thou lovest thy liberty. 
 The borrower is a slave to the lender : the security is a slave to 
 
 both. QUARLES. 
 
 If a Banker has a claim, in common with any other 
 lender of money, to have his loans covered by security; 
 it follows that the security thus taken ought to suffice, 
 under all circumstances, to secure repayment of the 
 advance which it is taken to cover. How far this self- 
 evident proposition was present to the minds of former 
 Manatjers of Oxborousjh Branch, on all occasions, will 
 appear more clearly, as we proceed to analyse the batch 
 of securities, ancient and modern, which you have 
 selected for discussion. 
 
 You hold the Guarantee of Mr. Rolston to secure 
 repayment of advances to W S to the extent 
 
 of ;!^IOOO. 
 
 The report on this security is, — ' Rolston is known to 
 be possessed of means to the full amount of the guaran- 
 tee.' But, if Mr. Rolston is not possessed of means to a 
 much larger amount, the prudence of taking him as 
 surety for such a sum is more than questionable. 
 
 A man's ' means,' so far as they are available for 
 the payment of another man's debt, can only consist of 
 the surplus which his assets would yield, after the dis- 
 charge of his own indebtedness. In Rolston's case, his 
 assets are set down at iJ"6ooo, and his debts at ;^4500. 
 He shows a capital or surplus therefore of ;^I500. 
 
 That would be the surplus of his business as a going 
 
 89
 
 90 The Cowitry Banker. [let. xiv. 
 
 concern : but both it and he would cease to go, the 
 moment you came upon him for the payment of ;^iooo, 
 for which he has had no consideration, and has nothing 
 whatever in hand. He must stop payment : in which 
 event his surplus of ;^i 500 will at once disappear and 
 be replaced by a balance against him. 
 
 Every man's estate, as we have seen, has two values : — 
 a value to himself, and a value to his creditors : a value 
 before, and a value after bankruptcy. A trader's stock- 
 in-trade and book-debts, his buildings and machinery, 
 his furniture and pictures, are usually set forth at cost- 
 price, in his balance-sheet, and it would take the same 
 money perhaps to replace them. But force him into 
 bankruptcy, and we know the result. His estate and 
 effects, after passing through that famous mill, will re- 
 exhibit themselves in figures which it will be hard to 
 reconcile, and impossible to identify, with those at which 
 they stood in his books before the grinding. 
 
 In your estimate of a surety, therefore, the point to 
 be kept in view is, — not what you might be able to 
 squeeze out of him by process of exhaustion ; but what 
 he could at any time pay, over and above his other en- 
 gagements, without serious inconvenience or detriment 
 to himself That is the true measure of his fitness as a 
 suret}^ ; and if you take him for more than this, you may 
 do him a fatal disservice, and possibly lay the founda- 
 tion of a bad debt for yourselves. If Rolston's guaran- 
 tee had been taken for ^150, instead of for nearly seven 
 times that amount, it would have been nearer his mark 
 as a guarantor. 
 
 Let it be your maxim, therefore, that a man is good 
 security to a bank for a portion only of what he is 
 worth — a portion which will mainly depend upon the 
 showing of his balance-sheet. 
 
 You would take the guarantee of Daniel Hyde, for 
 example, for a larger sum than you would that of Railton 
 & Co., whilst you would decline to take Abel Trowell's 
 guarantee for anything at all : although each balance- 
 sheet of the three shows the same amount of capital. 
 
 ■m
 
 LET. XIV.] Persojtal Security. 9 1 
 
 But you will not always have a balance-sheet on 
 which to base your calculation. You will more fre- 
 quently have to depend on hearsay, and the result of 
 your own observation. In this event, you will do wisely 
 to revert to the rule which we liave already indicated, 
 or a modification of it. 
 
 Let us say, for the sake of argument, that a man will 
 be an eligible surety to a bank for the tenth part of his 
 reputed means ; let a man, supposed to be worth ;i^ 10,000, 
 be taken as individually safe as surety for ;^iooo. I do 
 not suggest this as an immutable divisor or rule of 
 estimate. It would be excessive in the case of Mr, 
 Hyde ; it would be less than sufficient in that of Mr. 
 Trowell. But in the absence of authentic figures, you 
 are bound to protect yourself with an ample margin, by 
 subjecting a man's reputed means to the moderating 
 effect of a liberal divisor. 
 
 Even by the suggested rule, a surety would be ex- 
 posed to the possible loss of a tithe of all he could call 
 his own — surely a sufficient penalty for an indiscreet act 
 of good nature? This at least is clear : that the higher 
 your divisor in applying the rule, the ligjiter the strain 
 will be on the resources of a guarantor, and the greater 
 the certainty and promptitude with which your claim 
 upon him will be satisfied. 
 
 It has also to be borne in mind, that the good nature 
 which prompts a man to become surety for a relative or 
 friend, is guided more by the feelings than the intellect; 
 and it thus happens that the same friendly hand which 
 has signed a guarantee, or indorsed a bill for A. may 
 have done the like for B. and C. or others. You know 
 that Mr. Bowdler's bill is not the only one which bears 
 the indorsement of Mr. Starkey ; but there may be 
 others, who are as free as that philanthropist with their 
 signatures, but less furnished with means. 
 
 A personal guarantee, however safe the guarantor 
 may be at the time of its date, offers a less stable form 
 of cover to a bank, than the collateral security of shares 
 or other property : because the position of a surety may
 
 92 The Country Banker. [let. xiv. 
 
 change for the worse without your knowledge ; whereas 
 changes in the value of property take place in the sight 
 of all men, and you may keep yourself advised from day 
 to day of all movements in price. In the one case, the 
 substance of the security is in your own hands : in the 
 other, it remains in the order and disposition of the 
 guarantor, to do what he will with it. He may be a 
 thriving man, and he may continue to thrive ; but it is 
 also possible that he may prove unfortunate : in which 
 event you may some day find yourselves the holders of a 
 document, the maker of which has parted with his sub- 
 stance and left you his shadow instead. 
 
 You can dispose of a marketable security at any time, 
 and get the money for it : but to turn a surety into cash, 
 is a less certain process, and not always crowned with 
 satisfactory results. 
 
 As regards annuitants, professional men, life-renters, 
 and all other persons whose incomes cease with their 
 lives, if we found them ineligible as principals, we must 
 pronounce them equally ineligible as sureties : unless 
 they ha\'e inherited, or saved and set aside, during their 
 lives, sufficient securities or property to provide for their 
 posthumous liabilities. 
 
 A man who owns a property for life, for example, 
 which brings him in say ^^1500 a year, and who requires 
 it all for the expenses of his household, and the educa- 
 tion of his children — how is he to repay the ;^I500 
 advanced on his guarantee, to some good-for-nothing 
 relative, without loading his life interest with such an 
 annual weight of charge, as will bring daily discomfort 
 and social privation to his family and himself? 
 
 Still worse : suppose a clergyman to become surety 
 for a few hundred pounds, the amount, it may be, of his 
 whole year's stipend, for some pious and plausible rogue ; 
 and that the unhappy vicar has in the end to make good 
 the debt. In such a case, if he has no property to fall 
 back upon, the result must be either immediate ruin, or 
 some arrangement for deferred payment, which will 
 make him a struggling man for life.
 
 LET. XIV.] Personal Security. 93 
 
 Poor F with his salary of ;^2 50 a year, a wife and 
 
 half-a-dozen children, how is he to find the i^200 for 
 which he became surety for his brother-in-law, in whom 
 he had a boundless faith, and who has just filed his 
 petition and won't pay five shillings in the pound ? 
 
 If therefore you would have a business conscience 
 void of offence, you will strive to minimise, if you can- 
 not quite avert, such wretched possibilities in the future.
 
 LETTER XV. 
 
 COLLATERAL SECURITY. 
 
 He that lendeth to all that will borrozve, sheweth great good 
 will, but lyttle witte. Lend not a penny without a pawne, for 
 that will be a good gage to borrowe. Euphues. 
 
 The samples of collateral security which you have 
 selected for discussion, do not admit of treatment as a 
 group. They are so various in quality, and fruitful of 
 suggestion, that it will be necessary to deal with each on 
 its merits. 
 
 Deposit of Title Deeds. You hold the title deeds 
 of the farm of Greenfields as cover for an advance of 
 ;^2000 to the owner, Mr. Miles Thornton. Your pre- 
 decessor reports on the transaction : — ' Mr. Thornton is 
 needy: but the property is amply worth ;^2500.' 
 
 Mr. Littleworth does not explain how he arrived at 
 this valuation. He may possibly have yielded to his 
 easy way of looking at things, so that it would scarcely 
 be a surprise, if the valuer in this case should prove to 
 have been Mr. Thornton himself 
 
 As regards the important question of title, the deeds 
 have not been examined, it appears, by the solicitors of 
 the Bank. Mr. Littleworth was satisfied that the deeds 
 must be in order and the title perfect, because the 
 property had been in the possession of the Thorntons 
 for more than a century. 
 
 But this assumption might involve more than one 
 serious fallacy. It is possible, for example, that the 
 property may be subject to settlements and other 
 94
 
 LET. XV.] Collateral Security. 95 
 
 charges, the instruments creating which need not 
 accompany the title deeds, nor be accompanied by 
 them. 
 
 Again : the name of your client has probably run in 
 the family for generations, so that the mere name, — the 
 Miles Thornton of the deeds, — may be that of some 
 paternal ancestor : in which event, for anything that Mr. 
 Littlcworth knew to the contrary, Mr. Thornton may 
 prove to be his own grandfather. 
 
 Once again : — in the case of so old a title, it is pos- 
 sible that one or other of the deeds may have been 
 mislaid or lo.st ; a fact of which Mr. Thornton himself 
 may be ignorant. But such a mischance would make a 
 flaw in the title, which might render it impracticable for 
 you to realize the property. 
 
 As a further excuse for not having the deeds properly 
 perused by the Bank solicitors, whereby all these un- 
 toward possibilities would have been set at rest, Mr. 
 Littlcworth had a feeling that Mr. Thornton would not 
 have submitted to the expense. But on this ground, 
 Mr. Thornton might with equal reason have demurred 
 to paying interest on the advance. This gentleman came 
 to borrow ^2000 from the Bank on certain conditions ; 
 one of which was, that the advance should be covered by 
 deeds of property of sufficient value. He could not in 
 reason assume, that the Bank would take his deeds ' in 
 the lump,' without even looking at them, as a security 
 of proved value. Would Mr. Thornton have lent money 
 of his own, on the security of a brown paper parcel, pur- 
 porting to contain deeds of sufficient value to secure re- 
 payment of the money lent ? 
 
 But Mr. Thornton is an honourable man and inca- 
 pable of stating an untruth ? With all submission that 
 is not the question. There may be a missing link in the 
 title, as we have said, without his knowledge. If instead 
 of deeds, Mr. Thornton had brought money in a bag, and 
 stated that it contained, in all, a couple of thousand 
 pounds, which he desired might be placed to the credit 
 of his account ; would he have felt his honour touched
 
 96 
 
 The Country Banker. 
 
 [let. XV. 
 
 or his veracity impeached, if Mr. Littleworth had 
 proceeded there and then, which without doubt he 
 would have done, to tell over and verify the contents of 
 the bag ? 
 
 In banking you take nothing for granted, of which 
 the proof is within reach. Whatever may be the point 
 on which you seek assurance, there is no excuse for your 
 resting on assumption, when you can fortify your judg- 
 ment by the superior logic of facts. 
 
 But let us assume that Mr. Thornton has a good title 
 to the property, that it is free from incumbrance, and 
 that you have a good equitable lien upon it. In the 
 event, then, of his inability to repay the advance, — will 
 you be in a position to recoup yourself the i^2000, plus 
 interest and charges, with reasonable certainty and 
 despatch ? 
 
 You have first to obtain power of sale. You have to 
 persuade Mr. Thornton to concur in a sale, — if you can 
 overcome a man's natural repugnance to part with a 
 property which has been in his family for generations. 
 Or you may induce some other creditor to make him 
 bankrupt. Or lastly, you may file a bill against him in 
 Chanceiy. Such are the courses open to you, when you 
 seek to realize your security — under what the law, wnih. 
 pleasant irony, styles an ' equitable ' mortgage. 
 
 But the right to sell and convey being obtained, by 
 persuasion, or bankruptcy, or a Chancery suit, you are 
 not to conclude even then, that your path to realization 
 is finally cleared of obstruction. Even on the suppo- 
 sition that the valuation of the property on which you 
 have relied is not excessive — it will be known to all 
 Oxborough that the Bank is the seller. Traditions of 
 fabulous bargains made at sales of property by banks, 
 will demoralize intending buyers ; and the highest bid 
 at the sale may not be within speaking distance of your 
 reserve : you will buy in the property in disgust, and 
 become mortgagee in possession, and receiver of the 
 rents, — subject to leave of Chancery. 
 
 What the net amount of these will be, after deduc-
 
 LET. XV.] Collateral Security. 97 
 
 tions for repairs, additions, and what not, no man car 
 tell. But the fact that the tenants have a joint stock 
 bank for their landlord, will no doubt have a stimulat- 
 \\\<g effect on their requirements ; and the result will 
 be dispiriting, regarded as a rate of interest on your 
 debt. 
 
 But this will be a point of minor importance. The 
 leading fact to bear in mind is this — that so long as you 
 retain possession of the property, the money you have 
 advanced upon it is as effectually locked up and unavail- 
 able for your ordinary business purj:)0ses, as if it were at 
 the bottom of the Pacific. You cannot discount bills, or 
 make fresh advances, or cash cheques, or pay deposits 
 with title deeds, however valuable they may be. They 
 must first be turned into money by public sale or private 
 treaty. The process may be distasteful and cause the 
 loss of a portion of your debt : but better have the living 
 money back again in your coffers, even at a sacrifice, 
 than tied up beyond the reach of use, and yielding a 
 return, varying with the seasons and the voracity of 
 tenants, from three per cent, per annum, to within sight 
 of nothing. 
 
 The laws which regulate the devolution, sale, and 
 transfer of real property in England, involve processes 
 so tedious and complicated, and so fertile of cost and 
 risk, that real estate is rather shunned than sought after 
 as a cover for debt by many English Banks. For the 
 bulk of their advances they give the preference to 
 securities, the transfer of which is easy and inexpensive, 
 and without complication or risk in title, — securities 
 which, for the most part, can be turned into money on 
 any account day throughout the year. 
 
 And bankers will continue to give the preference to 
 such securities until something is done to facilitate 
 and cheapen the sale and transfer of real property in 
 England. That lands or houses can be rendered as 
 easy of transfer as a share in a railway, or a bill of 
 exchange, or a ten pound note, is not to be supposed ; 
 but that the conveyance, as it too frequently obtains, 
 7
 
 98 The Country Banker. [let. xv. 
 
 could be shorn of its obscure verbiage, ridiculous tauto- 
 logy, and bewildering length, ordinary people believe to 
 be within the sphere of rational hope, and not beyond 
 the limits of human capacity. 
 
 Much has been done, no doubt, in this direction of 
 late years. The form of mortgage, for example, in use 
 at your Branch, in lieu of the old ' memorandum of 
 deposit,' is printed on the face of half a sheet of ordinary 
 letter-paper. It has proved as effectual at law, never- 
 theless, and in all other respects, as if it covered five 
 skins of parchment, like the mortgage of forty years 
 back for £1^0, and costing ;^25,* — a monstrosity in 
 legal form now happily sharing oblivion with the ancient 
 unity of Doe and Roe, and other eccentricities of our 
 legal past. 
 
 Railway Stock. We come next upon what may 
 properly be termed your champion sample of banking 
 cover — £1000 London and North Western Railway 
 Stock, present market price ;^i625, to cover loan of 
 ;^I400 for three months to O. D., — Stock registered in 
 name of the Bank. 
 
 This fulfils every requirement of a first-class banking 
 security. It affords to a lender, simplicity of title, 
 cheapness and ease of transfer, readiness of sale, 
 reasonable steadiness of value, and ample margin for 
 loss. 
 
 In the matter of title, that of railway shares is a 
 marvel of clearness and brevity. It does not require 
 weeks or months to deduce and ' settle ; ' nor several 
 skins of parchment for its laborious recital, in a language 
 which is devious and obscure except to the legal mind. 
 The deed by which railway shares are conveyed from 
 one man to another, is printed on the face of half a sheet 
 of paper, and is so simple in construction, that one of 
 your senior apprentices might fill up and perfect the 
 
 * Bullion's Letters, p. 69.
 
 LET. XV.] Collateral Security. 99 
 
 instrument in a few minutes. And the document thus 
 perfected, will suffice to convey and transfer the stock 
 to you, were it hundreds of thousands sterling, as in- 
 alienably as if it passed to you under the Great Seal 
 itself 
 
 The shares of a leading railway company are also 
 ready of sale. They can be turned into money, any 
 business day throughout the year, on any Stock 
 Exchange in the three kingdoms. They thus possess 
 one of the highest qualities of a banking security — 
 immediate convertibility into money at will. 
 
 They have the further quality of steadiness of value. 
 But apart from this, your advances on railway stock, as 
 in the present case, are protected against loss in value, 
 by your margin of 15 per cent., which the borrower is 
 bound by agreement to keep up: and if he fails to do 
 so, you can sell out against him. A loss upon such 
 transactions is therefore impossible, unless we are to 
 imagine a financial convulsion, which shall topple North 
 Westerns down more than ;i^22 \os. per ;^ioo of stock 
 in four-and-twenty hours. 
 
 And there is yet another point in favour of this 
 description of security. The shares are paid up in full, 
 and therefore no liability in the shape of calls, or in 
 any other form, can ever attach to them. Were the 
 London and North Western Railway to stop payment 
 to-morrow, the holders of its shares would not be liable 
 for a shilling of its debts. 
 
 In brief, the ordinarj'', or preference, or debenture 
 stock of any leading English railway company, is only 
 second in quality, as a banking security, to Consols or 
 Treasury Bills themselves, in readiness of sale, facility 
 of transfer, steadiness of value, and absence of liability. 
 
 Securities to Be.\rer. Amongst your securities 
 are certain bonds and debentures payable to bearer. In 
 stability of value, and readiness of sale, they stand high: 
 but they are open to a serious objection : if stolen, they
 
 lOO The Country Banker. [let. xv. 
 
 would be as difficult of recovery as so many bank notes. 
 All other forms of security you can register in the name 
 of the Bank, or specially indorse in its favour ; so that, if 
 abstracted, they could not be negociated by the thief, and 
 would therefore be of no use to him. But there is no 
 way of protecting securities payable to bearer, by regis- 
 tration or indorsement, from negociation. This being 
 so, it follows that the less you hold of them the better : 
 and if you decide to hold none, it will be better still : 
 at least until some method can be devised, which shall 
 render them unnegociable, equally with other forms of 
 security, in case of misappropriation or theft. 
 
 And this leads to the question, — whether a bank, which 
 gives safe custody to this class of security for a customer, 
 is responsible to him, in the event of its being stolen. 
 If so, the simplest way will be to decline the safe 
 custody of such ' perilous stuff' altogether ; or to accept 
 the charge on such terms, as will exempt the Bank from 
 responsibility, whether arising from burglary from without 
 or from' fire or malversation from within. 
 
 You cheerfully give to all other forms of documentary 
 Securities, belonging to your clients, the same protection 
 which you give to your own, and will continue to do so : 
 because if stolen they would be incapable of transfer : 
 but if certain of your customers choose to invest in 
 ' bearer ' securities, with their unlimited capability of 
 swift and secret transfer, and consequent attractions for 
 the misdemeanant, it is beyond reason to cast upon 
 Bankers the formidable risk which is involved in their 
 safe keeping. 
 
 Transfers in Blank. In some instances you are 
 content with a deposit of railway or other shares, 
 bonds or debentures, accompanied by a transfer in 
 blank. Where you are dealing with parties whom you 
 know to be safe, beyond all question, for the advances, 
 without security, this is an irregularity which may have
 
 LET. XV,] Collateral Security. loi 
 
 to be winked at in some cases : but it must be strictly- 
 exceptional. 
 
 An imperfect security is no security at all while it 
 remains imperfect. It is open to the further objection, 
 that in the manifold transactions which you will have 
 to conduct or supervise, day by day, you may forget, 
 unless you have a memory of superhuman range and 
 tenacity, which of your securities are perfected and 
 ■which are not. You may thus by inadvertence deal 
 with a customer's account as covered, until you receive 
 a painful refresher to the contrary, some day ; and find 
 yourself compelled to hand your uncompleted security 
 over to his assignee in bankruptcy, to sink into his 
 general estate. 
 
 There is this further objection — Companies' stock, 
 accompanied by a transfer in blank, may expose you to 
 as certain loss, if misappropriated or stolen, as an equal 
 value in 'bearer' securities ; because a thief could make 
 immediate use of an instrument so admirably adapted 
 for his purpose, as a stamped transfer in blank, accom- 
 panied by the scrip itself The transfer thus affably left 
 open to be filled up as he shall see fit, amounts almost 
 to an invitation to perfect his felony. It is at least 
 certain that you could not furnish him with a more 
 effectual means to that end. 
 
 When there is more than one cash safe at a Branch, 
 the scrip could no doubt be kept in one and the trans- 
 fers in another, and the bonds and coupons of bearer 
 securities might be kept separate from each other by the 
 same arrangement. This would afford a certain amount 
 of protection against external attack. It would put a 
 burglar to the e.xtra trouble of forcing a couple of safes 
 instead of one ; but if he should ever gain access to 
 either, he will probably have made his arrangements to 
 include both in the night's work. 
 
 I assume that when you make advances as against 
 transfers in blank, to suit the humour or the suscepti- 
 bilities of customers, yoii do so on the understanding that 
 the security is held by you at their risk in case of fire or
 
 I02 The Country Banker, [let.xv. 
 
 theft ? You hold the security in its imperfect form to 
 oblige them, and in violation of your general usage : it 
 is only reasonable, therefore, that the risk thereby 
 involved should be theirs, and not yours. 
 
 Local Shares. The next sample of your securities, 
 although of some steadiness in value, is less negociable 
 than railway stock : — Fifty shares in the Oxborough 
 Water Works, to cover account of F. G. 
 
 ' The shares are fully paid up : transferred into the 
 Bank's name; they pay 4| per cent, and the last sale 
 was slightly above par. 
 
 So far so good. They possess all the qualities of 
 a sound banking security except one : you cannot send 
 them to the nearest Stock Exchange and have them 
 turned into Bank notes next account. You must wait 
 for a^ local buyer, and this may mean weeks, or even 
 months of waiting. Any attempt to force a sale 
 would probably be futile, and would certainly be detri- 
 mental to your security. The more you lower the price, 
 the more the hidden purchaser, if there be one, will 
 hold aloof He will mark your eagerness to sell and 
 prevail against you by a masterly inactivity ; unless you 
 change your tactics and play the waiting game yourself. 
 If there is no urgency in the case, your retention of the 
 shares will not involve the Bank in any liability. Better, 
 therefore, wait a month or two for a willing buyer, than 
 surrender them at once on usurious terms to some local 
 Shylock. 
 
 The objection to your Water Works shares, that is, 
 their unreadiness of sale, applies to the shares or deben- 
 tures of all merely local Companies, Corporations, or 
 Trusts which are not quoted on the price-list of any 
 Stock Exchange ; and the objection extends to securi- 
 ties of every description, which can only be disposed of 
 by private sale, or public auction.
 
 LET. XV.] Collateral Security. 103 
 
 Shipping Securities. Your next example brings us 
 to the consideration of securities, in our appraisement of 
 which, it is possible that we may find ourselves at sea in 
 more senses than one: — 'Mortgage on barque Rapid, 
 estimated value ^2500, to cover debt of ^^1700 by L. M. 
 now insolvent.' 
 
 This might be a good security to a shipowner, or 
 shipbroker, because it is his business to know all about 
 shi})s, and to devote his whole time and energy to the 
 working of them to the best advantage. But to do so 
 with success, requires half a lifetime of business training, 
 and a store of special knowledge, of which, to say you 
 are well-nigh destitute, would be no reflection on your 
 general qualifications as the Manager of a country 
 bank. 
 
 The Rapid, it appears, is now on a distant voyage, 
 and is being worked on account of the Bank. It may 
 be that the vessel will return after many days, with a 
 skilful captain, a steady crew, and a splendid freight. 
 But it is also possible that the reverse of all this may 
 happen. A disorderly crew, a ruinous freight, and a fool 
 for captain, would not be an unknown experience to the 
 British shipowner. 
 
 Amongst other things, you may have to meet claims, 
 or defend law suits, brought against you by shippers or 
 consignees, for damage to cargo, occasioned through 
 the carelessness of captain or crew, or through bad 
 stowage. 
 
 It is also within the range of possibility that the ship 
 may run aground in a fog, or sustain damage in a gale, 
 and have to put in for repairs at some foreign port. She 
 may thus get 'bottomried' to a formidable amount: 
 but whatever the amount may be, it will take precedence 
 of your mortgage : and if the sum bottomried shall 
 exceed the value of the ship, the Bank will be liable for 
 the deficiency. It might thus happen, that the mort- 
 gagee in possession of a ship, might lose not only the 
 amount of his mortgage, but find himself exposed to 
 further charges. He may not only have to forfeit the
 
 I04 The Country Banker. [let. xv. 
 
 money he has lent, but find himself amerced for having 
 lent it on a precarious security. 
 
 Moreover, the Rapid may some day, by evil chance, 
 run into and damage another vessel, or even sink her 
 outright : in which event you will have to reckon with 
 the law for the injury done, and possibly for the loss 
 of human life. 
 
 No doubt these and other risks can for the most part 
 be covered by insurance : but is the game worth the 
 candle ? Is the periodical disbursing and manning, 
 victualling and insuring, loading or chartering of a ship 
 the proper business of a Bank Manager, or his Board 
 of Directors ? Will any rate of banking charge which 
 you can levy on such transactions, amount to a reason- 
 able equivalent for the time wasted or the temper 
 lost over their attendant wrangles, risks, and worries ? 
 Better in my judgment sell the Rapid on her first 
 arrival in port at almost any price, and thus avoid the 
 pains and penalties which the pursuit of shipowning 
 has ordinarily in store for the uninitiated. 
 
 In addition to owning the whole of the Rapid you have 
 an interest to the extent of 8-64ths in another vessel at 
 sea. There is one advantage in your holding only a share 
 in a ship : your Board will not be allowed to work her 
 — she will be managed by your co-owners. But there 
 is this disadvantage : — When you own the whole of a 
 ship, as in the case of the Rapid, you can sell her at any 
 time, at a price : but you cannot so easily dispose of 
 the fraction of a ship. 
 
 If you succeed in selling it at all, it will probably be 
 to one of your co-owners : but it will be at his own time 
 and price, and not at yours. You will then realize the 
 disparity which is sometimes found to exist between 
 value and price : betwixt the value put upon a certain 
 thing by its owner, when he comes to borrow your money, 
 and the price at which you have to part with it, when 
 you want the money back again. 
 
 And there is this further disadvantage in owning only
 
 LET. XV.] Collateral Security. 105 
 
 a few shares of a ship : you are entirely in the hands of 
 your co-owners and liable for any amount of debt in 
 which they may involve the vessel. On the whole, I 
 think, as a banker, I would part with these 8-64ths on 
 attractive terms to the first buyer. 
 
 ' Bill of Lading of hides to secure ^1450 advanced 
 to Arthur Pringle.' 
 
 You hold the stamped policy of insurance, duly 
 indorsed : and the present market value of the hides is 
 ^1800. On the presumption that you hold the entire 
 set of bills of lading, and that there will be no stopper 
 put on the delivery of the hides on arrival of the ship, 
 and that they are of a quality to realize the price you 
 quote — although it is going a long way to assume all 
 this — you appear to hold sufficient security to cover 
 your advance. 
 
 But it is the business of a broker to make advances on 
 merchandize at sea, and you will do wisely to leave the 
 business to those who understand it. The custom of 
 merchants, or the intricacies of mercantile law, do not 
 necessarily form branches of a country banker's educa- 
 tion. A smattering of such knowledge will come to you 
 no doubt in time : and will be unobjectionable, so long 
 as you do not act upon it. If you do, you are more 
 than likely, to use a popular expression, to put your foot 
 in it. 
 
 In the case in hand, the regular course would have 
 been for Mr. Pringle to place the bills of lading in the 
 hands of a broker of repute, and to draw upon him for 
 the;^i45o; obtaining from the acceptor a letter hypo- 
 thecating the proceeds to payment of the bill. 
 
 But as this course was not followed, it is to be inferred 
 that Mr. Pringle objecte-d to it. He preferred, no doubt, 
 to borrow the money through you, at your ordinary rate 
 of commission, rather than obtain it through a merchant 
 or broker at more than twice \^our charge. This was 
 only natural. Mr. Pringle would have been foolish not
 
 io6 The Country Bmiker. [let. xv. 
 
 to avail himself of your liberality. But on what ground 
 a Banker should conduct transactions, of which he 
 knows little or nothing, for one-half the commission 
 which would be charged upon them by those who know 
 them perfectly, is not so obvious. 
 
 But Mr. Pringle, you explain, is a man of substance, 
 good for many times the worth of the hides, and a 
 valued customer of the Bank in other ways. These 
 considerations, no doubt, change the aspect of the affair, 
 and render a transaction allowable, which would be less 
 defensible on its own merits. 
 
 House Property. You hold a ' First Mortgage on 
 twenty, cottages in Oxborough, gross annual rental 
 i^200, to cover the account of Owen Pegler for iJ"2000.' 
 
 It was considered safe, you report, to take the annual 
 rental at ten years' purchase, to find the value of the 
 property. Pegler has failed, and you have been mort- 
 gagees in possession for some years. A house-agent 
 collects the rents on account of the Bank, as best he 
 can, but his latest report is discouraging : — one third 
 of the cottages empty : half the tenants more or less in 
 arrear of rent : the interior of most of the houses sadly 
 dilapidated : roofs leaking : plaster falling off the walls : 
 windows broken : doors oft" their hinges or refusing to 
 shut, and the sanitary arrangements bad and dangerous 
 to health. A whole year's gross rental will not suffice 
 to put things in decent repair. 
 
 I would part with this property, if it were mine, at 
 less than ten years' purchase of the nominal rental. 
 Even the net rental, if that were a known quantity, 
 multiplied by ten, would have been an outside value to 
 have put upon it — that is on the supposition that a bank 
 ought ever to be the holder, at any price, of property, 
 the rents of which have to be collected, by so many 
 shillings a week, from poor and struggling tenants, if the 
 rents are to be collected at all. 
 
 House or shop property, even of a superior class, is
 
 LET. XV.] Collateral Security. 107 
 
 not a desirable security, on its own merits, for a bank to 
 hold, if it wore merely on the ground of its uncertainty 
 of sale. The ordinary purchasers of house or shop 
 property, by which I mean buyers for their own occupa- 
 tion and use, have their fancies, and are limited in 
 number; and failing a purchaser of this class being in 
 the market, when you have an eligible shop, a detached 
 residence, a double villa, or a desirable block to dispose 
 of, you have to resort to the dealer in house property 
 and equities, who will naturally protect himself by a 
 handsome margin, if he buys at all ; and the price finally 
 agreed upon will be nearer his ideas of value than 
 yours. 
 
 Not that this description of security is uniformly to be 
 rejected. You allow C. B., for instance, to overdraw his 
 account, at any time, up to a certain sum, because his 
 balance-sheet shews him to be safe for more than the 
 amount, and the account is profitable : but as a matter 
 of precaution, you take the title deeds of his house 
 and shop, as a security to fall back upon, in the event 
 of misfortune overtaking him amidst the unforeseen 
 vicissitudes of trade.
 
 LETTER XVI. 
 
 SECURITIES WHICH ARE NOT SECURITY. 
 
 / trusted so much that I solde the skiime before the beaste was 
 taken, reckoning without mine hoast, and setting that dotan in my 
 bookes as ready money, winch afterwards I found to be a desperate 
 debt. EuPHUES. 
 
 Your sample of Securities does not improve in 
 quality as we proceed : on the contrary, the tendency in 
 that respect is downwards. 
 
 Life Policies. You hold a policy on the life of Noah 
 Hardy for ;^3000 to secure balance of account. The 
 present value of this security is some ;^I50, or one third 
 the amount of premiums thus far paid upon it. Its pro- 
 spective value depends upon the period of Mr. Hardy's 
 demise. Should that be the unhappy result of your calling 
 upon him to pay up, the security will be available to its 
 full amount, in a few months afterwards, provided the 
 policy has been assie^ned to the Bank and notice thereof 
 registered in the books of the Insurance Company. 
 
 But the inability to pay a sum owing to a bank has 
 not ordinarily a fatal effect on the life of the debtor. 
 As a matter of fact, the records of your Bank, would 
 rather seem to shew that the average rate of mortality 
 is unusually light, amongst parties indebted to the Bank 
 on the strength of Life Policies. In cases, indeed, where 
 the premiums are paid by the Bank, the debtors fre- 
 quently reach a patriarchal age. 
 
 Whether, as you suggest, the interests which they 
 know to be involved in their speedy departure from this 
 108
 
 LET. XVI.] Securities which are 7iot Security. 109 
 
 life, have the effect of rousing an oppiignant and un- 
 reasonable spirit on the part of the assured, which gives 
 a fillip to their constitutions and promotes longevity, is 
 a speculation which we need not pause to discuss : it is 
 enough for the purpose in hand, that, in one instance, 
 you are still paying the annual premium on a policy 
 which your Bank adopted to cover a bad debt thirty- 
 eight years ago. If you will put the matter to compu- 
 tation, you will find that so far from saving, you have 
 thus more than doubled the original amount of this 
 venerable debt. 
 
 The payment of the premiums on Mr. Hardy's policy 
 as they fall due, being guaranteed by another person, no 
 doubt improves the value of your security : but the 
 improvement is only a contingent one. To be effectual, 
 it requires that the guarantor shall live, and continue 
 solvent, for five-and-twenty years to come. That is the 
 official period that persons of Mr. Hardy's present years 
 and robust constitution are computed to live, and within 
 which they are officially expected to die : but surely a 
 prodigious period of time for any banking ad\'ance to 
 run ? Three months being the approved average cur- 
 rency of the available resources of a bank, a debt having 
 five-and-twenty years to run, regarded as a banking 
 asset, might as well have a currency of centuries or 
 accomplish the years of Methuselah. 
 
 If Mr. Hardy had offered the Bank for discount his 
 promissory note at si.K months after date, even in the 
 most lax and easy condition of the money market, the 
 Bank would have taken it with a grudge, if at all, and 
 as an exceptional transaction : but in making Mr. Hardy 
 this advance upon his Life Policy, the Bank virtually 
 discounted for him his promissory note at so many 
 months after death. 
 
 Bills of S.\le. You hold from Feli.K Addler as 
 security for his account, a Bill of sale over his stock in 
 trade, etc. for ;^6oo.
 
 no The Country Banker. [let. xvi. 
 
 The value of the stock is set down at iJ"iooo : but 
 if another cipher were added to the figures, the security 
 would still be one of the most rickety in law, and the 
 worst in character, which a bank could hold. A security 
 over stock in trade, or furniture, or live stock, or imple- 
 ments of trade, or other articles which are portable, and 
 may be removed, exchanged, or otherwise disposed of to 
 any extent without your knowledge, is practically no 
 security at all. You might as well select a shifting sand, 
 as a foundation to build a house upon ; or have taken 
 a permanent charge upon the coin in Mr. Addler's 
 pocket, for all the certainty you can have that the 
 articles will be forthcoming when required. 
 
 Second Mortgage. Your next specimen is ' Second 
 Mortgage for ;!^I500 on house property in Oxborough: 
 to secure the account of Ephraim Raddle.' The valua- 
 tion of the property is ;^50oo and the first mortgage is 
 for ;^3000. The surplus, or equity, has been mortgaged 
 to your Bank for ^1500. 
 
 Now the considerations which guide a private lender 
 in such matters, ought to have at least equal weight with 
 a banker. If it would be imprudent in an individual to 
 lend more than a certain sum on a given property, it is 
 difficult to understand how it could be prudent in a 
 bank to do so. 
 
 In Mr. Raddle's case, we may take it for granted that 
 he raised all he could on the property, in the first 
 instance. If anyone would have lent him more than 
 ;^3000 upon it, it is not to be iriiagined that he would 
 have refused the increase. Apart from the question of 
 expense, he had no doubt experienced how hard a thing 
 it is to find capitalists who will lend money on the 
 second mortgage of anything. We must therefore regard 
 ;^3000 as the maximum which any prudent lender saw 
 his way to advance upon the property, and this being so, 
 the question arises, — On what ground did the Bank make 
 a further advance upon it of ;^1500 ? According to the
 
 LET. XVI.] Securities which are not Security. 1 1 1 
 
 valuation, it is true, there ouijlit to be sufficient value in 
 the property for you both, — enough to pay off the first 
 mortgagee and yourselves afterwards. 
 
 But valuation is not synonymous with value. Valua- 
 tions are commonly arrived at, by multiplying the net 
 rental of a property by so many years' purchase, accord- 
 ing to a scale which has no fixed basis, but is purely 
 arbitrary. 
 
 Moreover, there are varieties of valuers. Some are more 
 sanguine of view than others. One will put a higher 
 value on a giv^en property than another would. In this 
 particular, each valuator has his own scale and method 
 of appraisement and is a law unto himself. Properties, 
 when brought to the hammer, do sometimes realize the 
 valuation put upon them, but they more frequently yield 
 very mucli less. 
 
 When a man therefore advances money on the mort- 
 gage of a property, he usually makes a large mental 
 deduction from the sum of the valuation. The question 
 for him is not its regulation value, but its market price, 
 — the sum it will realize if brought to the hammer. 
 
 In the present case the lender mentally deducted 
 ;^2CXX) from the valuation, to find the amount it was safe 
 for him to lend. He therefore regarded two-fifths of 
 the valuation as partaking of the quality of moonshine, 
 except as affording him a margin for contingencies. If 
 he was correct in this, you would seem to hold a legal 
 mortgage for ;^ 1 500 on a value which has its principal 
 basis in the imagination. 
 
 It may be that the lender has undervalued the 
 property : but you have to recollect that he has no 
 interest in its selling for more than will recoup his 
 advance, plus interest and costs. He can moreover sell 
 at his own time and at any price, without regard to you 
 or your second mortgage, unless you choose to step in 
 and pay him off. You will thus get the control of the 
 property into your own hands : but you will at the same 
 time add ^^"3000 to the already dubious debt of Ephraim 
 Raddle.
 
 112 The Country Bajiker. [let. xvi. 
 
 Not that there is never any value in a second mort- 
 gage. A second charge for ;^I500, for example, on Mr. 
 Starkey's estate, a property worth ;i^2O,00O, might safely 
 follow the only previous charge upon it of ^^5000. But 
 there is this further risk attendant on second mortgages, 
 — Mr. Raddle, for example, might execute a third mort- 
 gage to somebody else, and this third claimant on the 
 property might pay the first mortgage off, and tack his 
 own claim on to it, in advance of yours. He who was 
 third and last would thus become first and foremost, 
 whilst you would be practically nowhere. 
 
 I am informed and believe that in this I am correctly 
 stating the law of the matter — with certain qualifications ; 
 but do not in this, or any other matter, take the law 
 from me. This is not a legal treatise: I have purposely 
 abstained, as far as it was possible, from referring to 
 points of law, because, for one reason, I am not a 
 lawyer; and because for another, the perennial manu- 
 facture of fresh laws by the legislature is so persistent 
 and profuse, that even the Judges of the land, it is said, 
 can hardly keep pace with them. 
 
 Not that I would discourage your careful study of the 
 general principles of the law, as they concern the ordi- 
 nary transactions of your business, because you will 
 have occasion for the exercise of such knowledge day 
 by day. It is not essential to this end, however, that 
 you should commit to memory the whole of Blackstone's 
 Commentaries, or even Chitty on Bills of Exchange — a 
 treatise which covered a thousand pages of stiff reading 
 even forty years ago. There are handier works than 
 these now-a-days, the study of which will suffice for all 
 practical purposes ; but inasmuch as English law, as we 
 have just said, in its bearings on banking usage and on 
 banking forms, is subject to frequent change, I would 
 counsel you to be guided in every case, where there is 
 any legal doubt or difficulty, by the solicitors for the 
 Bank. The Bank Manager who shall act exclusively 
 upon his own reading and interpretation of English law
 
 LET. XVI.] Securities which are not Security. 113 
 
 in these days can hardly fail now and liicn to have a 
 fool for his client. 
 
 Building Land. Following the downward tendency 
 of your selection of securities in point of quality, we come 
 next to — 
 
 ' Five thousand square yards of building land, with 
 houses thereon, as security for advances to Bricknal & 
 Co., Builders.' 
 
 Your history of this account is instructive: — 
 
 ' At the date of the original advance the land was 
 looked upon as ample security, being admirably situated 
 for residential property of a good class. 
 
 ' When the Bank applied to the Bricknals for repay- 
 ment of the original advance of iJ"iooo, they stated that 
 if pressed just then they must suspend: whereas if the 
 Bank would enable them to build on the land, by 
 making them further advances, they saw their way to 
 clearing off the old debt and everything else with 
 ease and promptitude. The proposal was entertained, 
 and Excelsior Crescent was commenced. The Bank 
 advanced two-thirds the certified value of work done, 
 and everything went swimmingly. The first block, 
 when completed, was readily mortgaged by the 
 Bricknals for enough to repay the fresh advances made 
 by the Bank, as well as to effect a substantial reduction 
 in the old score. Consequent upon this success, two 
 additional blocks were started without delay : but 
 when these were less than halfway to completion, the 
 Bricknals collapsed, and the Bank was left with two 
 large piles of unfinished property which it had either 
 to complete or abandon. We decided to complete, and 
 the last stage of the Bricknals' account was worse than 
 the first." 
 
 There is nothing surprising in that. When a Board of 
 Directors takes in hand to finish half-built blocks of 
 houses under their own supervision, they have generally, 
 to use a colloquial figure, to pay through the nose. They
 
 114 The Country Banker, [let. xvt. 
 
 may flatter themselves with the hope that the property, 
 when finished, will sell for such a sum as will repay their 
 fresh outlay and extinguish the original debt : the more 
 sanguine may even speculate on a handsome surplus, to 
 go to the reserve fund. 
 
 It will not be till they have cast the accounts up and 
 realized the total cost of their amateur adventure in 
 house-building, that the truth will reveal itself, — that 
 they had far better have left the half-built structures to 
 go to ruin where they stood, and the original debt to 
 perish with them. 
 
 You hold another plot of building land, on which no 
 messuages have been erected as yet, by yourselves or 
 anyone else. At the time the Bank took the land as a 
 security for a certain account, the town, you explain, 
 was rapidly extending in that direction. That is now 
 thirty years ago, and the town, it seems, has stretched 
 entirely the other way ever since. 
 
 Your field of two acres, or 9680 square yards, which 
 was looked upon at the time as ridiculously cheap, at 
 half-a-crown a yard, you let for some years as town 
 pasturage, at a few pounds a year rental, whilst waiting 
 for the purchaser who never came ; but the fencing so 
 constantly needed renewal, and when renewed was so 
 promptly carried off, to be used as fire-wood by the 
 predatory arabs of the neighbourhood, that you have 
 long since abandoned the attempt to keep it inclosed ; 
 and it is now a sort of no-man's land, a play-ground for 
 all the ragged urchins of the place, and the repository 
 for fragmentary pottery, stray brickbats, and general 
 rubbish. 
 
 Excepting shares in undertakings which involve 
 liability, it is difficult to imagine a more objectionable 
 security for a banker to hold. You can sell almost 
 anything else, at a price ; but unless it is actually wanted 
 by some person at the moment, for his own purposes, 
 you cannot sell building-land, unless you are prepared 
 practically to give it away. You might have sold the 
 land in question, it appears, many years ago, at some-
 
 LET. XVI.] Securities which are not Security. 115 
 
 thing less than the half-crown ; but to accept the offer, 
 was looked upon at the time by your authorities as 
 throw!n<j the property away, and the opportunity was 
 lost, never to return. 
 
 Has it occurred to you that the ^1200 locked up in 
 this security, if employed in your proper business, to 
 brincT in even 3;} per cent, per annum, would have 
 fructified by this time to £y^6o\ instead of shrinking to 
 a few miserable hundreds ? 
 
 For a Bank to hold this description of property, 
 for better times and a higher price, is virtually to 
 speculate in it. Its sale is of all things the most 
 uncertain, and the demand for it the most capricious. 
 There is not a town in England where you may 
 not find secluded plots of building-land, which the 
 tide of building has passed by on either side, from 
 no apparent cause, and left in abandoned sterility. 
 As a banker, you are a dealer in money, or in 
 securities readily exchangeable for money, and building- 
 land does not come within this category. It is 
 practically inconvertible into money on rational terms, 
 and ought therefore to have no place amongst a 
 banker's assets. 
 
 Buildings and Machinery. You held at one time 
 the deeds of the Atlas Forge to cover advances to 
 G. D. & Co. 
 
 'The firm,' you write, ' failed in 18 — , and when the 
 Bank came to realize its security, the whole of the 
 machinery, which formed its chief value, was claimed by 
 the other creditors, as belonging to the general estate. 
 The Bank resisted, but to no purpose. 
 
 ' After a prolonged and costly fight, we were finally 
 left in possession of the walls and roof — ' four naked 
 walls that stared upon each other ' — and the half-acre 
 of ground they stood upon. We appear to have lost 
 about three-fourths of this debt.' 
 
 Smelting works, or factories, or shipbuilding yards, or
 
 1 1 6 The Country Banker. [let. xvi. 
 
 rolling mills, or blast furnaces ; or works of any descrip- 
 tion, where the chief value consists of machinery, plant, 
 and implements, which cannot legally be mortgaged to a 
 bank, or to anybody else, are securities of a class which 
 all prudent bankers will resolutely shun. 
 
 Whatever may have been the original cost of buildings 
 and machinery, or the value of any work as a going con- 
 cern — so soon as it ceases to be workable at a profit, its 
 value to a lender practically shrinks to that of the land 
 it stands upon, plus walls and roof, and the value in old 
 iron of the fixed machinery. 
 
 Securities involving liability. You hold, or 
 rather held, only two of these ; one of them having 
 happily been numbered long since amongst the things 
 that were. 
 
 Your first sample consists of ' Fifty shares of ;^50 
 each in the Nonpareil Porcelain Co., Limited, held on 
 account of the debt of Adrian Ware. 
 
 'Ware's debt of ^500 becoming doubtful in 18 — , the 
 Bank took from him such securities as they could get, 
 the above amongst the rest. There was at the time only 
 £^ paid up on the shares, and they stood at £^ premium, 
 and could have been sold at that price : but as the 
 Directors had private information that they would go 
 immensely higher, a sale was deferred. 
 
 ' We have since paid calls upon them amounting in 
 all to i^20 a share : no dividends have been declared for 
 years, and the payment of calls has had no effect on the 
 market price. It has been like the pouring of water into a 
 sieve : in fact there is no market price for them, and we 
 could not even give them away if we would. 
 
 ' The concern is heavily in debt, and the majority of 
 the shareholders are more or less incapable of paying any 
 more calls : so that there is a possibility of our having to 
 pay the remaining £2^ on each share, and thus add 
 another ;^I2 50 to our loss by Ware. 
 
 ' In seeking to save the original debt of ^^500, we have 
 lost it altogether, and stand to lose i^2000 besides.'
 
 LET. XVI.] Securities which are not Security. 117 
 
 There is a quiet force in this narrative which will find 
 its way to the heart of any banker, who has suffered from 
 a like experience; the moral of which would seem to be, 
 that in grasping at a security at the last moment, as 
 drowning men are said to catch at straws, a banker has 
 to beware that he does not clutch a liability instead. 
 
 Proceeding still from bad to worse, we finally arrive 
 at ' Lease of the Lower Deep Coal Mine,' — another 
 security, taken for another doubtful debt. ' We worked 
 the mine,' you report, *on our own accojjnt for a good 
 many years, but to no advantage. The quarterly state- 
 ment, it is true, always shewed a substantial profit : but 
 the debt to the Bank was all the while increasing, and 
 increased largely, from the time we took the mine into 
 our own hands. 
 
 If an adventure is shewing a steady profit, but is en- 
 larging with equal steadiness its debt to the bank which 
 is carrying it on, the probability is, that outgoings which 
 ought to be charged to revenue, are being charged to 
 capital instead. In this way the working of the most 
 disastrous concern can with ease and success be made 
 to shew a profit. The method is immoral, but it would 
 not be without precedent. 
 
 You only sought to work the mine, it seems, until you 
 could find a purchaser for it : but there is one reflection 
 with regard to this description of security, which you 
 will do well to lay to heart, and it is this, — that when a 
 bank takes upon itself the working of a mine, or a forge, 
 or a factory, or any other concern which has ruined the 
 original adventurer, it is a reasonable conclusion that 
 the Bank will not make a fortune by it. If a man can- 
 not succeed in a business, to which he has been trained, 
 and which he thoroughly understands ; it is beyond con- 
 ception how another person, or body of persons, who 
 know nothing about it, can hope to do so. 
 
 And the money loss which is the almost certain result 
 to a bank, which takes to mining, or any other descrip- 
 tion of business on its own account, is not the only draw-
 
 1 1 8 The Country Banker. [let. xvi. 
 
 back. To look after such concerns, diverts a large portion 
 of the thought and care, which the Directors and Manager 
 might otherwise apply with advantage to the proper 
 business of the Bank. 
 
 Nor is this all. A bank which elects to mine, or grind, 
 or smelt, or spin on its own account, converts every one 
 in the district, w'ho is following any of these lines of 
 business, into an active and outspoken enemy. Its man- 
 agement is derided, its losses are exaggerated, and its 
 intrusion on a field of enterprise not its own, is resented 
 as unfair, and Renounced as leading to destruction. And 
 those who believe all this and publish it abroad, will not 
 rest content with removing their own accounts from 
 such a bank. They wall use their influence to induce 
 their friends to do the same. The Bank will thus have 
 set itself, so to speak, to burn at both ends. At one 
 end there will be the loss of valuable accounts ; at the 
 other, the absorption of profits in a business alien to its 
 constitution. 
 
 But the worst evil of the thing is this — that once 
 fairly embarked in a Colliery or any other description 
 of mining adventure, the necessity for going through 
 with it gathers force with ^very fresh thousand sunk : 
 and a banker's 'alacrity in sinking' under such circum- 
 stances has passed into a proverb ; — One more shaft, one 
 short drift, a hundred yards to the main level, and fresh 
 leather to the pumps, and then — ! And then, in ninety- 
 nine cases out of a hundred, you find yourself precisely 
 where you were — plus the fresh addition to your debt. 
 
 'The fact was,' you further report, 'that if we had 
 allowed the mine to fill with water and the roofs to fall 
 in, and the* drifts to choke up, the penalties of the lease 
 were frightful ; and as for a purchaser after that, we 
 should have had to pay a tremendous bonus to anyone 
 who would take the thing off our hands. In short it was 
 a case of pump or sink.' 
 
 It would be difficult to visit with an excess of repro- 
 bation, the Board of Directors who should seek to save a 
 bank froni an impending bad debt, by the adoption of
 
 LET. XVI.] Securities which are not Security. 119 
 
 any security which involved a limitless liability. The 
 shares of any unlimited company, of what standing 
 soever, are not banking securities. That is not a secu- 
 rity, which may some day become an overwhelming 
 liability. 
 
 This must conclude your ' sample.' It embraces speci- 
 mens of banking security, ranging in quality from the 
 highest to the lowest : from the very best to the very 
 worst. As there can be no higher point reached in the 
 scale of quality than London and North Western Stock, 
 neither in the worst experiences of banking can there 
 be found a worse example than ' Lower Deeps.' There 
 are other securities on your register, which we do not 
 discuss, because they assimilate, more or less, to one or 
 other of the forms which we have dealt with, and are 
 to be gauged by the same rules, when you desire to 
 ascertain their relative eligibility as banking securities. 
 
 Glancing backwards over the various forms which we 
 have had under review, they would seem to require at 
 your hands, in dealing with them, a range of ability, an 
 e.xtent of knowledge, and a breadth of judgment, which 
 are given only to men of. phenomenal capacity. To 
 begin with, — you are a railway proprietor. That, how- 
 ever, may pass ; it is the only security which will make 
 no serious demand upon your time or attention. But if 
 matters go wrong with Mr. Thornton, you will have to 
 guard against the legal toils which await a mortgagee in 
 possession, or become the actual owner, and possibly the 
 cultivator, of a two hundred acre farm. You are the 
 chief moneyed partner in a porcelain business, with what 
 aptitude for that description of art manufacture does not 
 appear. You are managing owner of the barque Rapid, 
 although it is not in evidence what your maritime 
 experience has been, nor whether you could tell the 
 ship's stem from her stern-post. As a general broker, 
 you do a little in hides, and if misfortune should over- 
 take Seth Addler we may have a taste of your quality as 
 carpenter and joiner. 13anker, railway proprietor, land-
 
 1 20 The Country Banker. [let. xvi. 
 
 owner, potter, general broker, ship's husband and joiner 
 — the admirable Crichton himself would have hesitated 
 to undertake the management of Oxborough Branch. 
 
 It has to be said that the worst of your securities were 
 taken to cover advances which had already been made, 
 and had become desperate ; but that is no excuse. The 
 branch manager who shall seek to save the Bank from 
 loss on any given account, by the adoption of securities 
 which may become more fatal absorbents of money than 
 the account itself had been, betrays an ignorance of the 
 ordinary principles of banking which would be fatal now 
 a days to his obtaining a diploma for even a senior 
 clerkship in a bank from the Institute of Bankers,— an 
 institution, I desire to add in passing, which is designed, 
 and assuredly destined in my judgmentto exercise an im- 
 portant and wholly beneficial influence on the banking of 
 the future. To our banking youth, especially, membership 
 in the Institute should be a powerful attraction, because 
 its diploma will be more and more regarded by Boards 
 of Bank Directors as an extra feather in the cap of 
 those seekinp; advancement. 
 
 Note. — The reader is not to assume that the securities 
 criticised in this letter are a fair average sample of their 
 kind : nor even that, as a whole, they were ever held by 
 any one bank, or branch of a bank ; but that they, or 
 their equivalents, have figured, at one time or another, 
 amongst securities held by banks, is not a figment of 
 the brain, but a fact within the knowledge of the writer. 
 The worst of them, no doubt, belong to an extinct 
 Past : but their record may not be without instruction 
 for us, even in these more enlightened days of banking.
 
 LETTER XVII. 
 
 DEPOSITS AND RUNS. 
 
 Fancy is the castle coinmanding the city ; a?td, if once i?iefi' s 
 heads be possessed tvith strange imaginations, the whole body will 
 folloto and be infinitely transported thereioith. Fuller. 
 
 In common with other banks, you are ready at all 
 times to accept from people the use of money, for which 
 they have no immediate employment themselves ; and 
 who believe it will be in safer keeping with you, than in 
 the seclusion of their own pockets. You accept the use 
 of money also from persons in business, although they 
 have almost daily employment for it themselves, but 
 who prefer to place it in the Bank, day by day, rather 
 than trust it to the protection of their own tills or cash 
 boxes overnight. 
 
 The people who thus make you the custodian of their 
 floating cash, have a motive for so doing beyond the 
 attraction of receiving interest upon the money. They 
 reflect that, in the event of the bank being burnt down 
 or broken into and plundered, they have still the share- 
 holders to fall back upon to make their money good; 
 whereas, in the event of a personal experience of this 
 nature, they would have nothing to fall back upon but 
 the police. 
 
 The trader who retains ^^"50 in his own keeping 
 overnight, rather than pay a trifling commission to his 
 banker for taking charge of the money, and awakes to 
 find his till forced and the money gone, will hardly 
 account the operation a brilliant one, which has saved 
 him fifteen pence at the cost of fifty pounds. 
 
 Moneys placed by their owners in a bank, are in the
 
 12 2 The Country Banker. [let. xvii. 
 
 nature of loans, but not loans in the usual sense of the 
 term. The ordinary borrower applies to the lender, but 
 in your case, it is the lender who applies to you. The 
 borrower seeks to borrow, because he is in want of the 
 money ; but you are not in want of it, neither do you 
 go about seeking for it. If it is brought to you, you 
 can no doubt make use of it ; if it is not so brought, you 
 can do without it. There is no favour involved either 
 way. 
 
 Moreover, when an ordinary loan is sought for, it is 
 usually for a term of years, and involves a certain degree 
 of permanence ; whereas the loans tendered to you are 
 for terms measurable by months, weeks, or days, and 
 sometimes even by hours; and their feature is instability. 
 In brief, moneys placed with a bank are as much de- 
 posited for safe custody as lent, and hence for shortness, 
 the term applied to them — Deposits. 
 
 You separate your deposits into two classes — into 
 those which \'ou have to repay at any moment on 
 demand, and those which are not repa}'able without 
 previous notice. The former you pass to the credit of 
 parties on current account; the latter you place to their 
 credit on deposit receipt. These receipts are subject to 
 notice of withdrawal, ranging from a few days to a 
 calendar month, according to the usage of different 
 banks and localities. 
 
 In consideration of this proviso, you allow a higher 
 rate of interest on the money, than if it were repayable 
 on demand. 
 
 The more volatile class of your deposits, namely, the 
 balances of your current accounts, as we have said, are 
 payable on demand; but you have, no doubt, an under- 
 standing with your principal clients, that they will not 
 check upon you for large amounts, without previous 
 notice, however brief No doubt there are those who, 
 either from perversity or want of thought, omit this simple 
 act of courtesy, and will check upon you at times for 
 large sums without a moment's notice. Accounts of this 
 description will sometimes provoke the query, whether it
 
 LET. xvii.] Deposits a7td Runs. 123 
 
 would not be to your advantage, on the whole, if they 
 were taken elsewhere. It is evident that you can de- 
 rive but slight advantage from the use of balances so 
 capricious ; inasmuch as they oblige you to keep an 
 abnormal amount of cash lying idle in your coffers, to 
 meet their abrupt and uncertain mo\'ements. 
 
 The advantage sought by a banker in having the bulk 
 of his deposits subject to previous notice of payment is 
 obvious : it protects him against sudden demands of 
 embarrassing amount, whilst it enables him to employ a 
 larger portion of such funds in discounts and advances. 
 
 The only member of the community who may not 
 with impunity request a creditor to call again to-morrow, 
 is the banker — not that he gets payment of the debts 
 owing to him more readily than other people ; on the 
 contrary, there would seem to be a pestilent and wide- 
 spread belief, that a banker has untold hoards of money 
 always at command, and can ' wait.' He acts as middle- 
 man, between the lenders and the borrowers of money, and 
 is the general purveyor of cash for the community. But 
 there is this distinction — whereas the banker is bound to 
 refund the money to every depositor the moment it is 
 asked for, the persons to whom he has lent it do not feel 
 themselves under any such peremptory obligation. It 
 is by no means fatal to a trader's credit, to inform his 
 bankers that they must wait; but such an intimation, if 
 made by a banker, would be his commercial death. For 
 him there is no waiting and no mercy — not for an hour. 
 He must pay his debts, the moment they are due and 
 demanded, or close his doors. 
 
 There are people without number, who have yet to 
 realize the simple fact that banks, if they are to pay 
 interest at all on moneys deposited with them, must 
 re-lend the greater portion of such moneys at interest to 
 other people. 
 
 In spite of School Boards and the march of intellect, 
 there are those who harbour the delusion to this day, 
 that the money which they deposit in a bank — the 
 identical notes and coin — are straightway placed in
 
 124 The Country Banker. [let. xvii. 
 
 impregnable vaults, there to remain until the owners 
 want the notes and coin out again ; as if money thus 
 disposed of, would fructify of itself and yield perennial 
 fruits of increase. 
 
 Mr. Oliver Nayler, the keenest man of business in 
 Oxborough, who has a few thousands at his credit at 
 your Branch, and is amongst the first to join in a run upon 
 you, will admit with effusion that such ideas are absurd, 
 and degrading to the human intellect; but that he 
 requires the money for a particular purpose that day and 
 must have it. It wounds him to the quick to ask for the 
 money without a moment's notice, but he finds there is 
 no reasoning with some people. Moreover, his word is 
 pledged, and he cannot go back from that. 
 
 Mr. Nayler is right — there is no reasoning with some 
 people, especially of the Nayler class. You might as 
 well seek to reason with a savage on the war path, as 
 with a depositor ' on the run.' The promptings of avarice 
 and dread so possess him for the moment, that nothing 
 will content him, until he has clutched the actual money, 
 that he may hide it away in the traditional old stocking, 
 or whatever may be the secret place of his hid treasure. 
 How soon the secondary terrors of fancying his house 
 broken into, his throat cut, and the money stolen, will 
 supervene, and outweigh his former fears, will depend 
 on temperament : but these thoughts will come to him 
 before long, in the night watches ; and when he comes 
 to re-deposit the money, you will no doubt render its 
 v/ithdrawal subject to the longest term of notice within 
 the range of your instructions. 
 
 Your preparedness as a bank, at every hour of every 
 business day, to lend money, or accept the use of 
 it, at interest, to any amount, from tens to tens of 
 thousands — although a service to the community of 
 priceless convenience, is entirely ignored and set aside 
 in the blind selfishness of a run. But whatever sense 
 of heartless requital may be stirred within you by this 
 reflection, you will do wisely to keep it .strictly to 
 yourself Better accept the inevitable with a good
 
 LET. XVII.] Deposits and Runs. 125 
 
 grace than with an impotent resentment. Receive your 
 panic-stricken depositors with a smile, however forced, 
 rather than with an ancjry frown ; because, whether you 
 regard them with one expression or the other, the money 
 they will have there and then, whilst the fit is on them — 
 let whatsoever else happen. ' The robb'd that smiles,' 
 you will recollect'; ' steals something from the thief.' 
 
 When, after a time, they find that the panic was 
 groundless, and that the Bank is none the worse for the 
 hammering it has sustained, and the desire to re-deposit 
 the money awakens again within them, there can be 
 little doubt which expression of the two — the smile or 
 the frown — will have the larger effect in attracting the 
 money back to you, or deflecting it to other banks. 
 
 When you find that a run has actually set in upon 
 you, you will have to carry yourself at all poihts with- 
 out trepidation ; because if those who come first see 
 that you are nervous, or put about, they will conclude 
 that there is ground for their uneasiness, and will not fail 
 to convey the fact to their neighbours, — as soon as they 
 have their own money safe, and can afford to be gene- 
 rous. Your course indeed, will be to meet all demands 
 with an eagerness of despatch ; you will thus prevent, 
 amongst other things, a gathering together of excited 
 persons, three or four deep, outside your counter ; an 
 assembly which cannot be too promptly dispersed. If 
 left too long to simmer, it may boil over, and intensify 
 matters within doors and without. 
 
 And you have to take into account, that the persons 
 running for their money will not be limited entirely to 
 those whose deposits or credit balances are payable at 
 call. Others will join in the rush, and demand their 
 money with equal emphasis, although their deposits are 
 subject to notice, and no such notice has been gi\'en. 
 The persons who will thus seek to break through their 
 bargain with you may be few in number, or they may 
 be many — it is impossible to say ; so much will depend 
 upon the incidents of the moment. But it will be safe
 
 126 The Country Banker. [let. xvn. 
 
 to conclude that the great majority of your depositors, 
 under any circumstances, will honourably abide by the 
 term of notice which they have covenanted to give. 
 
 The question remains — how best to deal with the 
 impracticable few. You would refuse point-blank to pay 
 them their money without the stipulated notice. You 
 are aware, you add, that this step will transform some of 
 them into brawling idiots on the spot ; but you would 
 not, on that account, suffer the Bank to be bullied. You 
 do not doubt that your firmness will cause the Bank to 
 be vilified up hill and down dale. In every bar parlour 
 in Oxborough, you feel assured, the thing will be dis- 
 cussed to the accompaniment of pipes and beer. The 
 pernicious Bagster will not fail to suggest, that a bank 
 must be hard up, which asks for a month's time to pay 
 old Ricketts his seventy pounds, which the poor old man 
 wants so badly. You are conscious that all this will 
 tend to widen the area of disturbance, intensify the run, 
 and enlarge the ultimate chasm in your deposits ; but 
 you know that the position of the Bank is invulnerable, 
 and that it can afford to adhere to principle, and hold all 
 these possibilities in utter contempt and defiance. In 
 short, you would hold every depositor to the letter of 
 his bond, and have no paltering with the sanctity of 
 contract. 
 
 But the question at issue is not the stability of the 
 District Union Bank — that goes without saying — nor 
 the sanctity of contract. The question at issue is the 
 simpler one — Is the procedure you propose worth its 
 drawbacks ? For the mere sake of holding strictly to 
 their engagements, in respect of notice, a score or two of 
 depositors, under the influence of temporary delirium ; is 
 it worth while to give impetus and expansion to a move- 
 ment, which might be a source of serious loss to the busi- 
 ness of your Bank and of grave consequences to many of 
 its constituents ? You have to bear in mind that your 
 deposits, taking them all round, yield a profit on their 
 use, and contribute materially to your rate, of dividend. 
 It is incumbent upon you, therefore, to avoid causing
 
 LET. xvn.] Deposits and Runs. 127 
 
 the withdrawal of any portion of them, by any act of 
 your own. A contract which the other party seeks to 
 break, need surely have no sanctity for you, if it be to 
 your advantage to let him break it ? If by refusing 
 pa)'ment of his i^ioo, without the required notice, to 
 some panic-stricken creature, you cause him to make an 
 outcry which shall incite other people to run upon you 
 for twenty times the amount; you will have held him, 
 against his will, to the conditions of a contract, which it 
 was twenty times more }'our interest than his to set 
 aside. 
 
 But there is another consideration : a banker employs 
 the bulk of his deposits in discounts and advances, 
 whereby the agricultural, trading, and other interests 
 of his district are daily convenienced and benefited. 
 When his depositors turn upon him, therefore, and with- 
 draw their money, he is obliged to contract his discounts 
 and advances to a corresponding extent. Apart from 
 the contraction of business and shrinkage of profits which 
 this process will entail upon himself, he is bound to con- 
 sider its effect upon the business arrangements of his 
 customers, and the certain inconvenience and possible 
 loss which it may entail upon them. It follows, I think, 
 that your first and paramount object, when you are 
 menaced with a run, should be to limit the extent of the 
 movement, by all just and available means; so as to 
 render the ultimate chasm in your deposits as little 
 serious as possible. 
 
 But your proposed line of action is not calculated 
 to bring about this result — you would hold a score or two 
 of ignorant and excited people at defiance, on what will 
 appear to them a shallow pretext and trivial point of 
 form ; you will thus transform them into so many fire- 
 brands, who will go forth into the highways and by-wa\'S 
 and spread the conflagration. At the first appearance 
 of fire you would drown it out; for a like reason, at the 
 first appearance of a run, do your best to stifle it, be- 
 cause, like fire, it is swift and terrible of growth. 
 
 When a depositor demands payment of money which
 
 128 The Country Banker. [let. xvn. 
 
 is not due to him for a month, or whatever the term of 
 notice may be, and it is manifest that for the moment he 
 is beyond reasoning with ; offer to pay him at once, but 
 with such abatement of interest as the circumstances 
 demand. He has in fact forfeited his claim for interest 
 altogether, because he has violated the condition on 
 which interest was made to run. In the most liberal 
 view of the matter, he must rest content with such in- 
 terest as would have accrued on the deposit if placed 
 with you at call. 
 
 If he objects to the deduction, he has the remedy in 
 his own hands ; he can leave the money where it is, 
 and givQ the required notice. The more panic-stricken 
 will agree to the abatement without demur — only too 
 thankful to have the money back again on any terms ; 
 but the less alarmed will probably take another view 
 of the situation. The fact that you are ready and 
 willing to pay every demand at once, whether due or 
 not due, will satisfy them that you are not going to 
 break after all : and rather than let you have the 
 advantage of them about the interest, they will give the 
 required notice and leave their deposits where they are. 
 
 In either case, the minds of bystanders will be 
 favourably impressed. They will see that so far from 
 being hard up, you are prepared, on reasonable condi- 
 tions, to pay thousands upon thousands of deposits, not 
 yet due, and unfairly demanded ; and Mr. Bagster will be 
 non-plusscd. The touching incident of old Ricketts and 
 his ^70 will not be available as a sensation, because it 
 will never have attained existence as a fact. 
 
 One reason for having as large a portion as possible 
 of your deposits put on deposit receipt is this — the re- 
 ceipts are not transferable. They must be presented for 
 pa}'ment by the dej^ositors in person, and the majority 
 of depositors arc shy of exhibiting a want of confidence 
 in their banker to his very face, and ^vill not lightly join 
 a run upon him. But where the money is lying on cur- 
 rent account, and can be drawn out by cheque payable 
 to bearer, the depositor is enabled to avoid this hurt to
 
 LET. XVII.] Deposits and Runs. 129 
 
 his feelings, by passing the cheque to a friend, who will 
 draw the money for him without pain or scruple. 
 Persons are known to have gone beyond even this 
 method of evasion, by drawing numbers of cheques on 
 their accounts, during the worst hours of a crisis, in pay- 
 ment of fictitious wants and imaginary creditors ; thus 
 hoping to hoodwink their bankers, by a puerile device of 
 transparent meanness. If these men had had the man- 
 liness to go to their bankers, when their fears became 
 acute, their anxieties would have been set at rest, and 
 they would have been guiltless of contributing their little 
 utmost to the monetary strain of the time. 
 
 In the good old coaching days, before the electric 
 telegraph was thought of, and whilst railways were yet 
 in their infancy, a Branch was sometimes distant from 
 its centre, or Head office, several days even by post. A 
 sudden and unexpected run had then to be differently 
 faced. The object to be gained was time, to tide the 
 Branch over the first rush of depositors, until supplies 
 could arrive from head-quarters. The traditional shifts 
 resorted to for this purpose were varied, and sometimes 
 tinged with humour. The cashier who inscribed ' No 
 funds ' on a large cheque, which he had not money 
 enough in his till to meet, must have been a born 
 humorist ; and only thirty years ago, a writer of the 
 name of Bullion is to be found, who calmly recommends 
 a Branch Manager to begin to pay everything during a 
 run in his own notes. The adoption of this course, this 
 cynic observes, will have the effect of gaining time, and 
 obliging each depositor to resort to a series of fictions on 
 the spot, as reasons why he would rather have gold. 
 To go still further back, ' The bankers are so called 
 upon,' writes Pepys in 1667, ' that they will be all broken, 
 hundreds coming to them for money, and they answer, 
 " It is payable at twenty days — when the days are out 
 we will pay you ;" and those that are not so, they will 
 make tell over their money, and make their bags false, 
 on purpose to give cause to re-tell it and so spend time.' 
 
 But the necessity for all such shifts now-a-days no 
 9
 
 1 30 The Country Banker. [let. xvn. 
 
 longer exists. The railway and the telegraph have 
 practically brought the head office of a bank and its 
 branches under one roof; so that the entire resources 
 of the establishment can now be brought to bear, at a 
 moment's notice, on any point assailed. 
 
 If I had been writing the present book only a 
 few years ago, I would have omitted all mention 
 of a run upon a bank, as a thing long since obsolete, 
 and as barbarous in its day as rick-burning or the 
 wilful destruction of machinery. But the events of 
 December 1878, effectually upset this complacent view 
 of things. The country then became the astonished 
 witness of persistent, and in certain cases, concerted runs, 
 directed against some of the largest deposit banks in the 
 kingdom — not headed by the more ignorant classes of 
 depositors, for whom there might have been some 
 excuse ; but by persons for whom there was none. 
 Happily for the common weal, the banks run upon were 
 without exception of assured strength ; they were shorn 
 of many millions of deposits in a few weeks, but they 
 passed through the ordeal with untarnished credit, and 
 thus averted a momentary crisis, of which it would be 
 difficult to estimate the range or the consequences.
 
 LETTER XVIII. 
 
 INTEREST AND DISCOUNT. 
 
 Were it not for this easy borrowing upon interest, meti' s 
 necessities won id drazo upon them a most sudden undoing : in that 
 ihev 7Vould he forced to sell their means {be it lands or goods) far 
 underfoot ; and so, whereas usury doth but gnaw upon them, bad 
 marhets loould swallo7u them quite up. Bacon. 
 
 In the great provincial cities, second only to London 
 itself in the magnitude of their commercial and banking 
 operations, the rate of interest will follow more or less 
 closely the London rate, both in respect of interest on 
 deposits and the discount on bills : but in the smaller 
 towns and country districts, a less fluctuating scale of 
 rates is followed and preferred. 
 
 Interest on Deposits. In respect of money lying on 
 deposit at their bankers, country people prefer a steady 
 average rate. They do not care to have the interest 
 worked on a scientific scale ranging from i per cent, to 
 5. They could never arrive at a notion of what the in- 
 terest would come to, with so many jumps from one rate 
 to another. 
 
 You could no doubt reconcile them to London rate as 
 long as it stood at 4 or 5 per cent. : but all the King's 
 horses and all the King's men would never bring them 
 back again, with their own wills, to one per cent. You 
 might prove to them beyond cavil, that the condition of 
 things in Lombard Street compelled the reduction; but 
 country people know nothing about Lombard Street, and 
 
 131
 
 132 The Country Banker. [let. xvm. 
 
 they have no desire to know. You might as well hope 
 to explain to them the principle of the Integral Calculus, 
 as the mysteries of the exchanges. It suits their ways 
 better to have an arrangement about interest which does 
 not require so much thinking about. They do not ap- 
 prove of a rate that veers about so frequently that they 
 can never rightly know where they are. They dislike 
 bother, and this would bother them exceedingly. They 
 prefer an arrangement with their bankers, which shall 
 continue without change, until they want the money out 
 again ; let the value of money in London in the mean- 
 time be what it may. 
 
 The rate thus agreed upon will \'ary in accordance, 
 partly with the custom of localities, partly with the usage 
 of individual banks : but mainly with the condition upon 
 which the money is deposited. ' . 
 
 You could not, for example, allow the same rate of 
 interest on i^iooo repayable at call, and which may be 
 withdrawn at any moment, as upon a like amount which 
 cannot be withdrawn short of a month's notice ; because 
 deposits payable on demand must be invested in banking 
 securities of the highest class, and will consequently yield 
 a low rate of return. 
 
 Deposits, on the other hand, which are subject to 
 notice, afford you time to turn in, and could be employed 
 in less available securities and bringing you a somewhat 
 better yield of interest. If your rate for deposits pay- 
 able on demand were 2 per cent, for example, it might be 
 2\ on those subject to your usual term of notice, and 
 2\ on those lodged for longer periods. 
 
 Country banks for the most part adhere to their 
 average rate, even when the London banks are only 
 allowing one per cent. : so that if the country rate never 
 mounts so high as that of London, neither does it ever 
 sink so low. 
 
 * London rate ' for deposits, rules at one per cent, below 
 the published rate of discount at the Bank of England 
 for the time being. It is never more than this, and it is 
 seldom less.
 
 LET. xviii.] Interest and Discount. 
 
 Now the average of Bank rate, during the ten years 
 ended 31st December, 1884, was ;^3 3^. \\d. This gives 
 us about 2\ per cent, for average London rate. The 
 London banks, therefore, hold their interest bearing 
 deposits on terms which would probably be found in 
 close proximity to those, on which the country banks on 
 the average hold theirs : so that it comes to much the 
 same thing, whether a depositor works by the one scale 
 or the other. 
 
 In the course of your business, you will no doubt 
 be assured at times that your rate on deposits is 
 lower than at some other bank : but it will be well 
 to verify such statements in all cases where practicable, 
 because they are not always true. You hear of banks 
 offering in some cases rates for deposit money, suffi- 
 cient, you protest, to make your hair stand on end. 
 It may not be true : but if it is, let us hope that 
 the cases are few in number and the banks fewer still. 
 That high interest means high risk, is a maxim which 
 has a meaning even for bank depositors, if they would 
 note it. 
 
 The average rate which a country bank can prudently 
 allow on its deposits is not an arbitrary thing, which may 
 be safely disregarded and put aside. It is the result of 
 deliberate calculation, resting on experience spread over 
 many years, and is virtually based on the average Lon- 
 don rate, which it exceeds only by a small fraction. No 
 country bank, therefore, can habitually purchase the use 
 of money at a price materially in e.xcess of its av^erage 
 value, unless such bank is prepared to do one of two 
 things — it must be prepared, either to employ the 
 money at a loss, which is incredible : or to risk its' 
 employment in forms of advance, which may bring it a 
 high rate of interest, but will not be available in time of 
 need. 
 
 The depositor cannot with impunity, as we have 
 said, be requested to call again for his money some 
 other time. It is no concern of his, if his money 
 has been locked up in advances, resting on securities
 
 1 34 The Country Banker. [let. xvin. 
 
 more or less dubious in character and difficult of reali- 
 zation. He expects to receive his money when due, and 
 it will be an evil day for the bank, which has mainly to 
 look to such securities, to meet the demands of its de- 
 positors, should they at any time make an attack in 
 force upon its immediate resources. Better a thousand 
 times let deposits go past you, than accept them on 
 terms which oblige you to employ them in ways which 
 will render the money inaccessible, when your need for 
 money is at its worst. That time has come before now 
 to the strongest banks, and may come again : but at its 
 next coming, it may take a wider and lower range than 
 in 1878, and assault the weaker and less guarded points, 
 instead of the Redans and Malakhoffs of our banking 
 system. 
 
 Discount on Bills. Your rate of discount will 
 vary with the quality of the bills themselves, and to 
 some extent with the current value of money. A bill, 
 for example, drawn by a first-class house abroad on a 
 leading house at home, and bearing the indorsement 
 of a powerful bank, is a widely different instrument 
 from the loan bill or promissory note, or even the 
 trade bill of country banking ; and would command 
 proportionately easier terms in the matter of dis- 
 count. ' Bank paper ' is in fact the highest form of 
 banking asset. You can re-discount and turn it into 
 money, at any moment, in the worst of times : but 
 in respect of bills of inferior grade, the re-discount 
 market is uncertain of access and, in a panic, is 
 sometimes closed altogether. Moreover, you can rely 
 upon bank bills and their equivalents being met at 
 their maturities. You may in fact reckon them in 
 advance, as assured additions to your cash in hand 
 the day they fail due. They are so many bank notes 
 in a latent form. When you wish to increase your 
 reserve of cash, you have merely to restrict your
 
 LET. XVIII.] Interest and Discount. 135 
 
 discount of such bills, and those running off will of 
 themselves turn into money and accomplish your 
 desire. 
 
 You miL^ht, it is true, restrict your holding of Mr. 
 Bowdler's paper and the like : but this would not 
 serve to replenish your till with the same degree of 
 certainty. Such bills are not to be reckoned as equal 
 to so many bank notes on the days of their maturity. 
 They will no doubt be paid in time, but not necessarily 
 at your time. Neither are they negociable — you could 
 not re-discount them if you would ; so that financially 
 they are all but valueless. 
 
 But betwixt these two classes of bills — ^betwixt the 
 highest quality of paper and the lowest — comes the 
 inland or trade bill; such as that drawn by Cartridge on 
 Booker & Co. ; which may be regarded as a type of 
 by far the largest class of bills known to provincial 
 banking. 
 
 The trade bill is as inferior to bank paper, in point 
 of quality, as it is superior in all other respects to the 
 lower class of bills. You can rely on its being met 
 when due, and you could re-discount it in any con- 
 dition of the money market short of panic ; although 
 not on the same terms on which you could melt bank 
 paper. For that and for other reasons, the rate for 
 trade bills, whether in London or the provinces, will 
 necessarily rule at a point higher than that current for 
 bank paper. 
 
 Nevertheless, Mr. Nayler expects you to take his bills, 
 90 per cent, of which consist of trade paper, at London 
 rate all round. Mr. Nayler is of those who, in the way 
 of a bargain, ' will cavil with you on the ninth part of a 
 hair.' When the rate for deposits in London is less 
 than your own, Mr. Nayler prefers the good old country 
 rate ; but when the rate in London goes above your 
 average, he holds the metropolitan principle to be the 
 only equitable basis of price, as between man and man. 
 It is true that w^hen Mr. Nayler asks you to take 
 his promiscuous paper at London rate, he freely gives
 
 136 The Country Banker. [let. xvm. 
 
 you leave to charge other people what you like : which 
 you hold to be an exasperating suggestion : but, letting 
 that pass, to expect you to work at ' London rate ' for 
 ordinary trade paper, is ridiculous. That rate is the 
 quotation for A i bank paper, or its equivalents, only — 
 for a class of bill, the percentage of which in your bill 
 case would be slight in the extreme. A stray one will 
 find its way to Oxborough, at intervals more or less 
 apart, and move you with a mild surprise : but it will be 
 more of a curiosity than an everyday addition to your 
 general holding of bills. 
 
 But even on the supposition that your discounts at 
 Oxborough consisted wholly of bank paper — I say that 
 even so, you would not stand on the same platform with 
 London banks and Discount houses, and therefore could 
 not work on their terms. You are established in 
 Oxborough, with all means and appliances for the con- 
 duct of a business, larger than you will ever command, 
 perhaps, but which are necessary to work the business 
 which you do. You have brought to the very doors 
 of the Oxborough people an establishment, not much to 
 look at, it may be, in point of appearance, being but a 
 Branch ; but equal in all other respects to a bank 
 of the first magnitude. You are prepared to enter- 
 tain and to carry through any transaction, whatever 
 its nature or amount, that any other bank out of 
 London can. 
 
 But whilst your discount transactions are reckoned 
 by fifties and hundreds of pounds, the operations of 
 the great London banks and bill brokers are measured 
 by tens and hundreds of thousands. And the same 
 extent of book-entry and calculation is required to 
 pass a bill for £"-^0 through the books of a bank, as 
 if it were one for ^5000. Your business, therefore, 
 is worked at greatly heavier cost, relatively to income, 
 than a great London business is. The enormous 
 volume of their transactions enables the London 
 banks and discount houses to work on terms of dis-
 
 LET. XVIII.] Interest and Discount. 137 
 
 count at which your business would starve. If you 
 are to transact a discount business at all in Oxborough, 
 and pay your expenses, and leave something towards 
 dividend ; it must be on terms necessarily above those 
 of London, whether for first class bills or for ordinary 
 trade paper. 
 
 If your customers generally were to adopt Mr. Nayler's 
 views, Oxborough Branch would cease to pay its ex- 
 penses, and would have to be shut up. 
 
 It has also to be considered, that if your discount rate 
 never sinks to the low level which sometimes rules in 
 Lombard Street, neither does it on the other hand ever 
 mount to 10 or 12 per cent. Your clients are accustomed 
 to a less spasmodic scale, and would rather work upon 
 one that seldom lost sight of 5 per cent, very far either 
 way, as a rallying point. In fact, your terms of dis- 
 count must be governed, more by the expenses of 
 your Branch, than by the movements of bank rate, with 
 which the daily business of Oxborough has no visible 
 connection. 
 
 Your milliners and grocers, your butchers and bakers, 
 do not regulate their transactions, with one eye upon 
 the foreign exchanges and another upon the reserve in 
 the Banking Department. They require certain pro- 
 duce and commodities to replenish their stocks, in 
 order to supply the daily wants of their customers, 
 and they do not understand what a million of bullion 
 more or less in the Issue Department has to do with 
 the matter. 
 
 Your customers hear, no doubt, of a tightness in the 
 money market and a heavy drop in the exchanges : but 
 as they have not contributed to bring about the one, and 
 do not understand the other, they object to being incom- 
 moded by either. Let those, they say, bear it who ha\'e 
 brought the trouble. Because the Bouncers and Plungers 
 of commerce all over the world have been speculating in 
 this, or 'cornering' in that, and brought about a com- 
 mercial crisis and a money panic — that appears an
 
 138 The Coimtry Banker. [let. xvm. 
 
 insufficient reason to Mr. Cartridge why his usual 
 discount facilities should be curtailed, or to Mr. Wheeler 
 why half his overdraft should be called up. They 
 have had no hand in producing the crisis, and will 
 deem it hard if their convenience is sacrificed to set it 
 rig-ht. 
 
 Interest on Overdrafts. The i^iooo advanced 
 on overdrawn account, and the same amount invested in 
 the discount of a negociable bill of exchange, are widely 
 opposed transactions, and will involve different condi- 
 tions of charge. When a country bank covenants with 
 a customer that he may ov^erdraw his account at any 
 time to the extent of ;^iooo, it virtually grants him the 
 loan of that amount so long as the account shall con- 
 tinue ; but with this important concession in favour of 
 the borrower, that interest shall be charged only on 
 the balance owing from day to day. The lodgments 
 on such accounts are credited with the same rate of 
 interest as is charged on the pa)'mcnts. 
 
 The balance owing on an ov^erdrawn account, therefore, 
 being of the nature of a permanent loan, will not follow 
 the ups and downs of London rate, except at a respect- 
 ful distance. It will never touch a very low point, but 
 neither will it rise to a very high one. Moreover, as in 
 bills of exchange, so also in overdrawn accounts — there 
 are degrees of quality ; hence some difference in the 
 terms of charge. The overdraft which is constantly 
 being paid off and drawn out again, is entitled to easier 
 terms, in respect of interest, than the account which is 
 never turned creditor. The one enables you to make 
 frequent use of the money in other directions, the other 
 never. 
 
 The overdrafts on which you will levy your highest 
 rate, will be those which have assumed the character of 
 dead loans, but in respect of which, for special reasons, 
 you may be reluctant to take the extreme course of call- 
 ing them up. The imposition of an extra rate will pro-
 
 lET. xviii.] Interest and Discount. 1 39 
 
 bably have the result you desire, without touching the 
 susceptibilities of this class of borrowers, who will consist 
 for the most part of persons i^^norant of business, and 
 who look upon 5 per cent, as the furthest limit of legal 
 interest — beyond which lies perdition to the man who 
 borrows.
 
 LETTER XIX. 
 
 BANK CHARGES. 
 
 Hence it is, that though prejudice is so far softened, as to ac- 
 quiesce. in the lender s making, some adva?itage, test the borrower 
 should lose altogether the benefit of his assistance ; yet still the 
 borrower is to have all the favour ; and the lender s adva7itage is 
 for ever to be clipped and pared down as low as it will bear. 
 
 Defence of Usury. 
 
 On a certain portion of your accounts you make 
 a charge for commission : the rate of charge being 
 governed by the nature of the account itself and the 
 description, number, and amount of the transactions 
 passing through it. 
 
 There arc accounts in England, the lodgments on which 
 are all in Bank of England notes, or gold of standard 
 weight ; the balances are always in favour of the custo- 
 mer, and the cheques drawn upon them are all paid 
 across the Bank's own counter. On such accounts no 
 commission is charged ; but on the other hand, no interest 
 is allowed on the balances in hand of the Bank. 
 
 If one had to picture to himself a banking Eutopia, it 
 would be ledgers teeming with such accounts and none 
 other; with Treasury bills his only discounts, and Consols 
 his only form of overdraft. His sole debtor being the 
 British Government, his income, if restricted, would at 
 least be assured, and the haunting fear of loss would 
 cease to trouble him. 
 
 But although the ckiss of account we here speak of is 
 
 known to some extent to London banking, and here and 
 
 there perhaps in our larger commercial centres, it is 
 
 rarely met with in rural parts. There is probably no 
 
 140
 
 LET. XIX.] Bank Charges. 1 4 1 
 
 such account on your books at Oxborough. If there 
 were, you would be ready and wilUng to conduct it on 
 London terms. That is to say, you would charge no 
 commission upon it: but you would expect a certain 
 balance to be kept at the credit of the account, and on 
 this balance you would allow no interest ; — you would 
 accept the use of the money in lieu of commission. 
 
 The balance thus left in your hands would be governed 
 in amount by the nature and working of the account. 
 You would, for example, require a larger balance with 
 an account turning over ;i^io,000 a year, than with one 
 on which the turn-over was only half that amount. 
 Again, if the cheques drawn upon the account should 
 average ;^20 each, you would require a larger balance 
 to be kept at its credit, than if the cheques averaged 
 i^ioo each ; because in the one case, you would have 500 
 different payments to make on the account ; in the 
 other only 100. The extent of book entry alone would 
 be as five to one. It would require five times as many 
 ledgers to hold the one class of accounts, as would suffice 
 to contain the other ; and five times the staff of book 
 keepers to write them up. 
 
 But, as already stated, this class of account is prac- 
 tically unknown in rural districts. The payments to 
 the credit of a country bank account will not consist 
 exclusively of Bank of England notes or gold of stan- 
 dard weight. On the contrary, these will form as a 
 rule but a slight percentage of the lodgments. The 
 circulating medium of the provinces is not of uniform 
 qua!it\', and the par of most of its components is 
 nominal. Some three-fourths of the provincial circula- 
 tion consist of sovereigns and half-sovereigns, of which 
 over fifty per cent, are below .standard weight. Side by 
 side with these, circulate the four millions of country 
 bank notes, which ha\'e the defect of not being legal 
 tender, and have for the most part to be remitted to 
 London to be converted into that medium. Then 
 come cheques and drafts on other banks, dividend 
 warrants, interest coupons, post office orders and bills,
 
 142 The Country Baiiker. [let. xix. 
 
 for collection, wherever these articles may be payable 
 within the limits of the United Kingdom. Last, but not 
 least, you have to take into account the silver in circu- 
 lation. This will come to you plenteously, in packets of 
 ;^5 or ;!^io each, or direct from your customers' pockets 
 in promiscuous handfuls, embracing specimens of our 
 silver coinage from a three-penny bit to a crown piece. 
 
 The items here enumerated, with a sprinkling of Bank 
 of England notes and heavy gold, constitute, in varying 
 proportions, the ordinary payment to the credit of your 
 customers' accounts. 
 
 Nevertheless, Mr. Bagster would have you treat the 
 whole as ready cash. He w^ould expect you to pass this 
 miscellany of currency, without charge or abatement, 
 straightway to a man's credit; just as if the entire lodg- 
 ments were in crisp Bank of England notes, or gold fresh 
 from the Mint. 
 
 But it is manifest that before such media can be re- 
 garded or treated as ' cash,' they must undergo transmu- 
 tation ; they must be realized, before they become usable 
 money. You must send all country notes, for example, 
 which are not redeemable in Oxborough,to your London 
 agents for collection. You must despatch the cheques, 
 bills, coupons, and the like to every point of the com- 
 pass at which they are payable, and await their payment 
 in London, before they can become cash to you. You 
 must send your gold and silver, at your own risk and 
 charge, to the wage-paying districts where it is wanted ; 
 or it will accumulate on your hands at still greater cost 
 and sacrifice. It will be seen, therefore, that almost 
 every lodgment to the credit of a Country bank account, 
 involves the Bank itself in expense, before the items of 
 the lodgment can be turned into actual money or legal 
 tender. 
 
 It is different with the currency of Scotland. The 
 circulating medium of that part of the Kingdom con- 
 sists almost exclusively of bank notes, which, although not 
 legal tender by Act of Parliament, are universally 
 accepted as such, which amounts to much the same
 
 LET. XIX.] Bank Charges. 143 
 
 thing. They require no process of conversion to turn 
 them into money, because, to all intents and purposes, 
 they are already money, and have as great circulative 
 capacity North of the Tweed as Bank of England notes 
 have on this side of it. 
 
 Payments to Debit. Turning now to the debit 
 side of a country bank account, it also has features 
 of its own. The outdrawings upon it do not consist 
 exclusively of cheques presented at your counter and 
 cashed out of your till. On the contrary, transactions 
 of this nature are the exception and not the rule. 
 The items debited to the account will consist partly, 
 often largely, of the customer's acceptances payable in 
 London, which you have retired for him : partly of his 
 cheques which he has sent to various parts of the 
 kingdom, and which you have redeemed for him directly 
 through other banks, or indirectly through the Clearing: 
 partly of drafts or letters of credit, which you have 
 drawn upon your London or other agents to his order: 
 and partly in cheques paid in cash across your counter. 
 
 On each of these transactions, with the exception 
 of the last, you have yourselves to pay a commission, 
 either to your London agents or to other banks. 
 They cannot afford to transact your business, without 
 some charge for the doing of it. They have the salaries 
 of their Managers and clerks, their rents and taxes and 
 other expenses to pay, which they would find an obvious 
 difficulty in doing, if they conducted their business for 
 nothing. 
 
 The working of every account in his books, therefore, 
 subjects a country banker to expense on both sides of it, — 
 the expense of converting miscellaneous lodgments into 
 legal tender on the one side, and the remuneration of its 
 London and other agents for services rendered by them, 
 on the other. 
 
 It is the practice of some banks to make a separate 
 charge on each transaction, debtor or creditor, as it arises.
 
 144 '^^^^ Cou7itry Banker. [let. xix. 
 
 which is subject to commission. The banks in Scotland 
 do so, and work upon a scale which indicates some sixty 
 varieties of charge. 
 
 The usage of most English country banks is different. 
 Instead of a separate levy on each transaction as it 
 arises, the banks make one charge at the end of the half 
 year ; and this is usually in the form of a percentage on 
 the total outdrawings on the account for the six months, 
 wdiatever they may consist of The process is admittedly 
 less exact than the Scotch method, but it comes to much 
 the same thing in the end, as far as the customer is con- 
 cerned, and it has the merit of simplicity. 
 
 It is true that no two banking accounts are alike in 
 every particular. There is not a single account on your 
 books which is the exact counterpart of another : but 
 you know what the working of your accounts costs 
 you as a whole, and can therefore arrive at a rate 
 of commission which will be a fair average charge all 
 round. 
 
 No doubt there are exceptional accounts which no 
 average will fit. In respect of these you may have to 
 exceed your average in some cases, and to go below it in 
 others. Other accounts, again, the operations on which 
 consist of transactions which put you to little cost and 
 less trouble, it may suit you to conduct for a fixed sum 
 per annum, based on the number of cheques and magni- 
 tude of turn-over. 
 
 Let us say then that your average rate of commission 
 is one-eighth per cent, on the outdrawings of a current 
 account. That will be equal to a charge of fifteen pence 
 per hundred pounds on both sides of it. That will be 
 the rate of charge, out of which you have to provide for 
 agents' commission, expense of transmission of notes and 
 specie, loss on light gold, and all risks of forgery, fraud, 
 miscarriage, burglary, or embezzlement. You have to 
 make provision for all these out of your one shilling and 
 three-pence per hundred pounds : and, if there is any- 
 thing over, it can hardly amount to an extravagant 
 recognition of the services of yourself and staff
 
 LET. XIX.] Ba7ik Charges. 145 
 
 But as against your charge for commission, your 
 customer has a substantial set-off. You allow him 
 interest from day to day, on the balance at his credit, 
 however much it may fluctuate. But, under the London 
 system, no interest is allowed on the fluctuating balance 
 of a current account ; so that practicall)^ it comes to 
 much the same thing, whether, as a question of loss or 
 gain, a running account is kept on the one system or 
 the other. 
 
 But there is one material point of difference. Under 
 the London system a man is expected never to reduce 
 his balance below a certain agreed-on figure. He has 
 thus practically to lock up a portion of his capital in his 
 bank account, and lose the use of it in his business ; 
 whereas, under the provincial system, he can at any 
 time withdraw his balance to the last sixpence, 
 without incurring the penalty of having to close the 
 account. 
 
 Let us take the case of your customer L. S. D., the over- 
 turn, debtor and creditor, on whose account is ;^8ooo 
 a year, and your commission on which is ;^5. There is 
 no set-off against this charge, because L. S. D. leaves no 
 money in your hands at the credit of the account : he 
 prefers to employ the whole of his means in his own 
 business. But let us suppose that he shall elect to work 
 on the London principle; and, instead of paying com- 
 mission, shall leave a balance in your hands not bearing 
 interest, and that the balance thus left is ;^200. 
 
 What the annual return on his capital may be will 
 depend on circumstances; but it must be an indifferent 
 sort of trading, that will not yield an annual return of 
 10 per cent. 
 
 By locking the iJ"200 up in his bank account, there- 
 fore, he loses ;i^20 a year of profit on his capital : in 
 other words, the working of his account on the London 
 principle costs him ^^"20 a year: whereas under yours, the 
 cost to him is ^^"5 only. 
 
 Commission on Overdrafts. We have thus far 
 10
 
 1 46 The Coimti'y Banker. [let. xix. 
 
 dealt with the ordinary charges on accounts, the balances 
 of which are always at the credit of customers. We now 
 turn to the commission on accounts, the balances of 
 which are always overdrawn. 
 
 An average sample of the overdrawn account of 
 country banking will be found in that of your customer 
 Mr. Silas Wheeler. The authorised limit of advance is 
 £\0<X> of which he steadily avails himself, and the out- 
 drawings amount to ;^ 10,000 a year. The lodgments to 
 the credit of the account are of the usual mixed cha- 
 racter of the provincial currency ; whilst the outdrawings 
 are akin to those on other accounts, except that they 
 consist for the most part of Wheeler's acceptances pay- 
 able in London. The cash transactions to the debit are 
 few and of limited amount. 
 
 If the balance of the account were always in his 
 favour, your charge upon it would be an eighth per 
 cent, on the outdrawings, as in the case of other creditor 
 accounts ; but inasmuch as the balance is always at 
 his debit, you charge him an additional eighth per 
 cent. 
 
 One-half \'Our charge, therefore, is virtually a del 
 C7'edere commission, or provision against loss ; and 
 amounts, in the case of Mr. Wheeler, to threepence in 
 the pound on the amount of advance. Adopting his 
 account as an average, and taking the overdrafts at 
 your Branch at ^20,000, this annual provision against 
 loss would amount to ^^^250; and if you will cast up 
 your losses on this form of account for any given 
 number of years back, you will find that a fund thus 
 set apart and frugally nourished, will never have much 
 of a balance at its credit ; if indeed the balance shall not 
 at times emphatically incline the other way. 
 
 Your extra charge then on Mr. Wheeler's account, 
 by reason of its being overdrawn, amounts to £\2 \os. 
 a year : but against this there is likewise a set-off: 
 because you sanction repayments in reduction of the 
 balance, in dribblets day by day ; and on these dribblets 
 you allow the same rate of interest that you charge on
 
 LET. XIX.] Bank Charges. 147 
 
 the account. If the rate is 5 per cent., you allow him 
 to bank his money with you at that rate from day to day, 
 in anticipation of his acceptances or other payments 
 coming due ; and the interest on these fugitive lodg- 
 ments goes far to extinguish the extra charge of com- 
 mission on the account. 
 
 There is one other point of view from which to regard 
 the overdrawn account of English country banking. Mr. 
 Wheeler pays for the bulk of his purchases by acceptance 
 at three months' date. But if he paid in cash instead, he 
 would be allowed the usual trade discount of 2\ per 
 cent. The ;^iooo you lend him enables him to pay in 
 cash, instead of by acceptance, for ^4000 worth of goods 
 within the year, on which the trade discount would be 
 ;^ioo. Pie has this to set against your charge for interest 
 and commission upon his account, which amounts at the 
 outside to £']'^. So far then from his dealings with you 
 putting him to expense, they leave him with some five 
 and twenty pounds annually in pocket. 
 
 But Mr. Bagster remains unconvinced, and still in- 
 veighs against commission in the abstract. It is looked 
 upon indeed as his strongest point, and he is reluctant 
 to give it up. When he desires therefore, in a general 
 way, to be informed on what pretence a bank makes a 
 charge for paying a man his own money back again, he 
 has the bar parlour with him, you tell me, to a man. 
 
 But it is not his own money back again which a 
 customer gets from a country bank. His own money, 
 for the most part, would have consisted, as we have 
 seen, of gold light of weight, loose silver, cheques on 
 distant banks, and so forth : in exchange for all which 
 he expects to receive, and does receive from the Bank, 
 actual money of account, or legal tender. 
 
 It is unfortunate also for Mr. Bagster's point, that you 
 charge no commission on the greater number of your 
 accounts. You make no charge on the withdrawal of 
 sums which have been placed with you on deposit 
 receipt or deposit account, no matter how mixed the
 
 148 The Country Banker. [let. xix. 
 
 monetarial value which created the deposits may have 
 been. You thus make a distinction betwixt accounts, 
 the balances of which you can make use of, and those, 
 the balances of which are here to-day and gone to- 
 morrow. If Mr. Bagster worked his own business on the 
 terms on which he would have you conduct yours, he 
 and his family would soon be on the parish. 
 
 Without indorsing the strong language which you 
 apply to the whole tribe of ' screws ; ' one can understand 
 your inward enjoyment when you had to inform Mr. 
 Na)'ler, that the large advance on overdraft for which 
 he had applied to the Directors, had been refused; for 
 the sufficient reason that the unprofitable nature of his 
 account did not warrant the advance. The loan of the 
 money at the time, and for the purpose to which Mr. 
 Nayler meant to apply it, would have yielded him a 
 profit many times greater, you affirm, than all his 
 cheese-parings in discount and commission for twenty 
 years put together. 
 
 A banker, after all, is only an average human being. 
 He is not influenced by the emotions in his dealings, it 
 is true : but he has a just perception of the principle of 
 ' give and take,' in business. 
 
 He is naturally disposed, therefore, to deal liberally 
 with those who deal liberally with him. He does not 
 relish habitual attempts to beat down his current rates 
 of charge, as if he were a cheap Jack, with half a dozen 
 prices for the same thing. His rates are not arrived at 
 hap-hazard, but are based on observation and experience ; 
 and he dislikes to huckster with meanness, or capitulate 
 to greed. A man loses nothing in the long run, by 
 leaving the charges on his account and bills to his 
 banker's sense of fairness and right. It would be strange 
 if, in the course of events, an opportunity did not arise, 
 which would enable a banker, in one way or another, 
 to repay such confidence with usury. But neither 
 does Mr. Nayler, nor Mr. Bagster, see this. The man 
 who never troubles his head nor tries his banker's 
 patience about the charges on his account, betrays, in
 
 LET. XIX.] Baiik Charges. 149 
 
 their estimation, something hke softening of the brain ; 
 and they have yet to learn that in dealing with one's 
 banker, a penny saved is not always a penny gained. 
 
 And whilst you are jealous to guard and uphold ytfur 
 own terms of business, do not begrudge their proper 
 charges to others. Do not chaffer with a man about his 
 customary commission and try to beat it down, especi- 
 ally if he is poor and must submit to your fiat, whatever 
 it may be. The Bank which shall acquire a reputation 
 for meanness will find itself put to the screw whenever 
 occasion offers : whereas if it shall act in a liberal spirit 
 in all its dealings, its liberality will bear fruit. It will 
 secure to the institution the breath of popular favour; 
 and that has a perceptible influence in directing fresh 
 business to a bank.
 
 LETTER XX. 
 
 CIRCULATION. 
 
 TTie banks, these traders seefn to have thought, could extend 
 their credit to whatei'er sum ?night be wanted, without iticurring 
 any expense besides that of a few reams of paper. 
 
 Wealth of Nations. 
 
 One of the customary services which a bank renders 
 to the community, and for which it is but poorly 
 recompensed, is the transmission of money to other 
 places on behalf of its clients ; whereby they are 
 enabled to make payments in all parts of the Kingdom, 
 and are saved the risk, expense, and trouble of taking 
 the money to such places themselves. 
 
 Drafts. When one of your customers, or the 
 traveller for a commercial house, wishes to make a 
 payment in London, Manchester, or elsewhere ; the 
 medium usually employed is the draft of your Bank 
 on its London agents, in favour of the person or firm 
 to whom the money has to be paid. 
 
 This draft will be drawn payable either on demand or 
 at a certain number of days after date, according to the 
 wishes of the remitter. On a draft payable so many 
 days after date, you make no charge, because the use of 
 the money during the currency of the draft is supposed 
 to yield you a sufficient profit on the transaction. If 
 instead of a draft after date, one on demand is preferred, 
 you charge a commission upon it which will be governed 
 in rate by the description of currency which you receive 
 150
 
 LET. XX.] Circulation. 1 5 1 
 
 in exchange. A rate that would be remunerative when 
 the value received was in Bank of England notes, or 
 heavy gold, might be the reverse of profitable, when the 
 value received was mainly in unconverted media, such as 
 cheques on distant banks, gold of dubious weight, and 
 a heavy percentage of silver. 
 
 When you issue a draft after date, your usage is to 
 draw at fourteen days : but you hear of other banks 
 drawing at shorter dates ; for which, however, there may 
 be adequate reason. 
 
 If Oxborough were in a large wage-paying district, for 
 example, and you required constant remittances of specie 
 from your other Branches to supply the demand for 
 wage money; it might suit you to take gold and silver 
 from commercial men, or anybody else, against drafts 
 at less than 14 days' date ; for the obvious reason that 
 by thus receiving money on the spot, you save the e.K- 
 pense and risk of bringing it from elsewhere. But if 
 your position at Oxborough is that of most agricultural 
 towns, and you have constantly to remit to your Head 
 Office specie for which you have no use at the Branch, 
 then clearly the issue of drafts at seven or ten, or even 
 fourteen days' date, is not a description of business to 
 make a fortune by. 
 
 On drafts payable on demand, you quote your 
 ordinary rate of charge at one-eighth per cent. This 
 half-crown per hundred pounds has to cover the cost of 
 converting the circulative media of the provinces into 
 cash, commission to London agents, and the risk of 
 transmission. 
 
 What would be the proportion of the half-crown, to set 
 aside to cover this last item alone, is easy of estimate. 
 The leading railway com])anies put it at one shilling 
 per £,\<X). They will guarantee the safe carriage and 
 delivery of a remittance of specie at that rate. You 
 have therefore to part with 40 per cent, of your commis- 
 sion to the railway companies, or adopt the risk of trans- 
 mission yourselves.
 
 152 The Country Banker. [let. xx. 
 
 Supposing, then, that your messenger, in conveying 
 your weekly parcel of specie to Head Office, gets robbed 
 by the way, on some unhappy occasion ; and that the 
 parcel contains ^lOOO. If it were made the penalty for 
 his carelessness that he should redeem the loss by greater 
 care in future acts of transmission, he would have to 
 convey two thousand parcels of ;^ 1000 each without loss 
 or mischance ; a penance, which, reduced to figures, 
 would take him eight and thirty years to accomplish. 
 
 There are people, nevertheless, who prefer to be their 
 own transmitters of money, and who carry sometimes 
 large amounts in bank notes or gold about with them 
 from place to place, to make purchases or settle accounts, 
 whereby the cost of a draft or letter of credit is avoided. 
 The saving, as we have seen, can only be put at half-a- 
 crown, at the outside, on every hundred pounds thus 
 carried about. 
 
 For this charge, you will open a credit for a man at 
 any of your Branches or agents, against which he may 
 draw in the town where his payments have to be made, 
 to the exact amount he has to .disburse : so that he need 
 have no balance to bring back with him after dark, from 
 fair or market, at the risk of being robbed by the way ; 
 or by a worse chance, knocked on the head. 
 
 On the other hand, if a customer has to collect or 
 receive money in other towns, the money has simply to 
 be paid to your Branch or agents at the place ; and you 
 will pass it to his account, on exactly the same conditions 
 as if the money had been paid to his credit across your 
 counter. 
 
 Own Notes. You are entitled, under the Act of 1844, 
 to issue these to a limited extent. 
 
 You take from customers the notes of distant banks, 
 or cheques upon them, or gold of average lightness, or 
 silver, or anything else in the shape of moiietarial value, 
 and give them your own notes in exchange, free of
 
 LET. XX.] Circulation. 153 
 
 charge. For every ;^I00 in mixed value, you are always 
 prepared to give i^ioo in your own notes to a regular 
 holder, without abatement or charge of any kind. And 
 you do this for the simple reason, that your notes thus 
 issued will, on the average, remain in circulation a 
 sufficient length of time to more than cover their own 
 expense, as well as the cost of turning into cash the 
 miscellaneous value received by you in exchange for 
 them. I use the term regular holder, because you 
 would not give your own notes free of charge, in 
 exchange for light gold or its equivalents, to anyone 
 who, you have reason to suspect, would straightway cut 
 them in halves, and dispatch them by the first post as a 
 remittance to London or somewhere else. The notes, 
 thus mutilated, will go to your debit at your London 
 agents, where they are redeemable, possibly next day : 
 and you will have to pay a commission for their redemp- 
 tion. The notes will then be sent back to you at the 
 risk and cost of a double transmission by post. They 
 will be sent from London to your Head Office, and then 
 by your Head Office to you : and when the notes come 
 to hand, your junior apprentice will have the hateful task 
 of re-uniting the severed halves with gum-plaster. It is 
 needless to observe, that the issue of your own notes 
 under these conditions, would be more fertile of loss and 
 irritation than of profit or satisfaction. 
 
 You issue them free of charge, in exchange for notes 
 of other country banks, to cattle-dealers and others from 
 a distance, who visit your fairs and markets as buyers, 
 and who find your notes the popular means of purchase in 
 your neighbourhood, and will thus give them legitimate 
 circulation. 
 
 It would no doubt amaze the Governor and Company 
 of the Bank of England, if they were informed that their 
 notes are in less favour and request than your own, with 
 certain classes in your district ; and that to ease the 
 minds of ignorant holders, you have sometimes had to 
 indorse the notes of that august issuer, or give your own 
 notes in exchange. This preference for local notes
 
 154 The Coimtry Banker. [let. xx. 
 
 prevails more or less in rural parts. The people who 
 get your own notes, from your own hands, know at all 
 events that they are genuine : but they are not judges 
 of Bank of England notes. They have seen notes of the 
 Bank of Elegance, which to their eyes looked every 
 whit as good. When they receive at fairs or markets 
 the notes of the great issuer, therefore, they not seldom 
 prefer to have your notes instead ; because they know 
 where they are, then, and are freed from all qualms 
 about forgeries. 
 
 The chief circulators of your notes will be found 
 amongst your ordinary customers, who receive and pay 
 them away in preference to other forms of currency, in 
 settlement of accounts, or the payment of rents, or the 
 adjustment of any kind of transaction which involves 
 the use of money. 
 
 The right of private issue has therefore this to recom- 
 mend it. It is an advantage to the issuer himself: but 
 he at least shares the advantage with the community, 
 by extending to it many facilities gratuitously, which 
 otherwise would be subject to charge. 
 
 But Mr. Bagster has views of his own as to the right 
 use of your circulation. He holds that when the trading 
 interests of Oxborough are at stake — that is to say, in 
 plainer English, when certain of its burgesses are hard 
 up for money — it is mean in a bank like the District 
 Union, holding nearly three millions of deposits, to 
 boggle at the risk of a {q\\ thousands. A concern 
 paying an annual 15 per cent, to its proprietors, ought 
 not to betray this narrowness of view and sordid fear of 
 loss. Moreover, if a loss does arise, he contends that 
 you can fill the gap up with your own notes, which cost 
 you nothing. It is but just to add that Mr. Bagster 
 would deal with the National Debt in the same way : 
 he would pay it off by the issue of 750 millions of 
 one-pound notes payable to bearer on demand. 
 
 There is a character in one of Mr. Dickens' novels 
 who, when he gives his acceptance for an account, 
 regards the debt as thereby satisfied and discharged.
 
 LET. XX.] Circulation. 155 
 
 Mr. Bagster obviously looks upon the private issuer of 
 notes as a species of banking Micawber. 
 
 If you cannot satisfy Mr. Bagster and his disciples 
 that you do not possess the gift of Midas, you will at 
 least be able to convince them, when occasion offers, 
 that you are not furnished with his ears as well.
 
 LETTER XXI. 
 
 THE USE OF A BANKER. 
 
 Both are equally absurd, he that will burn his taper while the 
 sun shines, a?id he that will go to bed in the dark to save the 
 expense of light. Feltham. 
 
 Where commission is charged upon the outdrawings 
 of an active creditor account, the charge has to cover a 
 variety of services to the customer, besides the mere con- 
 version of promiscuous money's worth into money. 
 
 In evidence of this, let us take the account of your 
 chent Mr. Basil Crofton ; which affords a fair average ex- 
 ample of the working of a country gentleman's bank 
 account. Mr. Crofton's income is ;^4000 a year, and 
 consists chiefly of rents, but partly of dividends on 
 railway stock, interest on money lent, and other items. 
 He passes the whole through his account, the lodgments 
 on which are therefore of the usual miscellaneous de- 
 scription. 
 
 On the debit side, you find recorded every payment he 
 has made by cheque throughout the year. The cheques 
 vary in amount, from actual subscriptions to charities, to 
 the larger payments to tradesmen and others : but the 
 average is £20 a cheque, and you have cashed 200 of 
 them in the twelve months. You have received ^^4000 
 in miscellaneous value, which you have disbursed for him 
 in the form of ready money ; and your charge on the 
 account, to cover all, is one-eighth per cent, on the debit 
 side, or ^5 altogether. 
 
 But the balance at Mr. Crofton's credit, which fluctuates 
 from day to day, sometimes touching .;^500, sometimes 
 approaching vanishing point, but averaging ;^I50 for the 
 156
 
 LET. XXI.] The Use of a Banker. 157 
 
 twelve months, yields a material set-off against this 
 charge. On this most unstable and capricious deposit, 
 or rather series of fluctuating balances, you allow interest 
 at 2\ per cent, from day to day: this comes to ^^3 15^'. 
 and reduces your charge on Mr. Crofton's account to five 
 and twenty shillings a year. 
 
 In return for this attenuated allowance and humble 
 rate of pay, what services have you rendered to Mr. 
 Crofton ? You have, for one thing, protected his loose 
 money, or money's worth, amounting as we have seen to 
 a good many hundreds at times, against destruction by 
 fire or abstraction by theft. These risks, such as they 
 are, you have adopted. If you were personally attacked 
 and overcome by burglars, and your safe looted : or if 
 its contents were reduced to tinder by fire, neither event 
 need cost Mr. Crofton the loss of an hour's sleep. His 
 money would be safe, whatever evil stroke of fortune 
 might light upon you or the Bank. 
 
 In the second place, you have made 200 payments 
 for him in the course of the year, and taken your risk of 
 over payments, or payments to wrong parties, through 
 fraudulent possession or successful forgery. 
 
 In the third place, you keep Mr. Crofton's accounts for 
 him. Every sum paid into or drawn out of the account, 
 is duly entered on one side or the other of the pass-book 
 with which you furnish him ; and which thus becomes to 
 him a cash-book so complete, that he has no need to 
 keep any other. 
 
 If he requires to know how his rents and other revenues 
 have come in, he has merely to consult the credit side of 
 his pass-book, where he will find them recorded, item by 
 item, as they reached your hands, with detailed exacti- 
 tude. If he requires to know what portion of his income 
 he has spent, and how ; the debit side of his pass-book 
 will, with equal clearness and simplicity, afford the 
 required information. Mr. Crofton does not draw his 
 cheques in favour of persons under the mask of numbers, 
 as if his payees were limited to members of the Police 
 Force. He finds it more useful in every way to name on
 
 158 The Country Banker. [let. xxi. 
 
 every cheque, the person to whom he wishes the money 
 paid, or the purpose to which he desires the money to be 
 apphed. Every cheque he draws becomes thus a supple- 
 mental voucher and legal acquittance of debt. In the 
 event of his receipted accounts perishing by fire, or being 
 mislaid or lost, and a dispute arising as to the payment 
 of some particular account, and its payment is demanded 
 a second time ; the cheque wherewith the debt was dis- 
 charged will put the claimant out of Court with ignominy, 
 and righteously saddled with costs on both sides. 
 
 By thus dealing with his money matters, that is by 
 passing the whole of his income through his bank 
 account, and paying for everything by cheque, Mr. 
 Crofton makes you his private treasurer and accountant. 
 
 His drawings upon you during the twelve months, 
 although only two hundred in number, have involved 
 twelve hundred different entries and calculations in your 
 various books — a matter which, although it does not 
 concern Mr. Crofton, is of some importance to those who 
 have the entries to post, and the interest on the ever- 
 changing balance to work out day by day. In requital 
 for services to Mr. Crofton, in the performance of which 
 you become his clerk and almoner, he has to put his 
 hand into his pocket once a year for the net douceur of 
 five and twenty shillings, — say sixpence a week. Surely 
 nowhere in the world will you find a larger service for a 
 lower wage ? 
 
 You are persuaded, nevertheless, that many persons do 
 not pass the whole of their cash transactions through 
 their bank accounts : the temptation to avoid the pay- 
 ment of a small commission being too great for them to 
 withstand. You know that many persons habitually 
 keep money at home, in order to use it direct, in the 
 payment of wages, or the settlement of purchases or 
 debts. 
 
 There are those amongst your customers, no doubt, 
 as you allege, who will spend precious time in scheming 
 how to save a shilling in the commission on their bank
 
 LET. XXI.] The Use of a Banker. 1 59 
 
 accounts. To gain the weather side of their bankers in 
 this direction, charms some natures with a sense of 
 superior tact, and a pleasing experience of the penny- 
 saved. 
 
 There are others, to whom such indulgence in 
 the intricacies of vulgar fractions would be a source 
 of cerebral irritation, and who prefer to work their 
 accounts on the principle of an arbitrated sum per 
 annum. To a man of this temperament, the taxing each 
 transaction as it arose, with the commission upon it, 
 would be intolerable. To find the ;^ioo which he has 
 lodged to his credit recorded in his pass-book as 
 ;^99 i8j. <^d. net: or his cheque, let ussay, for;^6 13.?. d^d. 
 charged against him as £(i \y. 5^. would drive him 
 crazy. His books and yours would never balance. The 
 discrepancies, it is true, would be of trivial amount, but 
 that would only render them the more harassing. His 
 wound would be great because it was so small. 
 
 But the great bulk of your customers are people 
 absorbed in business or trade, to whom time is money, 
 and who incline to the principle of payment, in ratio to 
 the service rendered. They desire to pay neither too 
 little nor too much. If the transactions on their accounts 
 amount to ten thousand a year, they pay on that sum ; 
 if they amount to twenty, they pay on twenty, and so 
 forth. They go on the principle of value received ; and 
 thus adjust the cost of their accounts to the necessities 
 of their business. 
 
 After all, this matter of commission is merely a ques- 
 tion of expediency. We have seen that a gentleman 
 with an annual income of;^4000 and an outlay to match, 
 can have his floating cash insured against fire or theft, 
 the whole of his disbursements made and duly vouched 
 for, and a private cash-book supplied, and duly posted 
 for him, from day to day, for a charge per annum hardly 
 exceeding the price of a stall ticket for the opera. 
 
 If a man prefers nevertheless to act as his own banker, 
 and be the custodian and disburser of his own money, 
 there is no law to the contrary. He will, in that case,
 
 1 60 The Count)')' Banker. [let, xxi. 
 
 have to act as his own cashier, and make all his pay- 
 ments personally, or by post. He will have to keep his 
 own cash-book, if he is to have anything beyond a 
 hazy notion of how his money matters stand ; and 
 the science of book-keeping is not a pleasing study to 
 most people, nor its practice a favourite pastime. If he 
 mislay a paid account or receipt, he will have no cheque 
 to fall back upon as its legal substitute. Instead of 
 keeping his loose money at the Bank, he must keep it 
 at home of nights — possibly under his pillow, if he is a 
 nervous man ; and thus instead of receiving interest upon 
 it, will lay it out at usury in nightly fears of burglaiy 
 and outrage. 
 
 When he can avoid such disturbing fancies, shirk 
 private book-keeping, and save himself all risk and 
 trouble in the receipt and disbursement of his money, by 
 simply passing the whole of it through a bank account, 
 it is difficult to understand why anyone should hesitate 
 to do so ; unless he has still to read Gilbart's ' Ten 
 minutes' advice about keeping a banker ' of which, in 
 some points, this letter is an unavoidable paraphrase.
 
 LETTER XXII. 
 
 SALARIES. 
 
 All things have their bounds and measures, and so must 
 liberality amongst the rest, that it be 7ieither too jnuch for the 
 giver, nor too little for the receiver, the excess being every jot as 
 bad as the defect. L' Estrange' s Seneca. 
 
 You ask whether it would not be possible to attach a 
 fixed salary to each Branch, proportioned to its profits, and 
 to appoint the Managers in the order of merit, placing 
 the best man in charge of the best Branch, the next best 
 man in charge of the second best Branch and so on. 
 
 But a fixed salary to each Branch, on the principle 
 proposed, might become a fixed injustice; because the 
 profits of a Branch fluctuate from causes over which 
 the Manager may have no control. If your scale is to be 
 governed by these fluctuations, its fixity is gone : if not, 
 then its equity is destroyed. 
 
 But let us follow the scheme out to its consequences, 
 and w^hen Manager A. dies, or retires, then as a matter of 
 right B. takes his place, making room for C. who is 
 replaced by D. and so downwards ; until your entire 
 managerial force is re-shuffled and you start a new game 
 with fresh hands. 
 
 Have you counted the mere cost of removing your 
 thirty Managers, their wives, families and servants, their 
 goods and chattels, from one Branch to another every 
 now and then, like children of the desert? Even on the 
 supposition that the members of your provincial staff 
 should come to relish this nomadic form of existence, 
 there is no reason to believe that your customers would 
 long submit to it. They will hardly care to establish 
 II i6i
 
 1 62 The Country Banker. [let. xxn. 
 
 permanent relations with Managers who will be as 
 migratory as so many Bedouins. 
 
 The confidence placed in the Manager of a bank by its 
 customers is usually great and frequently intimate ; and 
 this confidence is not willingly transferred to a stranger. 
 A man, as a rule, is as averse to changing his banker as 
 he is to changing his lawyer or his physician : he is still 
 more opposed to having his banker changed for him, 
 whether he will or not. 
 
 It is not sufficient to reply that the change does not 
 involve the change of one's banker, because virtually it 
 amounts to that. It is not to the Directors and Com- 
 pany, but to the Manager personally, that the customer 
 unbosoms himself, and seeks for friendly counsel as to 
 his money matters. 
 
 Moreover, it is undesirable and a waste of power, to 
 remove a Manager from a district with which he is 
 familiar, to one to which he is a stranger; because a 
 knowledge of the persons with whom he has to deal is 
 manifestly one of the most important acquisitions which 
 a Bank Manager can possess, and ought not lightly to be 
 set aside and sacrificed. 
 
 Such a removal, it is true, may at times be unavoid- 
 able. The management of an important Branch may 
 become vacant, and the fittest man to fill the vacancy 
 may be the Manager of a Branch in a different part of the 
 country. The point to be arrived at is, — not the perpetual 
 fixity of every Manager to a particular Branch, whatever 
 may come to pass ; but the greatest possible avoidance of 
 change. 
 
 You cannot regulate promotion in a bank by any 
 arbitrary scheme of precedency and succession. The 
 services required from the officers and clerks of a bank 
 are not altogether automatic. These men are some- 
 thing more than hewers of wood and drawers of water. 
 They are not a mere combination of wheels and move- 
 ments in a complicated machine, bound to revolve 
 blindly, each on its own axis, without thought or care or 
 responsibility. A certain uniformity is no doubt indis-
 
 LET. XXII.] Salaries. 163 
 
 pensable in the routine work of a bank : but banking is 
 not all routine ; it is not all a matter of red tape. It 
 gives scope for the exercise of qualities, ranging from those 
 of the mere drudge to abilities of the highest order. Its 
 salaries therefore must be measured by the mental capa- 
 cities of its officers, as well as by their grades of seniority. 
 
 Other things being equal, the officer of senior standing 
 has the prior claim to advancement: but if other things 
 are not equal — if he has allowed a junior in the service 
 to outstrip him in the race for distinction, it is but just 
 that the better man, although the younger, should take 
 the better place. 
 
 This may seem hard on the less capable amongst the 
 officers : but any other course would be still harder upon 
 the Bank. It is bound to place its ablest hands where 
 ability is wanted; and ability does not always ripen with 
 the years. 
 
 No doubt, among the rank and file of every bank, there 
 are those who deem themselves qualified for higher things 
 than figuring, or the casting up and balancing of cash 
 books and ledgers : but, even so, it is clear that all can- 
 not be Managers, or Secretaries, or Chief-accountants. 
 Banking may have its mute inglorious Miltons ; but 
 this is certain, that Boards of Directors have no object 
 in making choice of their higher range of officials, other 
 than the selection of the fittest. This being so, it need 
 no more be a reproach to a subordinate officer, that he 
 has not the special capacities required for high office in 
 banking, than that he was not born to command the 
 Channel Fleet or lead the House of Commons. It is his 
 misfortune, if misfortune it be : but one has heard of men 
 in the foremost ranks of banking, looking back almost 
 with regret, to those early da\'s, when their salaries were 
 light and their cares in proportion. 
 
 There are those in the service of every bank who 
 would no doubt prefer the system of promotion by 
 seniority ; a method of choice which recognises but one 
 standard of intellectual value — the weight of years. 
 Weighed in such a balance, seniority preponderates as a
 
 164 The Country Banker. [let. xxii. 
 
 law; and judgment, thought and aptitude, if h'nked with 
 youth, inevitably kick the beam. It would be an untold 
 relief to your Directors and Chief Manager, if they could 
 adopt this system. The lengthened and earnest consi- 
 deration which they now give to every case, as it arises, 
 in order to place the right man in the right place, and 
 measure out justice impartially to all, would be spared 
 them. The law of seniority requires no thought and no 
 supervision ; it is self-acting. It reduces promotion to 
 a question not of merit, but of mortality amongst the 
 seniors. It robs the service of all interest, except in 
 dead men's shoes. If promotion is not to be the reward 
 of active brains and willing hands, why disquiet them- 
 selves in vain ? and why ought we, the lookers on, to feel 
 surprised at the do-nothing apathy, and the official inso- 
 lence, which are too often the outcome of the system ? 
 
 A bank cannot give high salaries to all its officers; but 
 if its highest offices are open to every one in its employ- 
 ment, who shall prove his fitness for the same, there will 
 be no apathy in its staff It will be the object of every 
 one to devote his best abilities to the practice and study 
 of his profession ; and thus an able, zealous and loyal 
 staff will be developed. 
 
 But although a bank cannot give high salaries to all, 
 it is not a wise policy to give insufficient salaries to any. 
 A bank ought not to appraise the value of an officer's 
 services merely by what they would fetch in the clerk 
 market. He may not be a man of capacity : he may be 
 even little more than an honest and willing drudge.; but 
 when it is considered how much the Directors of a bank 
 have to trust to the honesty, integrity and honour of its 
 staff, they will not lightly part with those who have 
 proved themselves, by long service, the possessors of those 
 essential qualifications, even if they have little else to 
 recommend them to consideration. In the best interests 
 of the Bank, its Directors will rather give an officer they 
 have known and trusted for years, a trifle more to stay, 
 than a stranger, however highly commended, a trifle less 
 to come.
 
 LET. XXII.] Sdlaries. 1 65 
 
 If the system of promotion followed by your Bank 
 gives rise to occasional heartburnings, such feelings are 
 probably the monopoly of the icw, who cannot, without 
 envy and bitterness, see better men passed over their 
 heads. But the system is not in fault. It is reasonable 
 in its requirements and just in its action. It has no 
 favourites, except that it favours superior talent, energy 
 and desert. It holds forth the inducement to all alike 
 to press forward : and impartially assigns its prizes to 
 the winners in the race. 
 
 There are grumblers to be found in every staff. There 
 would be such even if a second Daniel came to judgment. 
 There are some in every bank possessed with a conceit 
 of themselves which no salary will ever rise to the 
 height of 
 
 Your teller Mr. Coigne is not exactly one of these, but 
 he looks upon his services as grievously underpaid. He 
 gives his mind over rather to speculation than to practice, 
 and could pass a searching examination on the abstrusest 
 theories of the currency ; on which he delights to cross 
 an occasional sword with a certain H. B. in the columns 
 of your local paper, to the bewilderment of its readers, 
 if not to the surrender of his antagonist. Mr. Coigne 
 has all the qualities requisite in a good subaltern, but is 
 deficient in those which are essential for command : 
 Wherefore, he is still only a Branch Cashier, although he 
 has applied for the management of every Branch which 
 has become vacant during the last ten years. 
 
 Your Accountant has likewise a grievance. He has 
 applied annually for an increase in his salary for some 
 time past, on the ground that he has married a wife and 
 has a young and increasing family: but if a man persists 
 in marrying on a salary only sufficient to maintain him- 
 self in comfort, that is his own affair. The Directors 
 cannot make every increase in a man's family the occa- 
 sion of an addition to his salary. 
 
 You have a slight grievance yourself You have less 
 salary than your predecessor had, and you have heavier 
 work to do, and you have to carry some of his burdens
 
 1 66 The Country Banker. [let. xxn. 
 
 as well. But Mr. Littleworth was one of the oldest 
 officers in the service, and numbered twice your years. 
 If you look at the salary he received, when he was of 
 your age, you will probably find that your present stipend 
 is munificent by comparison. 
 
 There are those who persistently remind the Directors 
 of their services and aspirations, whenever the time comes 
 round for the revision of salaries. Whether this course 
 has the effect of furthering their wishes, is, to say the 
 least, doubtful. The officer who is content to leave the 
 question of his salary to the judgment and justice of the 
 Directors, and abstains from worrying them about it, is 
 not likely to suffer by reason of his abstention. The 
 merits of every individual in the service are perfectly 
 known to the authorities at head quarters ; and an officer 
 will not enhance the value of his services by the continual 
 blowing of his own trumpet.
 
 LETTER XXIII. 
 
 OFFICE EXPENSES. 
 
 In expenses I would be neither pinching 7ior prodigal ; yet, if 
 my means allo7U it not, I would rather be thought too sparing 
 than a little pro/use. Feltham. 
 
 The great item of your expenditure will consist of 
 the interest paid half-yearly on your deposits and credit 
 balances. 
 
 Next in amount come salaries, with which we have 
 just dealt: then sundry less important items, which 
 have nevertheless to be glanced at as we pass on. And 
 first as regards the item of 
 
 Premises. Your premises in Oxborough, you state, 
 are of moderate rent, but they are old and mean-looking, 
 and rather out of sight : whereas the premises of your 
 competitors are the architectural glory of Oxborough, 
 and the admiration of the county. They occupy an 
 imposing site on the South side of Market Square, and 
 are conspicuous from every point of it : whereas you 
 command that important centre only by the word Bank 
 in colossal capitals, on a dead wall ; and }-our front door 
 is round a corner. 
 
 You believe that Messrs. Yewtrey & Co. sit at a rent 
 some five times greater than your own ; but you are 
 doubtful whether the impression made upon the public 
 mind by their superb building, may not compensate for 
 this; by attracting business to them, of which you would 
 have an equal chance, if you were housed with equal 
 splendour. 
 
 167
 
 1 68 The Country Banker. [let. xxm. 
 
 No doubt, there are those who judge of a bank to a 
 certain extent by its externals. A large and costly build- 
 ing is an assurance to some minds of corresponding wealth 
 and stability within. A massive structure, guarded at all 
 points with arrangements in iron, crowned with ja\elin 
 tops, for the impalement as it might seem of incautious 
 burglars, will appear to many persons a more secure 
 place to deposit money, than a building like yours, of 
 humbler pretensions ; which was somebody else's shop 
 and dwelling-house in the last generation, and would 
 seem designed rather to invite burglarious attack than 
 to defy it. 
 
 There are those again, who experience a sense of 
 reflected dignity, as they pass under the Grecian portico 
 of your rivals, with the eyes of Market Square upon 
 them. This is the style of thing, they seem to say, 
 that corresponds with our business position, and com- 
 mends itself to our approval. 
 
 On the other hand, in a small town where everyone 
 knows what everybody else is doing, it is certain that 
 many persons would rather their banking were trans- 
 acted with a greater regard to privacy, and less in the 
 glare and focus of the public eye. 
 
 A man visits his bankers ordinarih' to do one of two 
 things. He goes either to borrow or to deposit money. 
 If to borrow, he would rather the eyes of Market Square 
 were not upon him. The nature of his errand it is true, 
 is not written across his back : but he will have an 
 uneasy feeling, that its object will be shrewdly guessed 
 at by observant neighbours. On the whole, he will 
 prefer to turn your corner quietly and do his borrowing 
 with you. If his business, on the other hand, is to 
 deposit money, he may desire to be equally circumspect. 
 He does not wish it to be popularly known that he has 
 money in the Bank : because this may expose him to 
 solicitations for loans by needy neighbours, and deprive 
 him of the unanswerable excuse that he has not the 
 money to lend. Mr. Nayler was never known to lodge 
 money to his credit when anyone was looking on.
 
 LET. xxin.] Office Expenses. 1 69 
 
 It is at least open to question, therefore, whether your 
 premises are not as desirable, in point of situation, as 
 those of the old bank. A site such as yours, which is at 
 once public and priv^ate, central and yet retired, will com- 
 mend itself to at least as many people as it will repel. 
 
 It may be that your constituents in Oxborough shall 
 so increase and multiply, as to oblige your Directors 
 to construct a building of their own, some day, which 
 shall ri\al even the structure of Messrs. Yewtrey & Co. 
 in commodious arrangement and architectural magnifi- 
 cence. In the meantime, you can rest well content with 
 your present housing, and keep your expenses down. 
 A large building will involve a serious increase in rent, 
 rates and taxes, and in various other ways. 
 
 Incidental Expenses. It would be well to accustom 
 yourself to reflect, that the example of any one Branch, 
 in the direction of increased expenditure, is apt to 
 spread. If you are inclined to be lavish, you have no , 
 right to assume that your nine and twenty fellow- 
 Managers are models of thrift. If Oxborough shall 
 spend money, let us say, in replacing the shabby old 
 office clock, by a new and gorgeous instrument, the 
 other Branches may be stirred more or less by a desire 
 to follow suit. There will be a perceptible touch of 
 clock fever throughout the establishment. When you 
 experience an inclination, therefore, to add to the 
 existing expenses of your Branch, whatever form the 
 inclination may take, multiply the cost of the proposed 
 addition by thirty; because what may be deemed a 
 proper outlay at your Branch, may be looked upon 
 as a thing equally to be desired at all your other 
 Branches. 
 
 And whilst you thus keep in subjection any leanings 
 of }'our own towards an increased expenditure, there is 
 a tendency to waste in small things, in the daily work- 
 ing of a bank, which you will do well to check, if you 
 find that it exists at Oxboroutrh Branch.
 
 1 70 The Country Banker. [let. xxm. 
 
 It is related of a youth in the staff of a certain bank 
 that when he travels in its service, he does so ' like a 
 gentleman,' has tawny port with dinner every day, and 
 rewards the attendants with princely munificence : all 
 which he will placidly assure you, he does for the credit 
 of the Bank as its representative. His taste in pens is 
 said to be so fastidious, that in finding one to suit him, 
 he throws two others away. In the intervals of business, 
 he carries on a large private correspondence, making 
 free use of paper, envelopes, and sealing-wax, not his 
 own : but what Board of Directors, as he demands 
 with scorn, would condescend to notice such trifles, or 
 chronicle such small beer? We shall have the inspector 
 counting the dusters next, proceeds this malapert: and 
 putting our charwoman on a reduced allowance for 
 soap. 
 
 This young man flatters himself that amongst other 
 accomplishments he has a pretty turn for satire. When 
 the Directors made the last disappointing advance in 
 his salary, he thanked them with such polite mockery 
 and elaborate sarcasm, that he had well-nigh forfeited 
 both salary and situation. 
 
 I do not introduce this youth to your notice as a re- 
 presentative bank clerk. On the contrary, it is to be 
 hoped that in his all round capacity for waste in little 
 things, he is without a rival. But if others have not 
 his many-sidedness, they sometimes have tendencies 
 of their own towards waste, which you may have to 
 check. A reckless consumption of coal and gas, for 
 example, is a conspicuous and somewhat dangerous form 
 of extravagance. I have heard an experienced bank 
 Inspector declare his wonder, in a sardonic way which lie 
 had, that there are not as many bank offices set on fire 
 every year in England, as there were huts in China, 
 whenever, according to Elia, a certain process in primeval 
 cookery was resorted to by the inhabitants. 
 
 It is not necessary that you should push economy to 
 the verge of meanness : there is a degree of parsimony 
 which defeats itself. What you have to fight against, if
 
 LET. xxiTi.] Office Expenses. 171 
 
 you find it to exist, is thoughtless waste, not reasonable 
 consumption. If you would not have the office ink 
 smearing your walls, desks, and floor with indelible 
 arrangements in black, neither would you measure it out 
 by the gill. You would not stint the office to so many 
 sticks of sealing-wax a week, but you might interdict a 
 wasteful apprentice from sealing the day's letters in discs 
 of wax, sufficient to take off the Great Seal itself. 
 
 Acts of unthrift like these flow less from want of 
 principle, than from want of supervision. ' They care 
 not what they spend,' says Fuller, 'who are never 
 brought to an audit.' 
 
 Waste in small things, where it prevails and is left to 
 itself, is continuous, and may be reckoned by the hour. 
 Now there are six hours in your working day, and some 
 three hundred days in your working year, and you 
 number one hundred and fifty officers and clerks all told. 
 
 These figures — 6 X 300 X 150 yield a formidable total. 
 They indicate 270,000 opportunities for unthrift, of 
 one hour each, in the course of a year. Even farthings, 
 with such a multiplier, would come to something. 
 But whatever the amount may be, it will be well to 
 note that it has to be charged to the same fund out of 
 which salaries are paid. The Executive of a bank, 
 therefore, from the Manager to the youngest apprentice, 
 have a direct personal interest in keeping expenses 
 down. 
 
 Subscriptions and Charities. You are dunned 
 once a year for a subscription by the Bank to Ox- 
 borough Races. There are many of your best clients 
 on the Race Committee, and you are doubtful whether 
 the persistent refusal of your Directors to subscribe is 
 sound policy. 
 
 Their difficulty is no doubt this. Amongst a proprie- 
 tary so mixed as that of a joint stock bank, there may 
 be those who entertain the strongest objections to horse- 
 racing, on religious grounds. It matters not whether
 
 172 
 
 The Country Banker, 
 
 [let. XXIII. 
 
 horse-racing morally speaking be good, bad, or indifferent: 
 it is enough that objections to it exist among your share- 
 holders, to render inexpedient any application of the 
 Bank's funds to its support. 
 
 The same difficulty stands in the way of the Bank 
 subscribing to any object, concerning the merits of which 
 your proprietors may be divided in opinion, on political 
 or religious grounds. You cannot subscribe to the erec- 
 tion of a church, and refuse to contribute to the building 
 of a chapel. You cannot support Church of England 
 Schools, and turn your backs upon all others. Not to 
 speak it profanely, a Joint Stock Bank is virtually of no 
 religion. It looks with the balanced eye of business 
 upon Christians and Jews, Infidels and Heretics, with 
 impartial recognition. 
 
 But as regards dispensaries, hospitals, asylums, and 
 other institutions, to which all creeds and parties may 
 contribute on the broad basis of common charity, your 
 Bank will no doubt be ready at all times with its proper 
 share. 
 
 In estimating, however, what this should be, you have 
 to take into account that your shareholders in Oxborough 
 may have already subscribed individually towards the 
 object in view. Not that this circumstance will absolve 
 the Bank from giving, in its capacity as a householder, as 
 well : but it may serve to modify the views of those who 
 appear to think that a bank has a limitless power of 
 giving, and the unrestricted run of its shareholders' 
 pockets. 
 
 Your Directors, nevertheless, will not regulate the cha- 
 rities of the Bank, by calculating how little, but rather how 
 much they can rightly give to all good works : because 
 they know that money thus given, is not always money 
 wasted. Such giving is not always a sterile form of in- 
 vestment, even from a business point of view. 
 
 It troubles you that your subscription to the funds of 
 your Infirmary is only two guineas a year, whilst Messrs. 
 Yewtrey & Co. give ten. The fact, you observe, gives 
 occasion to certain people for contemptuous remark and
 
 LET. XXIII.] Office Expenses. 173 
 
 injurious comparison. But such persons must either 
 forget or ignore the fact that Messrs. Yewtrey & Co. 
 have no Branches. Tlieir sole office is at Oxborough : 
 whereas your Bank has to contribute at thirty different 
 points. You subscribe to thirty Infirmaries, therefore, 
 as against their one ; and contribute sixty guineas a 
 year to their ten.
 
 LETTER XXIV. 
 
 ROUTINE DUTIES. 
 
 77^1? every-day cares and duties, which vien call drudgery, are 
 the weights aiid counterpoises of the clock of time, giving its pen- 
 dulum a true vibratio7i and its hands a regular ?fiotion. 
 
 Longfellow. 
 
 You take exception to certain of your routine duties 
 as you find them set forth in your code of instructions. 
 
 Attendance. If your printed regulations are to 
 be strictly observed, in the matter of attendance, for 
 example, you submit that they would tie you to your 
 counter from day to day, without respite, from one year's 
 end to another, except during your annual holidays. 
 But if there is a grievance in this, it is a penalty which 
 you pay to your profession. It is a regulation common 
 to every Bank. In banking, more than in any other 
 business, the customer elects to deal with the principal. 
 However qualified your second in command may be to 
 represent you, he is not the Manager, and will not be 
 accepted by the customers as your second self or human 
 equivalent. If it be the first necessity of banking that 
 your office doors should be open during the usual hours 
 of business, the second is that you should be inside of 
 them. If your clients find that there is an uncertainty 
 as to this, and that transactions, of vital moment to 
 them, have every now and then to be submitted to a 
 subordinate, or delayed a post, in order that you may 
 have a day's fishing, or a day's shooting, or a day's some- 
 
 174
 
 LET. XXIV.] Routine Duties. 175 
 
 thing else ; they will consider themselves ill-used and 
 begin to calculate how long they will put up with it. A 
 medical man of sporting liabits, who should leave his 
 patients every now and then to the care of his surgery 
 assistant, would soon experience a sensible falling off in 
 the demands upon his skill. 
 
 Neither is this matter of relaxation an obvious neces- 
 sity. Mr. Coigne, it is true, exclaims against ' the 
 thraldom of the desk,' and protests that in all Ox- 
 borough, there is not a journeyman shoemaker, nor a 
 draper's apprentice, so tied by the heels to his work, 
 day after day, and every day, as the officials in banks 
 are. But if Mr. Coigne's work is continuous, it is of the 
 briefest in point of duration. The inscription on the 
 brass plate of your office door is, — 'Open from 10 till 
 3 ;' and even out of this brief period of time, Mr. Coigne 
 takes little less than an hour for his mid-day meal. His 
 daily work, therefore, cannot be put at much more than 
 five hours out of the four and twenty; whereas the work- 
 ing hours of those whose happier lot he appears to covet, 
 are nearer ten than five. Their work absorbs twenty 
 weeks out of the fifty -two — his only ten. His workaday 
 life therefore, his daily labour under the sun, compared 
 with theirs, is a perpetual half-holiday. 
 
 You suggest whether it might not be expedient, on 
 the occasion of fairs and markets, that you should go 
 about amongst your country clients, were it merely to 
 shake hands and have a ttdk about the weather and the 
 crops. You believe that in this way, you might pick up 
 a useful hint here and there, as to how some of your 
 agricultural friends, particularly those on the debit side 
 of your ledgers, were getting on. But to discuss the 
 position and prospects of people in the publicity of a 
 market place, even in whispers, is clearly undesirable. 
 These subjects of inquiry ought never to be attempted 
 except in the privacy of your own office ; whilst the 
 weather and the crops might be sufficiently gone into at 
 any time across your counter. 
 
 The business of a banker does not lead him to the
 
 1/6 The Country BanJzer. [let. xxiv. 
 
 public, but the public to him. He does not cross the 
 street to Brown to beseech him for a deposit, nor to 
 Jones to implore him to overdraw his account. As we 
 sought in a former letter to render manifest, it is for its 
 customers to come to a bank, and not for the bank to 
 go to them; for the simple reason that banking would 
 otherwise be impossible and come to an end. But this 
 being so, the community have a right to demand that the 
 Bank shall at all times be in complete working order; 
 and to insure this, the Manager has to be as much a 
 fixture in the office, during the business hours of every 
 business day, as the office desks or the bank counter. 
 
 You ask, if you are thus to pass the reniainder of your 
 days inside your office, how you are to push the business ? 
 But banking is a business to which the process of 
 pushing must be applied, if at all, with the utmost 
 circumspection. 
 
 To entice the customer of another bank, for example, 
 to bring his account to you, would be, to say the least, 
 an unneighbourly act: but what is worse, it would be a 
 blunder : because, for one reason, the other bank could 
 play at the same game. It would be pawn for pawn, 
 and piece for piece, and at the best a drawn battle, 
 which would leave mutual and angry wounds behind it. 
 The advice to those who live in glass houses to beware 
 of throwing stones, has many applications. 
 
 Those of your customers whose good will you have 
 won, backed by your detachment of local shareholders, 
 constitute an auxiliary force, which will bring fresh 
 business to the Bank, when there is fresh business to 
 bring, without your moving in the matter, or getting 
 yourself into unpleasant relations with neighbouring 
 banks. 
 
 And there is a further objection. If at your personal 
 solicitation, a man brings his account to you from 
 another bank, he will naturally expect not only the 
 same facilities from you, which he has just surrendered, 
 but something in addition, by way of consideration for 
 his having made the change : and it will be ungracious
 
 LET. XXIV.] Routine Duties. 177 
 
 to refuse him, however much his expectations may 
 exceed your own idea of the fitness of things in his case. 
 So far from frequenting fairs and markets, let no one 
 entice )'ou to talk about or transact business outside the 
 Bank. When you lock your cash up at the close of the 
 day's business, lock thedoorsof your mind upon banking 
 at the same time, and let them continue locked, until the 
 next day. Do not let a few troublesome accounts even, 
 if you have any, accompany you to your pillow and 
 trouble you in the night season. You will not render 
 them less troublesome by losing your night's rest over 
 them. 'Put off thy care with thy clothes,' says Quarles, 
 'so shall thy rest strengthen thy labour: and so shall 
 thy labour sweeten thy rest.' 
 
 Private Conduct. The espionage upon the private 
 conduct of their officials, throughout the establish- 
 ment, which your Directors countenance and encourage, 
 is gall and wormwood to certain of your staff, and 
 appears to be regarded with some disfavour even by 
 yourself: not that you fear the closest watching, 
 you remark, but because it is rather humiliating to be 
 suspected. 
 
 But is not this putting too fine a point upon it? 
 Watchfulness is not synonymous with suspicion. When, 
 for example, a stranger presents for payment a letter of 
 credit in his favour, and you require a reference as to his 
 identity, you do not thereby entitle him to assume that 
 you look upon him as an impostor? You make the 
 requisition purely as a matter of business. Or when 
 your Inspector of Branches comes round and counts your 
 cash, to see that it tallies with your returns, he does not 
 thereby impute that he suspects your honesty. He does 
 not count it with the slightest suspicion that he will find 
 it deficient. He checks it purely as a matter of routine. 
 To watch, is not necessarily to suspect. It is simply to 
 keep one's ears and eyes open. You would not have 
 your Directors to seal both these organs up, or your 
 12
 
 178 The Country Banker. [let. xxiv. 
 
 Inspector to make his rounds blindfolded ? There are 
 hmits, well defined, within which even the inquiring gaze 
 of your Inspector may not penetrate: but beyond these 
 the conduct of every officer in a bank is justly open to 
 the supervision of its Directors. 
 
 With your private convictions in religion or politics 
 you will have no interference, provided you keep them 
 in reasonable measure to yourself The Directors will 
 not require to know what communion of Christians you 
 belong to, nor to which party you give your vote at 
 elections. But it is one thing to entertain an opinion, 
 and quite another to seek its propagation. When a 
 Bank Manager therefore becomes either a prominent 
 political partisan, or a pronounced religious zealot, his 
 Directors have the right to admonish him, that such 
 outbrealvs of zeal are incompatible with his duties to the 
 Bank, and are rK3t included in the services for which they 
 pay him a salary. 
 
 Banking, as we have said more than once, does not 
 lean to any sect in religion, nor incline to any side in 
 politics. It deals alike with all sorts and conditions of 
 men. Identify yourself, therefore, conspicuously with 
 any sect or party, and succeed in setting half Ox- 
 borough, every now and then, by the ears, — and de- 
 fections from the number of your constituents will 
 assuredly follow. 
 
 His Directors have no concern with a Manager's 
 tastes, habits, or pursuits, so long as they do not 
 interfere with the efficient discharge of his duties : but 
 should he overstep the lines of prudence or propriety, 
 they are bound to interfere. If his style of living, for 
 example, becomes extravagant, and obviously in excess 
 of his income, the Directors are bound to call him to 
 account; because he cannot live beyond his means for 
 long without one of two things happening; either he 
 will meet the growing deficit in his finances with 
 borrowings from the cash — no doubt with a confident 
 trust in his ability to make all square again in time: or ,j 
 he will run into debt with customers of the Bank, and
 
 LET. XXIV.] Routine Duties. 1 79 
 
 thus bring undeserved .odium upon it, when the inevit- 
 able crash comes. 
 
 Instructions from Head Office. The feelings 
 of your staff are frequently outraged, it would seem, by 
 the circulars sent from time to time by the Head Office 
 to its Branches on matters touching the business and 
 regulations of the BcUik. 
 
 It may .seem unjust to the executive of your Branch 
 to be severely cautioned against the repetition of irre- 
 gularities which they have never been guilty of But 
 the circular is an impersonal missive. The irregulari- 
 ties to which it refers have arisen at one or other of 
 the Branches, and the caution is for those whom it may 
 concern. But it will not be wise in the members of your 
 staff to treat every circular from head-quarters as 
 designed for the edification of somebody else. It may 
 be taken for granted that the parent establishment will 
 not issue a single order that is superfluous. Your 
 subordinates at Oxborough will best study their own 
 interest, therefore, by a prompt compliance with such 
 instructions as may reach the Branch from Head 
 Office. 
 
 A bank, in the working of its routine, partakes in a 
 great measure of the movements of a complicated piece 
 of mechanism : and the Manager or clerk who shall 
 cause a hitch at any point, by disobedience or neglect, 
 may throw the whole machinery out of gear. To have 
 the great semi-annual balance of the Bank, for instance, 
 held in suspense, even for a day, by the default or 
 stupidity of a single officer, which is a possible thing, 
 need well be a serious matter for the delinquent. 
 
 The routine of a bank, to a large extent, is automatic, 
 and is usually framed on the simplest and most direct 
 methods of doing those things which have to be done 
 swiftly and effectuall}'. In office work, you prefer to 
 reach an object b)- the line of its diameter, rather than 
 by that of its circumference. Here and there, no doubt,
 
 1 80 The Country Banker. [let. xxiv, 
 
 a bank may still be found with leanings to old ways — to 
 methods of reckoning and account which would seem 
 to add needlessly to human labour. If the man is a 
 benefactor to his species, who causes a blade of grass 
 to grow where one never grew before, the man who 
 renders one book entry out of three to be for ever 
 needless, deserves the lasting gratitude of the clerkhood 
 of banking. Superfluity of record, and excess of books 
 and book-entry only puzzle the brain, lengthen the hours 
 of office work, and multiply the chances of error. 
 
 Managerial Responsibility. You take exception 
 to certain articles in your code of instructions, the dis- 
 regard of which exposes you to personal responsibility. 
 
 ' If we let a customer overdraw his account without 
 authority,' you write, * we are responsible. If we 
 discount bills beyond a certain amount without leave, 
 we are responsible. If we cash a cheque upon another 
 Branch or bank, and it is dishonoured and becomes a 
 loss, the loss is ours. If we discount a forged bill, or 
 cash a forged cheque, and become the victims of the 
 fraud, we have to make good the loss.' 
 
 You hold it to be unjust and impolitic, thus to tie 
 a Manager neck and heels with the cords of liability, 
 and that much of all this might with advantage be left 
 to his discretion. But to give a Bank Manager or 
 anyone else a discretion to follow certain rules, or 
 to set them aside, would virtually be to cancel the rules 
 themselves. 
 
 When you cash a cheque drawn upon another bank 
 or Branch, in ignorance of the state of the account drawn 
 upon, and the cheque is dishonoured, the risk is self- 
 taken, and the loss ought to be self-borne. That you 
 should be held responsible for the cashing of forged 
 bills, or cheques, is only consistent with all usage. It 
 is one of the special functions of a Bank Manager, or his 
 cashier, to see that every cheque or document, against 
 which he parts with the funds of the Bank, bears the 
 
 i
 
 LET. XXIV.] Routine Duties. 1 8 1 
 
 genuine signature of the party entitled to the money, or 
 that of his duly accredited agent. In all conditions 
 of life, he who pays money to the wrong person has to 
 bear the loss ; just as it is the common lot that he who 
 burns his fingers has to bear the smart. 
 
 But Boards of Directors are not all of flint and adamant 
 compounded. Forgeries which would have imposed 
 upon any one ; errors in the cash on busy days ; transac- 
 tions undertaken in the interest of the Bank, under 
 circumstances calculated to deceive even the wariest ; — 
 lapses like these from tlie written law of your instruc- 
 tions, if not entirely condoned, will at least be leniently 
 dealt with. It is the violation of the code, in clearly 
 specified cases, either from carelessness or conceit, which 
 will be visited by the Board with their worst displeasure. 
 
 In respect of the limitations put upon your action in 
 the matter of advances and discounts, you hold that they 
 leave little or nothing to the discretion of a Manager, 
 and reduce him to an automaton. You desire to be 
 more of a man and less of a contrivance. 
 
 But in a large establishment like yours, there are 
 Managers and Managers. There are those with discre- 
 tion largely developed : but there are others in which 
 that quality is not so conspicuous. Based on the axiom 
 that the strength of a chain is its weakest link, the 
 regulations of a bank are necessarily adapted to the 
 capacities of its least capable functionaries.
 
 LETTER XXV. 
 
 CORRESPONDENCE. 
 
 When thou communicatest thyself with letters, heighten or 
 depress thy stile according to the quality of the party and business: 
 that which thy tongue would present to any, if present, let thy pen 
 present to him absent ; the tongue is the nund' s interpreter ajid 
 the pefi is the tongue' s secretary. Quarles. 
 
 Your principal correspondent will be the chief Mana- 
 ger of the Bank. You may hav^e to write to him several 
 times a week on various matters, and it will be well to 
 bear in mind that the nine and twenty Managers 
 at your other Branches have to do the same. In deal- 
 ing with this extensive correspondence and its mis- 
 cellany of. contents, he has to take counsel with ' the 
 Board.' Every letter addressed to him, has more or less 
 to engage the attention and exercise the judgment of a 
 body of gentlemen, to whom, for the most part, time is 
 money, and by whom it is appraised, not by the hour 
 but by the minute. When you write to your Manager 
 in chief, therefore, you are addressing your six Directors 
 as well. 
 
 Your virtual correspondent, then, being a species of 
 modified Briaraeus, with seven heads and twice that 
 number of ears, it is unnecessary to suggest that your 
 communications to this formidable being had best be 
 featured by lucid statement and legible penmanship. 
 The clearest statement becomes blurred to the mind of 
 the reader, if it is conveyed in a hand-writing so obscure 
 as to require an effort and strain of the mental powers 
 to worm the meaning out of it. If the Manager who 
 gives away to an inscrutable penmanship, had an ink- 
 182
 
 LET. XXV.] Correspondence. 183 
 
 ling of the angry impatience of the Board, whilst his 
 meaning is puzzled over and painfully extracted, he 
 would promptly ' take a thought and mend,' and never 
 cease to mend, until he had achieved a style which should 
 at least be readable. Better a hand of even extra 
 uncouthness which is legible, than one with the beauty of 
 copper-plate from which no man can extract a meaning. 
 ' Better,' the Spaniards say, ' ride an ass that carries 
 you than a horse that throws you.' 
 
 And next to clearness of statement, a Manager should 
 study brevity, which is no less the soul of business than 
 of wit. The limited time during which committees of 
 Bank Directors usually sit, and the variety of matters 
 which they must dispose of at each sitting, do not 
 afford the time to read a roundabout epistle : it has to 
 be abstracted. The official, whose business it is to 
 operate upon verbosity, mentally applies the knife, and 
 fluent pages are thus cut down sometimes to as many 
 lines. If the exactitude of a Manager's views is im- 
 paired by this process, he has himself to blame : the 
 writer ' who draweth out the thread of his verbosity 
 finer than the staple of his argument ' has to undergo 
 compression ; his sentiments have to undergo the opera- 
 tion of being 'limited and reduced.' 
 
 And in your correspondence with Head Office, whilst 
 you seek to express your views upon the matters in 
 hand with respectful firmness, it will be wise to avoid 
 argument; it is for you to place the facts before the 
 Directors, not to guide them to a decision. Nor is 
 'tone' a quality to be slighted in your letters to head- 
 quarters. When you wrote the letter of which you 
 speak, on behalf of a deserving charity, and enforced 
 your appeal with an apt quotation from the Greek, it is 
 hardly matter for surprise that, although your appeal 
 was handsomely responded to, you had a gentle hint 
 to confine yourself to the English language in your 
 future communications to the Head Office. A business 
 communication has no place in it for the classics ; a 
 Greek quantity is not suggestive of a sum total :
 
 1 84 The Country Banker. [let. xxv. 
 
 in matters so peculiarly British as pounds, shillings, and 
 pence, the English language is the natural vehicle for the 
 conveyance of thought. 
 
 When upon another occasion you suggested that one 
 Brown by name, an obstinate debtor, should be handed 
 over to your solicitors, with the expression of a hope 
 that they would make him look Blue, it is even less 
 matter for surprise that you were invited, in reply, to 
 abstain in future from jocosity in matters of business. 
 Even if your little joke had been feebler than it was, 
 which is impossible, your whole Board of Directors, 
 remember, had to sit upon it. No wonder that the 
 Manager was instructed to sit upon you instead. A 
 bank Board is not given to exchanges of drollery with 
 its officers ; its business is with realities, some of them 
 stern enough, but none of them so trivial as to be dis- 
 missed with a jest. 
 
 Letters to Customers. In your intercourse with 
 your clients, you will find it a safe observance, never to 
 discuss with a customer the position of his account by 
 letter, if you can by any means arrange to do so by 
 word of mouth. If the discussion has to be of an un- 
 pleasant cast, the mere putting it in writing will give to 
 your missive a formality and bite of their own. 
 
 Let us say that you have written to a man to reduce 
 or pay off his account ; you have probably heard some- 
 thing to his disadvantage, but you cannot well say so in 
 writing, or give your authority. He has no chance there- 
 fore of confuting the charge, because you do not give it 
 him to confute ; whereas, if you had a friendly talk with 
 him, freed from the constraint of putting everything into 
 writing, he might be able to disabuse your mind of what 
 may be rankling there to his prejudice. It is at least 
 certain that a man will reveal more of his mind to you, 
 in ten minutes' talk, in the seclusion of your private office, 
 than he will ever be able to express or put his hand to 
 in writin<i.
 
 LET. XXV.] Correspo7tdence. 185 
 
 It is a further objection to your conveying to a custo- 
 mer wishes of an unpleasant nature by letter, that he 
 may be from home at the time, and your missive be 
 opened by some one in his absence. If this some one 
 should happen to be a nervous wife or a loose-tongued 
 clerk, your client will have a right to ask why you sent this 
 epistolary bombshell after him without a word of notice. 
 Rather than be thus brought to book, he would have 
 endured an hour's warming in your sweating-room, at 
 any degree of managerial heat. Your customers, without 
 exception, will prefer to discuss the delicate questions of 
 their overdrafts and bills in camera; and you will do 
 wisely to humour them in this preference. 
 
 A Banker's Opinion in confidence. There is 
 perhaps no more difficult or delicate task which the 
 Manager of a bank has constantly to perform, 
 than to give expression to his opinion, in confidence, of 
 the position and trustworthiness of a customer. When 
 that position is intimately known to the Bank, either 
 by the evidence of the man's balance-sheet, or the 
 possession of his deeds, or bonds, or shares, for safe 
 custody, there is no difficulty ; and the Manager has no 
 hesitation in giving his opinion in confident terms and 
 in the plainest English. 
 
 But occasions continually arise where the facts re- 
 quired are not so clear. Your knowledge of the person 
 enquired about, for example, may be at second hand. If 
 so, you have equally to guard against doing an injury to 
 the man's credit, and leading the enquirer into a false 
 security. But whatever shape your answer may take in 
 such a case, you must make it clear that it is based on 
 hearsay only, and that you have no personal knowledge 
 of the party's means. There is no reason why you 
 should assume the responsibility of giving as your own 
 the opinion of others, which, however honest, may ne- 
 vertheless be fallacious and misleading. You may. on 
 your own responsibility, report the man enquired about
 
 1 86 The Country Banker. [let, xxv. 
 
 to be respectable, or a shrewd man of business, or a man 
 who appears to have credit in the trade for the amount 
 named ; or even that you yourselves occasionally trust 
 him for such a sum without security : all this you may 
 properly and prudently say, if you can do so in accord- 
 ance with the facts. Such statements will not prejudice 
 your customer, and they will put it upon the enquirer to 
 judge for himself and draw his own conclusions. 
 
 If, on the other hand, the individual enquired about is 
 neither respectable nor shrewd ; if he is short of capital 
 and of small credit with the trade, you must say so ; 
 but you will say so ' on report.' You will state the 
 facts, so far as they have reached you, without indorsing 
 them as your own. If you neglect this precaution, the 
 person thus adversely reported upon may take pro- 
 ceedings against your Bank for defamation, if your 
 report should reach his ears, which it may possibly do; 
 because the absolute confidence with which a Banker 
 imparts such information, although widely respected, is 
 violated at times. But in such event, if it is apparent to 
 the Court that you ha\'e simply stated the truth, as far as 
 it was known to you, without malice, you have no cause 
 to fear the result. Proceedings which have their in- 
 ception in a thirst for something like blood-money, are 
 more likely to end in a verdict, which shall be in closer 
 neighbourhood to a farthing than a thousand pounds. 
 
 The action brought against your Bank by Grindley 
 & Co. for misrepresentation was of an opposite kind : 
 they sued you, not for giving too bad, but for giving too 
 good an opinion of your then customer, Gabriel White. 
 Your Manager, in reply to an enquiry from the bankers 
 of the Grindleys, had given it as his opinion that White 
 was undoubted for the amount named ; but White un- 
 fortunately failed a few weeks afterwards ; whereupon 
 Grindley & Co. brought their action, on the ground that 
 they had trusted White with many hundred pounds' 
 worth of goods, on the strength of the Bank's opinion. 
 In their declaration they went a step beyond this, and 
 roundly charged the Bank with having given tliis
 
 LET. XXV.] Corresponde7ice. 187 
 
 opinion, with the nefarious object of compassing a re- 
 duction of its own debt. It happened, however, that 
 when White failed, he owed the Bank rather more than 
 when your Manager gave his opinion, and the plaintiffs 
 were non-suited. If your Manager had given a less 
 unqualified opinion as to the position of White — if he 
 had put it more upon current report and less upon his 
 own assertion — White would have had no ground for 
 complaint; the Grindleys would have had no ground 
 for an action ; and the Bank would have been spared 
 the annoyance of being charged with an act of baseness 
 of which it was entirely guiltless.
 
 LETTER XXVI. 
 
 COMPETITION IN BANKING. 
 
 Sometwies our neighbours want the things which we have, or 
 have the things which we tvant ; and we both fight, till they take 
 ours, or give us thei?'s. Swift. 
 
 The opening of a Branch of the Bolchester Bank in 
 OxboroLigh has filled you with resentment and some- 
 thing like dismay. ' They are pushing themselves here, 
 there, and everywhere,' you state, * in search of deposits, 
 and care not what interest they allow, provided they get 
 the money. Their terms for discounts and advances are 
 more liberal and less exacting than ours, and scores of 
 our accounts will be sure to go over to them.' 
 
 To add to their offences, they have taken into their 
 service one of the clerks in Messrs. Yewtrey & Co.'s 
 Bank, purposing through him, you suggest, to ascertain 
 where the Old Bank's deposits lie. But it is possible 
 that in this indictment you accuse the new comers un- 
 justly. Although the taking into their employment a 
 clerk from either of the existing banks, under the cir- 
 cumstances, may expose their motives to suspicion, no 
 respectable institution would seek in this way to hunt up 
 and prey upon the business of another bank. 
 
 The report that the new comers enticed the clerk from 
 Yewtrey & Co. into their service is probably untrue. 
 It is at least equally probable that he applied for the 
 appointment in the first instance, with a view to better- 
 ing his position ; again.st which there is no law. Every 
 clerk in a bank has a right to seek an appointment in 
 another bank, if he sees fit, — but alwa)-s with this proviso, 
 that he does not betray to his new, the secrets of his late 
 i88
 
 LET. XXVI.] Competition in Banking. 189 
 
 employers. He has signed a solemn declaration to this 
 effect ; and if he is capable of violating this covenant, he 
 may prove a bad bargain to his new masters. A clerk 
 capable of an act of perfidy like this, is not morally fitted 
 for the service of any bank. If he has proved false to 
 one employer, it is a reasonable assumption that ho may 
 prove false to the other, whenever the occasion offers, 
 and a second act of treason shall appear to be worth the 
 doing. 
 
 Your fear that the new comers will offer more than the 
 market rate of interest, and thus drain away thousands 
 of your deposits, may be equally groundless. The Bol- 
 chester Bank is a respectable institution, and is unlikely 
 to give more than the current rate for deposits : but, if 
 otherwise, and its rates are what you are informed and 
 believe them to be, the Bolchester Bank will not trouble 
 Oxborough or any other place for long. The first money 
 panic will bring it to book. 
 
 If the alleged munificence of the Bolchester Bank in 
 advances amd discounts should enmesh, as you seem to 
 fear, and draw away a portion of your business, the haul 
 will consist of customers who find themselves cramped, 
 by what they consider your antediluvian views about 
 security, and who will ardently embrace any less exact- 
 ing system of banking. It may be that other accounts, 
 which you are unwilling to lose, may be included in the 
 haul ; nevertheless the ultimate balance of advantage 
 may not rest with the aggressors. Against the few good 
 accounts which you may lose, you have to set the more 
 than doubtful ones which they may gain. 
 
 Such being the situation, would it not be a wiser policy, 
 as soon as you can subdue your present sense of injury 
 and repugnance, to place yourself, let us say, on speaking 
 terms with the intruders ; rather than hold yourself scorn- 
 fully aloof and regard them with a bootless resentment ? 
 Instead of ignoring their e.xistence, it might be better to 
 come to an early understanding with them as to rates : 
 otherwise you may find yourselves speedily at work, 
 inflicting lasting injury on each other's business with
 
 IQO The Country Banker. [let. xxvi. 
 
 mutual diligence and fervour. If you do not so arrange, 
 Mr. Nayler will hardly be himself, if he fails to play one 
 bank off against the other, to the detriment of both ; 
 and his example will spread. 
 
 But whatever course your action may take, this is 
 certain — the new comers have planted themselves in 
 Oxborough, and no unfriendliness on your part will of 
 itself cause them to budge out again : on the contrary, 
 the greater your obvious dislike, which they will ascribe 
 to fear, the higher will mount their estimate of the 
 business, which they hope to share with you, and the 
 less their inclination will become to retire from the 
 field. 
 
 Let us suppose that you decline to put yourselves on 
 amicable relations with the intruders, and that your 
 intolerant attitude, and the scornful terms in which you 
 openly speak of that * filibustering concern from Bol- 
 chester,' have reached the ears of its Directors, and 
 inflamed them with an animosity equal to your own, 
 and that war to the knife is the consequence.* 
 
 Whilst the contest lasts, Oxborough will have ' a good 
 time' in banking: unheard-of rates of interest for deposits ; 
 discounts at less than bank rate, and overdrafts for the 
 asking ! It will be a monetary carnival, and Oxborough 
 will be financially debauched. 
 
 No doubt, during the contest, you will have punished 
 the enemy severely and done enough for glory, although 
 you have failed to dislodge him ; but what of your own 
 scars ? What of the rents and fissures made in the profits 
 of Oxborough Branch, which it will take years to repair, 
 if indeed your profits shall ever regain their former scale 
 and level ? For Oxborough will monc tarially have tasted 
 blood ; and it will not be an easy or a pleasant task, to 
 bring its people back again to the condition of things 
 which prevailed before the war. 
 
 The opening of an additional bank in a town may not 
 be in every sense an unmitigatc'd injury to the existing 
 banks. The new comers have their way to make, and as 
 new brooms sweep clean, they will search out, by means 
 
 1
 
 LET. XXVI.] Competition in Banking, 191 
 
 of their friends and connections, those who have not as 
 yet kept any bank account — a less numerous class than 
 formerly, but a class by no means extinct as yet in 
 rural parts. The new comers from Bolchester will give 
 the banking soil of your district a fresh turn-over, so to 
 speak, and this may serve indirectly to fertilize your 
 business as well as theirs. They will have awakened 
 certain people for the first time to the advantage of keep- 
 ing a bank account, but not necessarily with their 
 establishment. The converts, before acting upon their 
 conversion, will naturally talk the matter over with their 
 friends and be guided by them as to the bank to w hich 
 they will take their business. 
 
 Now Messrs. Yewtrcy & Co. have been established in 
 Oxborough for over a century, and your own Bank has 
 had its Branch there for half that time : ^\ hereas the 
 Bolchester Bank is to the traders and householders of 
 Oxborough a thing of yesterda}-, of w hich ihey know 
 nothing. Moreover, for one shareholder which it has in 
 your district, your own Bank has at least a score ; so 
 that altogether, the invaders will be heavily handicapped, 
 and will have to compete for fresh business with the Old 
 Bank and yourseh^es at serious odds. 
 
 You would plant a Branch in the Bolchester district 
 forthwith, by way of counterslap. But in banking, you 
 do not levy war on the territory of a neighbour, merely 
 because you have a spite against him. Questions of 
 larger concern than the condition of your spleen have to 
 go to the consideration of that matter. For one thing, 
 an aggressive policy may provoke reprisals : but of this 
 more hereafter. 
 
 On the whole, it would seem to be the wiser course 
 to be on terms of amity with }our new rivals. Under 
 the most fa\-ourable circumstances, they have long years 
 of uphill work ahead of them, before they can do much 
 more than cover expenses. It may happen that they 
 have over estimated their chances of success in 
 Oxborough, and after a time ma}' feel so dissatisfied
 
 192 The Countiy Banker. [let. xxvi. 
 
 with the result as to close their Branch. In this event, 
 they will have something to give away. But, if up 
 to the date of this determination of theirs, you are still 
 at daggers-drawn with them, it is needless to remark 
 that they will have no desire that a single account of 
 theirs shall come to you, which they can by possibility 
 send elsewhere. 
 
 I
 
 LETTER XXVII. 
 
 A NEW BANK FOR OXBOROUGH. 
 
 ' Tell me, see' st thou not yon knii:;ht coming towards us on a 
 dapple grey steed, with a helmet of gold on his head ? ' ' IVhat 
 I see and perceive,' answered Sancho, ' is only a man on a grey 
 ass, like mine, with something on his head that glitters.' 
 
 Don Quixote. 
 
 The material progress of Oxborough must be con- 
 siderable, seeing that you have hardly recovered from 
 the shock of the invasion from Bolchester, before you 
 are threatened with a new bank — 'The Oxborough 
 Mutual Benefit Banking Company, Limited.' 
 
 The promoter is our old acquaintance, Mr. Howard 
 Bagster, and the prospectus sets forth among other 
 things the enormous profits of banking. It gives an 
 attractive list of banks whose dividends range from lO 
 to 20 per cent., with an average of 15 ; and whose shares 
 stand at premiums ranging from 100 to 300 per cent. 
 Mr. Bagster, it will be observed, selects only the best 
 paying banks for his basis. He makes no mention of 
 banks paying less than 10 per cent. That would have 
 fitally affected his average of 15 per cent., and broken 
 the back of his design. 
 
 Neither does he allude to the fact that the banks now 
 paying high dividends were established for the most part 
 some half century ago. They did not pay 1 5 per cent, 
 then. In the earlier stages of their history, some of the 
 greatest and most successful of our existing banks paid 
 dividends not exceeding 4 or 5 per cent, for years — 
 sometimes none at all. Some few had to write off a 
 third or fourth of their paid-up capitals. Others again 
 »3 '93
 
 194 'I^J^^ Country Banker. [let. xxvn. 
 
 of our aboriginal Joint Stock Banks did even worse — they 
 lost their all, and are long since dead and buried. But 
 their record was not buried with them, although there 
 is no mention of it in the prospectus : the framers of 
 that document would not hav^e its radiant view of things 
 clouded by unpleasant memories. 
 
 Bank dividends ranging from lo to 20 per cent, are 
 not reached at a bound. They never have been in the 
 past, and in the nature of things they never can be in 
 the years to come. The dividends of the future will 
 necessarily be more tardy of growth than those of the 
 past, if, indeed, they are not retrogressive. When our 
 existing banks were constituted, there was a magnificent 
 area of virgin soil for them to occupy and till. But such 
 a superficies no longer exists. It has been gradually 
 occupied, point after point, by the present banks ; so 
 that there is no unreclaimed territory for fresh banks to 
 squat upon. They cannot, therefore, hope to achieve 
 the splendid successes of their forerunners. The banking 
 crop has been already gathered, and they can only follow 
 as gleaners in the footsteps of the reapers. For any- 
 thing beyond this, new banks must fight the old ones ; 
 or be content for years to come with a rate of annual 
 dividend which will not excite their proprietors to 
 enthusiasm. 
 
 It is true they can fight the old banks, by offering 
 more liberal terms to the public ; although competition 
 has already reduced those terms to a degree of fineness, 
 which it will be difficult to attenuate further, if any 
 reasonable margin is to be left for dividends. You can- 
 not purchase first-class country bank shares even now, to 
 yield you more than 5 per cent. — far less 15. 
 
 But in any event, the game of competition is one at 
 which the old banks can play, and doubtless will play, 
 equally with their assailants, at every point where they 
 are attacked. They will not, without a struggle, part 
 with business which has cost them the labour and con- 
 tention — the losses and anxieties of half a ccntuiy to 
 build up. They will object to promoters seeking to reap
 
 r.ET. XXVII.] A Neiv Bank for Oxborough. 195 
 
 where they have not sown, and in a war of rates will 
 fool them to the top of their bent. But that is a pas- 
 time at which the new banks would play at fatal 
 disadvantage. A course of bankin<^, pursued for a time 
 at certain points at a loss, would make but a slight 
 impression on the large reserve funds of the old 
 banks : but such a course would be ruii)ous to the 
 new ones, because they would have no such funds 
 to fall back upon : neither would they have much to 
 look forward to. They will have damaged their rivals 
 to a certain extent: but, in doing so, they will have 
 cut the ground from under their own feet, and rendered 
 banking, at any reasonable profit to themselves, an 
 impossible business. 
 
 A new bank, if it shall survive the period of its early 
 youth, will do well if it pays its expenses and divides 
 nothing among its shareholders for the first {q\v years : 
 but this fact, although a part of banking history, 
 finds no place in Mr. Bagster's prospectus. It might 
 cool the ardour of applicants, and abate the rush for 
 shares. 
 
 Mr. Bagster does not suggest to subscribers that high 
 dividends are only reached after an ascent which is 
 always long, often difficult, and sometimes dangerous. 
 He does not invite them to put their feet on the lowest 
 rung of the ladder, to work their gradual way upwards : 
 he places them, by suggestion, on the top rung at start- 
 ing. He makes no mention of the fict, that the large 
 dividends now paid by some of our banks, only yield in 
 reality something like 5 pjr cent, to their existing 
 proprietors. 
 
 The Mutual Benefit Banking Company of Oxborough, 
 is to be worked on principles new to English banking, 
 and is to bring light and joy to depositors and 
 borrowers alike, whatever hap of fortune it may bring 
 to its proprietors. Bank commission is to become a 
 thing of the past ; depositors are to be paid rates of 
 interest unparalleled in banking history ; and profits are 
 to be rateably divided betwixt shareholders and cus-
 
 196 The Country Banker. [let. xxvu. 
 
 tomers. How this remarkable equation is to be worked 
 out is not explained : it is discreetly left to the imagi- 
 nation. But as the Mutual Benefit Bank, conducted on 
 the lines proposed by the prospectus, can never, by 
 human effort, make any profit at all, its method for the 
 division of nothing ceases to be of human interest. 
 
 It may seem waste of time to have troubled ourselves 
 at all with Mr. Bagster and his prospectus : but, except- 
 ing the special absurdity of the 'mutual benefit' principle, 
 which he proudly claims for his own, the document in 
 other respects is only an average sample of its kind. It 
 makes quotation of the most successful banks, but 
 refrains from all mention of the less fortunate. It parades 
 the dividends and premiums of to-day, but gives no 
 place to the dividends, or no dividends, the losses or 
 failures, of the past. It leads the unwary to the belief 
 that an average return of 15 per cent, per annum is the 
 ordinary result of banking, and within the reach of 
 everybody : and, unhappil}% there is nothing which a 
 promoter can allege on the subject of banking too gross 
 for some people to swallow. 
 
 Instead of following this Will-o'-the-wisp, — this 15 per 
 cent, of the prospectus, the prudent may find it a safer 
 policy to invest their money in the shares of old 
 established banks, even if the in\-estment should yield 
 them only a bare 5 per cent. 
 
 The old banks have borne the searching tests of time, 
 and change, and panic, and stand forth purified and 
 .strengthened by the ordeal. But what is of still more 
 consequence — they understand their business : whereas, 
 a new bank has practically its business to learn, and the 
 inevitable 'footing' to pay. Its earlier years will be a 
 long struggle with all the ills of infant banking. It 
 must do business which other banks do not care to 
 retain, or it must offer to transact good business on more 
 tempting terms, and thus work at a margin of profit 
 slightly removed from nothing. If its constitution be 
 hardy, it may work its way to a position of some kind 
 after many years; but its dividends, meanwhile, will be
 
 LET. XXVII.] A New Bank for Oxboroiigh. 197 
 
 of the smallest, and its shares will find their natural 
 level, at a point perceptibly below par, rather than 
 above it. 
 
 On the whole, the would-be investor in bank shares 
 had best take counsel with himself, whether 5 per cent, 
 in hand may not be preferable even to 15 per cent, in 
 the bush. 
 
 Our discussion, thus far, of the daily work of a Country 
 Bank, although for the most part of general application 
 to the business of banking, has been directed more to 
 the business of a Branch than to the administration of a 
 Head Office, — a question to which I now propose to 
 turn, in the hope and expectation that you may some 
 day rise to the position of Manager-in-chief.
 
 LETTER XXVIIT. 
 
 THE OFFICE OF CHIEF MANAGER. 
 
 Presence the right of thy place, but stir 7wt questions of jurisdic- 
 tion, and rather assume thy right in silence and de facto than 
 voice it with claims and challenges. Preserve likewise the rights 
 of inferior places, and think it yiore honour to direct in chief than 
 to be busy in all. Bacon. 
 
 When you succeed to the supreme management of 
 the Bank, you will enter upon duties of a higher grade, 
 and responsibilities of wider range than you had to un- 
 dertake at Oxborough. The working of a Branch will 
 seem to you but a small matter, when compared with 
 the management of the Central office and its thirty 
 dependencies. Whilst Manager at Oxborough, you 
 were one of a hundred and fifty subordinates, of all 
 ranks ; at the Central office, you will be head over all. 
 The provincial Managers, wHo were your equals yester- 
 day, will have become your official inferiors to-day. 
 
 As the Manager of a Branch, you looked to your 
 Manager-in-chief for guidance in all large or excep- 
 tional matters : you will now have to trust for that 
 guidance to your own head alone, and your thirty 
 representatives at the Branches will have to look to the 
 same source for light and leading in all difficulties. 
 
 You will have no code of instructions to guide you as 
 Manager-in-chief: on the contrary, you will now have to 
 edit that compilation, and enrich it with fresh matter 
 from time to time, as experience shall suggest or 
 necessity require. It will be your part now to instruct — 
 not to receive instruction : to foresee and devise, and not 
 to look to others for foresight or resource. 
 198
 
 LET. XXVIII.] The Office of Chief Ma7iager. 199 
 
 It would be unreasonable to expect you to feel no 
 elation on the occasion of your ascent to the official 
 throne of the Bank : but it will be well to carry your 
 fresh honours with meekness, were it merely for this, 
 — that the susceptibilities of those whom you have 
 distanced in the race for advancement will, for a time, be 
 tender of touch. You find yourself placed, at a bound, 
 on a pinnacle of promotion, the look down from which 
 may pardonably be attended at first with a certain 
 giddiness and confusion of ideas : but do not let a 
 sense of what you owe to your new position betray you 
 into premature activity. If you would gather up the 
 reins of government, with the skill and deliberation of 
 one who knows what he has before him to do and means 
 to do it, let your attitude for a time be one rather of 
 observation and reflection than of action. Your new 
 and varied duties, if pondered with calmness and care, 
 will gradually assume their relative proportions and 
 perspective, and the order and method of your manage- 
 ment will speedily lie straight and clear before you. 
 
 One of the most onerous of your fresh duties will be 
 your daily intercourse with your Managers at the 
 Branches. This must be by letter, because your oppor- 
 tunities of personal intercourse with them will necessarily 
 be few. But you cannot conduct this correspondence 
 with your own hand, because your other duties will 
 leave you with little time for letter-writing. That, for 
 the most part, must be done by the Secretary of the 
 Bank, under your instructions. These will necessarily 
 be brief — conveyed in a sort of mental shorthand — and 
 it will be his work to put them into shape. 
 
 It may be, that the Secretary of the District Union 
 Bank is one of those who can enter into another man's 
 thoughts, and express his views as perfectly as if the 
 thinker himself gave form and utterance to them ; but 
 this is a gift not possessed by ever)' one : indeed it is 
 more rare than common. You have to reflect, in any 
 case, that your Secretary, whatever his qualifications as a 
 scribe may be, will have trying questions to solve, unwise
 
 200 The Country Banker. [let. xxvin, 
 
 proposals to set aside, and unreasonable requests to 
 decline from time to time, at your behest He may, as 
 I have just said, be your faithful echo in all this ; but he 
 may not be. He may be of an irritable temperament, 
 and take the bother and worry of reply as personal to 
 himself, and clothe his replies accordingly in biting 
 sarcasm or withering rebuke. You will no doubt see 
 that this does not happen. A martinet, as secretary of a 
 bank, can make office life a burden to its provincial staff 
 Moreover, he is your other self and mouthpiece, for good 
 or evil in this matter. His views are your views, in what- 
 soever garb of language they may be clothed. His veiy 
 sarcasms, however truculent, go to the Branches 'in accord- 
 ance with instructions ' from either the Board or yourself 
 
 And the men addressed, it has to be observed, 
 although your subjects now, were your equals only the 
 other day, and are not the less entitled to official respect 
 or friendly regard, because you now reign over them. 
 The best of Branch Managers, no doubt, has his failings : 
 and it is certain that the worst of them has his feelings. 
 Where disapproval, therefore, or even censure, has to be 
 conveyed, it need not be in terms calculated to affiont 
 or wound. A mild remonstrance will have equal weight, 
 and with this ad\-antage, — it will not dishearten the 
 recipient, nor incense him every now and then with a 
 helpless rage. 
 
 A nagging and sarcastic spirit at the centre of au- 
 thority, moreover, is apt to find imitators at the Branches. 
 The Manager who is persistently worried by the Head 
 Office, may be drawn at times to vent his spleen on his 
 immediate subordinates, who will duly pass it on to the 
 juniors : and thus an occasional free fight of tongues 
 may result, to the amazement of customers and scandal 
 of the Branch. 
 
 In any event, let it not be in the power of any pro- 
 vincial Manager to quote the example of Head Office as 
 an excuse for a needless severity of method with his 
 own little staff Put forth your strength rather with the 
 snaffle than with the double-bit of authority. Let your
 
 LET. xxviii.] The Office of Chief Manager. 201 
 
 intercourse with your Branches be inspired by the genial 
 old adage — ' Speak fair words and you will always have 
 kind echoes,' — and let the management of the Bank 
 throughout, from its Central office to its remotest 
 Branch, be in unison therewith. 
 
 The first subject which will engage your attention, 
 when you fairly settle down to work, will naturally be 
 the financial position of the Bank. You will desire to 
 know the trim of the vessel, so to speak, in command 
 of which you are about to enter upon a voyage of mo- 
 mentous interest, alike to your shareholders and yourself. 
 
 Your first reference will be to the balance-sheet of the 
 Bank, which will afford you a bird's-eye view of the 
 situation. It will shew you, on the one hand, the total 
 amount of money owing by the Bank to the public and 
 its shareholders, and, on the other, how this total is laid 
 out. 
 
 But a balance-sheet deals with aggregates only. It 
 will set forth the totals advanced on overdrawn accounts, 
 on bills discounted, and in other ways ; but not the mul- 
 tifarious items of which these totals are composed. 
 
 Every bill in your bill case ; every overdrawn account 
 in your ledgers ; every security you hold ; whether these 
 relate to your business at the Head Office, or one or other 
 of your thirty Branches; must each in turn be to you a 
 matter of patient scrutiny and careful valuation, before 
 you can grasp the actual position of the Bank, or know 
 the measure of its soundness throughout. • 
 
 And in entering upon this immense audit and appraise- 
 ment, I conclude that, in respect of overdrafts, bills and 
 securities at the Branches, you will not rest content with 
 less than an enquiry 'n every case, on the spot. You 
 will thus reap the ' v'antage of seeing, with your own 
 eyes, the working A your multitudinous accounts, as 
 shewn in the Bra- n ledgers ; a process as we have .seen, 
 which throws '1. always useful, and sometimes vivid 
 light on the \\\j things are tending with the parties to 
 the accounts.
 
 202 The Country Banker. [let. xxvm. 
 
 Your round of the Branches will have the further 
 advantage of bringing you into personal intercourse 
 with the whole of your provincial staff; a matter which 
 may be of material service in your future relations with 
 each other. An officer whom you have never seen, and 
 of whom you have no knowledge, except by report, will 
 be little more to you than a lay figure, until you hav^e 
 had speech with him and taken stock of his business 
 method and ability. 
 
 When you have mastered the position of every ac- 
 count, the worth of every bill, and the value of every 
 security held by the Bank, you will then know whether 
 the course of your management ought to be towards 
 restriction or expansion : or whether, finding your re- 
 sources, as a whole, laid out with safety and financial 
 judgment, you will enjoy the satisfaction of leaving well 
 alone.
 
 LETTER XXIX. 
 
 BANKING FINANCE, 
 
 See' st thou good daycs ? Prepare for evil times : no summer 
 hut hath his winter. He never reaped comfort in adversity that 
 sowed it not in prosperity. Quarles. 
 
 Let us start with the assumption that you find the 
 District Union Bank sound to the core, and that the 
 aggregates of its balance-sheet represent the actual sums 
 and present values of the multifarious items of which they 
 are composed. 
 
 But we shall understand each other better, perhaps, if 
 we proceed at once to fabricate a balance-sheet, which 
 shall embrace the principal heads of account common to 
 English country banking ; and thus present something 
 tangible to the mind's eye, although the tangibility be 
 but the fictitious liabilities and the fabulous assets of an 
 imaginary bank. 
 
 Let us assume, then, that on your accession to 
 the management in chief of the District Union Bank, 
 its Liabilities and Assets are as understated, and that 
 the apportionment of the assets rests on the following 
 basis : — 
 
 The Reserve is taken at oxe-third the Liabilities to 
 the public : 
 
 The Adv^ances are taken at the amount of Capital and 
 Rest, plus ONE-FIFTH of the liabilities to the public. 
 
 203
 
 204 The Country Banker. [let. xxix. 
 
 The remaining resources of the Bank are absorbed in 
 Bills of Exchange. 
 
 Liabilities. 
 
 On Deposit Receipts . ^1,350,000 
 On Current Accounts . 1,050,000 
 
 2,400,000 
 
 Notes in circulation . . . 50,000 
 
 Drafts after date .... 20,000 
 
 Acceptances by Bank . . . 30,000 
 
 Bills for collection and other items . 50,000 
 
 Total liabilities to the Public i^2, 5 50,000 
 Paid-up Capital . . . ^^300,000 
 Rest, or Surplus Fund . . 150,000 
 
 
 /f5w,wuu 
 
 Assets. 
 Reserve : 
 
 Cash in hand . . . . 
 Money at call and short notice . 
 Consols ... 
 
 ;^3, 000,000 
 ;^200,000 
 
 350,000 
 300,000 
 
 Advances, overdrafts, etc. 
 
 Bills of Exchange . . . . 
 
 850,000 
 960,000 
 
 1,190,000 
 
 
 ;^3 ,000,000 
 
 These figures are purely arbitrary : but they will serve, 
 as well as others, as a basis for discussion. 
 
 And first, as regards the liability side of your position. 
 You are indebted then, to depositors and others, some 
 two and a half millions stcrlinof.
 
 LET. XXIX.] Banking Finance. 205 
 
 Now, although it is certainly within the range of possi- 
 biUty that you might be called upon, at auy time, to 
 redeem the whole of this formidable liability within the 
 compass of a icw weeks, the chances are nevertheless as 
 millions to one, against such a contingency ever coming 
 to pass. 
 
 You will find that, in ordinary times, your deposits, 
 as a whole, maintain a moderately uniform level. The 
 deviations on either side of the main line of average will 
 be slight. A decrease at one point will be met by 
 an increase at another ; the closure of some accounts 
 by the opening of fresh ones, and so forth : the 
 general result being that, apart from these slight move- 
 ments — these ripples on the surface, so to speak — 
 the great volume of your deposits is never stirred 
 to its depths. The minor fluctuations, of Avhich we 
 now speak, are sufficiently provided for by your cash 
 in hand : in fact this is the primary use of your till- 
 money. 
 
 But there are times when your deposits may be 
 exposed to exceptional attack : and you must be pre- 
 pared at all times to meet such emergencies. We have 
 seen that banks, however sound and powerful, are still 
 as much exposed to senseless and mischievous runs, 
 as they were in the dark ages of banking, a hundred 
 years ago. It may be, that the District Union Bank 
 will never be so assailed : but you cannot build upon 
 this pleasing forecast as a certainty, and therefore make 
 no provision against it. It may be ' odds beyond 
 arithmetic ' against your cash safe ever being attempted ; 
 but that would hardly justify your leaving its doors wide 
 open, day and night. 
 
 Neither must you assume that you will always be able 
 to note the signs of a coming pressure, in time to make 
 due provision for its onset, by a contraction of your 
 discounts and a recall of loans and overdrafts. There 
 may be no sign given. A run does not usually advertize 
 its advent a month or so beforehand, and some of our 
 worst panics have come upon us without much previous
 
 2o6 The Country Banker. [let. xxix. 
 
 warning. You cannot pull your resources together in 
 a few days, or a few weeks, if they are widely spread, 
 and difficult of realization. The normal position of a 
 banker is like that of a general in the field, with an 
 enemy in front of him, against whose assault he must 
 be armed at all points, if he would not find himself 
 assailed some day, and suffer loss and discomfiture. 
 
 The Reserve. To guard against all probable de- 
 mands, therefore, I have put your immediately avail- 
 able resources — your financial reserve — at one-third the 
 amount of your liabilities to the public. 
 
 This provision will appear to some to be excessive. 
 It is certainly in excess of the reserve usually held by 
 some country banks ; whilst it is less than that main- 
 tained by others. The range of usage in this matter is 
 very great, and is governed, in some measure, by the 
 character of the deposits held. 
 
 In agricultural districts their feature is permanence. 
 In centres of industrial activity, their feature is insta- 
 bility. A ratio of reserve, therefore, which might be 
 more than ample in one case, might be dangerously 
 inadequate in another. Country banks, like your- 
 selves, holding from one to three millions of deposits, 
 hold average reserves of 24 per cent. Others, holding 
 from three to five millions, have reserves averaging 36 
 per cent.* 
 
 The deposits in your Kank partake of both classes — 
 some town, some country — and in placing your reserve 
 at 33 per cent., we have swerved slightly from the e.xact 
 line of average; but, such as it is, the deviation is on the 
 side of safety. 
 
 Moreover, in fixing the amount of your reserve, you 
 have to take into account, not only that your deposits 
 are subject, at uncertain times, to serious depiction : 
 but that the demand upon you for discounts and ad- 
 
 * Econumisl, lylh May, 1883.
 
 LET. XXIX.] Banking Finance. 207 
 
 varices is also subject to constant variation. Your 
 reserve, therefore, should always be sufficient to meet 
 every description of demand upon it ; if you would 
 work your finances without friction from one year's end 
 to another, in times of ease, as well as in times of trouble 
 and anxiety. 
 
 A further argument in favour of working at all times 
 on an ample reserve, lies in the fact that, in the long 
 run, it even ' pays ' better, than by working on a small 
 one. 
 
 A Reserve of 20 per cent. In illustration of 
 this, let us say that, instead of a reserve amounting 
 to one-third, you decide to finance the Bank on a 
 reserve of one-fifth, or 20 per cent, of the amount of its 
 liabilities to the public. In that case, your reserve will 
 stand at ^^500,000 instead of p^8 5 0,000, and you will thus 
 release ;^350,ooo for other employment. 
 
 You would employ the money, thus released, in the 
 discount of mercantile and commercial bills of a high 
 class — bills which would be negociable at any time in 
 case of need. 
 
 In this way you may derive a possible gain of one 
 per cent, in excess of what the money would yield, if left 
 at short notice with your bill-brokers. That would 
 represent an addition to your profits of i^3500 a year. 
 But to earn this profit, you have to discount bills to the 
 amount of a million and a half every year, in atldition to 
 the bills you already hold, and thus proportionately 
 enlarge your business risks. 
 
 You can barely hope to discount this formidable 
 amount, even of the highest class of mercantile and 
 commercial paper, without meeting with an occasional 
 loss — a loss which may make a serious inroad at any 
 time on your ^3500, or sweep it away altogether. You 
 will have to select your bills with super-human ability if 
 this mischance shall ever befall }-ou. 
 
 For the sake of argument, however, let it be conceded
 
 2o8 The Country Baiiker. [let. xxix. 
 
 that you do realize this extra profit of ^^"3500 a year 
 ^vithout loss or abatement ; the question still remains, — 
 Will it be a judicious gain? Will there be no col- 
 lateral drawbacks — no outbalancing disadvantage ? Let 
 us see. 
 
 I assume that the reserve of 20 per cent., of which we 
 now speak, will be composed of the items following : 
 
 Cash in hand ..... iJ"200,ooo 
 
 Money at call 150,000 
 
 Consols 150,000 
 
 ;^500,000 
 
 Now, \vithout subjecting your finances to the terrible 
 strain of a ' run,' it will suffice for the argument, to 
 imagine a drain upon your deposits at a time of 
 monetary pressure — .say to the extent of 10 per cent., or 
 ^^250,000 in all. You will remember that in December, 
 1878, the drain upon certain banks averaged 16 per cent, 
 of their deposits, and in the case of one of them reached 
 26 per cent. 
 
 To meet the supposed demand, you ha\e only your 
 money at call and Consols to fall back upon, because 
 your cash in hand represents simply the till-money 
 required to carry your business on from day to day, and 
 cannot be diminished. After exhausting your money at 
 call, then, you would still have to provide ^100,000 to 
 meet the drain. 
 
 To do this, you might borrow the amount on your 
 Consols; or you could sell them ; or you might re-discount 
 a portion of your bills. But whichever course you take, 
 it will be open to the objection that it will be sure to get 
 wind. If it should leak out that you are borrowing on 
 Consols, the report will be that you are being ' carried 
 through.' If you sell them, the inference will be that 
 you are hard pushed. If you resort to the bill-market, 
 and thus make your first appearance there as a re-
 
 LET. XXIX.] Banking Finance. 209 
 
 discounting bank, the fact will hardly fail to pass with- 
 out comment more or less damagin<^. 
 
 Rumours such as these, at a time when the very air 
 is charged with discredit, conveyed in letters ' strictly 
 confidential,' from friends in the City to correspondents 
 in the provinces, are swift to spread, and might enlarge 
 a natural drain upon your deposits to serious proportions, 
 or even convert it into a ' run.' 
 
 You remind me that there are your overdrawn 
 accounts to fall back upon, and also that you might 
 reduce the volume of your discounts. That is true : 
 but either of these processes takes time, and that may 
 not be at your command. Even the most affable 
 amongst your depositors would be sorely amazed, if 
 you were to ask them to call again in a month or six 
 weeks, by which time you expect to have got in some 
 of the money which you have lent to their friends 
 and neighbours. There is, in fact, only one way of 
 meeting the difficulty, and no way of evading it, — the 
 means to meet a sharp drain upon your deposits must 
 always be in your coffers, or at )'our immediate control — 
 before-hand. 
 
 There will be no time for calling in advances, or 
 awa.ting the falling due of bills. The peremptory 
 people who line the outside of your counter, awaiting 
 the payment of their deposits, will each have his pound 
 of flesh, there and then, even if you sink under the 
 operation. 
 
 Let us assume, however, that by sales of Consols, the 
 re-discount of bills, or otherwise, you have met the 
 drain, and that you have subsequently restored your 
 reserve to its normal amount — namely, one-fifth your 
 liabilities — by a rigorous curtailment of your dis- 
 counts and advances to the extent required. 
 
 But with what cost to others will this have been 
 accomplished? What amount of anxiety, inconvenience, 
 and loss, will the withdrawal of your usual facilities, 
 to the extent of a quarter of a million, have inflicted 
 upon numbers of }-our constituents ? To expect that 
 14
 
 2IO Tke Country Banker. [let. xxix. 
 
 they will pass the infliction by, and humbly kiss the 
 rod, would be to take a too complacent view of the 
 matter. The people whose discounts you have re- 
 stricted, or whose overdrafts you have called up, will 
 not hold themselves bound to you a day longer than 
 they can make arrangements with other banks for a 
 transfer of their accounts. Neither will they be silent 
 on the subject of your treatment of them, nor tongue- 
 tied as to its cause. They will not scruple to publish 
 abroad that you sacrificed them to save yourselves. 
 
 And such an imputation may prejudice your business 
 in another direction — it may arrest and turn aside the 
 backward flow of your deposits. Those who have with- 
 drawn their money from your Bank, as a matter of 
 precaution, will be apt to take it in the end to the bank 
 which has shewn most strength during the crisis. 
 
 But whatever steps it may be necessary to take, you 
 must not hesitate for a moment at any sacrifice needful 
 for the safety of the Bank — not the sacrifice of your 
 Consols at any price, nor the loss of half your business, 
 if need be ; because no effort must be spared, within 
 reach of human accomplishment, whatever the cost may 
 be, to avoid the catastrophe of a stoppage. 
 
 The working of a bank, then, on an inadequate 
 reserve, mifjht bring it, under conceivable circumstances, 
 within the range of consequences, weighed against 
 which, the profit arising from such a course of working 
 would be as dust in the balance. 
 
 The principle is liable to the further objection that it 
 will deprive your arrangements with your customers of 
 that quality of fixity which they ought to have ; and 
 on which your constituents, with fair shew of reason, 
 have a right to repose. You cannot work a bank with 
 justice to them, or advantage to yourself, on the hand- 
 to-mouth principle. Your reserve ought always to be 
 sufficiently ample to meet, not only all ordinary, but 
 all exceptional demands upon it, without disturbing 
 existing arrangements. 
 
 You must give yourself elbow-room in the govern-
 
 LET. XXIX.] Bankhig Finance. 2 1 1 
 
 ment of your finances. To be all liberality at one time, 
 and to be puttinc^ the screw on all round at another, is a 
 system of management which may deprive you of some 
 of your best accounts, but is not calculated to attract 
 fresh ones. 
 
 When a man in business finds himself in search of a 
 banker, he will naturally give the preference to the 
 strongest bank ; because, if he is a borrower, it is of 
 consequence to him that his banker shall always be 
 able, panic or no panic, to afford him his usual monetary 
 facilities. On the other hand, if he is a lender, the bank 
 with the strongest balance-sheet will be the most likely 
 to commend itself to his choice. 
 
 In evidence of this, I have before me the returns for 
 ten years of four English joint stock country banks, each 
 having nearly the same amount of Capital and Rest. 
 
 It has been the usage of two of these to work on an 
 average reserve of 15 per cent.; and their deposits 
 shew an increase, for the ten years, of 45 per cent, on 
 their previous amount. The other two have worked 
 on an average reserve of 30 per cent, and their de- 
 posits shew an increase of 80 per cent, on their previous 
 amount. 
 
 Now if these last named Banks had worked on a basis 
 of 15 per cent, that would have released to them 
 ;i^6oo,ooo of their reserves for more profitable emplo}-- 
 ment ; which, on the basis of our former estimate, would 
 have brought them in an extra profit of ;^6ooo a year. 
 But in that case, the increase in their deposits, other 
 things being equal, would have been less than it actually 
 was by i^i, 200,000. In gaining ;^6ooo a year, there- 
 fore, by working on a small reserve, they would have 
 failed to acquire fresh business bringing them in ;;^i 2,000 
 a year. 
 
 Other influences, no doubt, besides the relativ^e strength 
 of balance-sheets and reserves, may have had the effect 
 of attracting depositors more or less to one bank or the 
 other; but making all allowance for this, it is at least a 
 reasonable proposition, that the immediate gain which
 
 212 The Country Ba7iker. [let. xxix. 
 
 may arise from working on a small reserve, may in the 
 long run be largely outbalanced, in mere pounds, shillings, 
 and pence, by working upon a large one. 
 
 There is one other point from which to regard the 
 question of your reserve. We have seen that the 
 nominal result of your working on the smaller one 
 would be an apparent increase to your profits of ;^3500 
 a year. Under the most favourable circum5tances, and 
 making no abatement for loss of any kind, this would 
 enable you to increase your dividend from 15 to 16 per 
 cent., and no more. 
 
 But one per cent, additional dividend per annum, at 
 the cost of normal financial weakness, intermittent 
 anxieties, and constant working at high pressure, would 
 surely be a dearly bought advantage, e\-en if it had no 
 other drawbacks ? 
 
 Let no suggestion, then, from shareholders too eager 
 for dividend, tempt you to snatch a precarious piofit 
 and a fleeting popularity, by working on an inadequate 
 reserve. The safety and steady progress of the 
 Bank stand far in front of all other considerations, and 
 must never be put in jeopardy, whatever the effect on 
 your dividend may be. Better fifteen per cent, and 
 safety, than twenty per cent, and danger. 
 
 The present market value of your share capital is 
 ^^"900,000. What if a movement upon your deposits 
 should overtake you with an insufficient reserve, amidst 
 all the unreason and terror of a panic, and you have 
 to stop payment? The one per cent, which you 
 may have added to dividend by working on a small 
 reserve, will be a conscience-smiting set-off to a shrink- 
 age in the price of your shares from nine hundred 
 thousand pounds to nothing, in a day. Even if, after 
 paying off your deposits and other liabilities, you had still 
 your Canital and Rest intact, and were able, out of these, 
 eventually to return ;^I5 per share to your proprietors; 
 the loss to them would still be a calamitous one. Prior 
 to t!ie stoppage, the market price of the shares was ;^30. 
 There would consequently be a loss of ;^I5 per share,
 
 LET. XXIX.] Banking Finance. 213 
 
 or ^^"450,000 in all. In other words, the c^oodwill of your 
 business, which this sum would represent, will have 
 vanished into air. To have put in peril a business 
 bringing in ^50,000 a year, for the paltry sake of an 
 additional iJ^3500, would be a startling illustration of 
 what it is in the finance of banking to be penny wise 
 and pound foolish. 
 
 A Reserve of One-third. Let us now consider the 
 effects of the withdrawal of ;^250,ooo of your deposits, 
 should you decide to work the Bank on the basis of a 
 reserve of one-third, as set forth in our balance-sheet, 
 viz. : 
 
 Cash in hand . . . ;^200,ooo 
 Cash at call, etc. . . . 350,000 
 
 Consols .... 300,000 
 
 In all ^^850,000 
 
 You would of course meet the withdrawals as they 
 arose, out of your moneys at call and short notice; be- 
 cause these moneys have been thus set apart expressly 
 to provide against unusual demands. 
 
 You would take this course, for the further reason that 
 it would enable you to meet the drain, without having 
 to press any of your customers for a reduction of their 
 advances, or a limitation of their discounts, at a time 
 when such pressure might be a serious loss and incon- 
 venience to them. 
 
 By this abstention you will secure not only their good 
 will, but their good word, which may not be without its 
 value even in tlie near future. 
 
 The Bank whose customers can proclaim, that their 
 usual facilities were extended to them without grudge or 
 abatement, throughout the money pressure, will clearly 
 have a better chance of enlarging its constituency, than 
 the Bank which has earned for itself the reputation of 
 having sacrificed a xore or two of its clients to save
 
 214 1^^^^ Country Banker. [let. xxix. 
 
 itself. The fact that you have met the demands upon 
 you at all points with ease and equanimity, and that you 
 have not recalled a single overdraft, or refused the dis- 
 count of a single good bill, will have the further effect 
 of bringing back to you the deposits which have been 
 withdrawn from you under the influence of fear ; and 
 may possibly attract to your exchequer not a few of 
 those which have been taken from your weaker neigh- 
 bours, if you have any. 
 
 After the cessation of the drain, your liabilities, as 
 reduced thereby, will stand thus : 
 
 To depositors, etc. . . ;^2,300,000 
 Capital and Rest . . 450,000 
 
 ^^2,750,000 
 
 whilst your assets will stand as shewn in the first column 
 of the statement following. 
 
 But if we are to apportion your assets on the basis 
 adopted in the construction of your balance-sheet, they 
 will have to be gradually brought to the figures of the 
 second column. 
 
 Reserve £ £ 
 
 Cash in hand . . 200,000 200,000 
 
 Cash at call . . 100,000 266,000 
 
 Consols . . 300,000 300,000 
 
 600,000 766,000 
 Advances . . 960,000 910,000 
 Bills of Exchange . 1,190,000 1,074,000 
 
 2,750,000 2.750,000 
 
 Your advances at present, it will be seen, arc .1^50,000, 
 and your bills £\ 16,000 in excess of limit, and must be 
 reduced accordingly, in order to restore your reserve to 
 its normal amount, of which it is exactly the sum of these 
 two items short, namely, ^166,000.
 
 LET. XXIX.] Banking Finance. 215 
 
 But it may not be necessary to take steps to enforce 
 this readjustment. The back-flow of your deposits, 
 enlarged possibly by affluents from other sources, may 
 of itself gradually restore your finances to their former 
 equipoise, without your having to disturb a single profit- 
 able account, or the discount limit of any good client. 
 
 If this shall prove too sanguine a view, your large 
 reserve will at least have given you this point of vantage 
 — it will have given you time : so that if )'ou find that 
 reductions have, after all, to be made in overdrafts and 
 discounts, you will not have been driven to applying the 
 knife summarily to some of your best accounts. You 
 will be able to await the result of that operation on cer- 
 tain of your discounts and advances, which you may not 
 be disinclined to curtail in any case. 
 
 In what amounts the resources of an English Country 
 Bank, like the District Union, with its thirty Branches, 
 ought to be apportioned to reserve, overdrafts, and dis- 
 counts, is necessarily a matter of opinion, which will be 
 governed to some extent by surrounding circumstances in 
 each case. 
 
 But whatever limit you do assign to these great heads 
 of account, you must be prepared for a daily tendency 
 in your actual figures to deviate from them. Your pro 
 fonnd balance-sheet — that is, the statement of how your 
 resources ought to stand, — has, therefore, to be recon- 
 structed every time your books are balanced, if you 
 would have a continual and exact knowledge of the 
 deviations from standard of the appointed totals of your 
 resources. But it is not necessary, neither would it be 
 expedient, to proceed at once to rectify eveiy divergence 
 as it arises betwixt your actual and pro fonnd figures ; 
 because in the ordinary course of things such deviations 
 will frequently rectify themselves. An excess of dis- 
 counts one week, may be balanced by a decrease in the 
 next. An overplus in your cash one day may be more 
 than absorbed the following day. Heavy checking on 
 some accounts may be coincident with hea\y lodgments 
 on others. So long, therefore, as your figures exhibit
 
 2i6 The CoiLutry Banke7'. [let. xxix. 
 
 only a limited range of departure from standard, you will 
 properly abstain from interference, and allow them to 
 right themselves if they will. But if you find the total 
 of your overdrawn accounts, for instance, shewing a 
 steady increase week by week, with an obvious tendency 
 to stand permanently in excess of the limit which you 
 have assigned to them, you will have to apply the curb 
 firmly : because the celerity with which your resources 
 will flow in this direction, if unchecked, offers a remark- 
 able contrast to the tardiness with which they will flow 
 back again when you want them. 
 
 That is a mole-eyed method of banking, which looks 
 merely to the safety and profit of proposed accounts, 
 and accepts them accordingly, without regard to their 
 incidence on the financial position of the Bank. A 
 dividend thus inflated is not the be all, although it might 
 well become the end all, of a bank. However tempting 
 in point of gain offered transactions may be, a manager 
 has to refuse them, no matter with what degree of 
 reluctance, if their adoption would have the effect of 
 seriously disturbing the regulated balance of his finances. 
 
 Composition of the Reserve. We have thus far 
 discussed the value and incidence of your reserve as a 
 whole. We have still to consider the question of its 
 component parts. 
 
 As regards the cash in hand, which is put at ^200,000, 
 it represents 8 per cent, of your deposits. Some will 
 deem the amount too small, but no one, I think, will 
 look upon it as excessive. It is intended to cover, and 
 will sufficiently cover, under ordinary circumstances, the 
 difference between your receipts and payments of cash 
 on any one day. 
 
 The amount of your cash in hand, moreover, will be 
 governed in some measure by the next item — cash at 
 call and short notice, ;^350,ooo; because moneys thus 
 placed can be put into your till practically by return 
 of post. Regarded in this light, your cash virtually in
 
 LET. XXIX.] Banking Fina7ice. 2 1 7 
 
 hand amounts to ;i^5 50,000, or about 23 per cent, of 
 your deposits. 
 
 The cash in hand and at call held by loi joint stock 
 banks at 31 Dec. 1882, amounted to 59 millions, as 
 against 257 millions of deposits.* The deposits, there- 
 fore, exceeded the cash in hand and at call in the ratio 
 of 4.35 to I. Your position is almost identical with this: 
 your deposits exceed your cash in hand and at call by 
 4.36 to I. 
 
 Your Consols are put at ^^300,000, and they yield you 
 interest at a trifle over 3 per cent. ; but your moneys 
 in the hands of the bill-brokers will not yield you such 
 a return. On the average of the last ten years, as we 
 have seen, the yield would have been £2 2s. Zd. per 
 cent. Why not, therefore, you suggest, put more of 
 your reserve in Consols and less of it at call? Why 
 not half a million in Consols, and iJ"! 50,000 with the 
 brokers; and thus net an additional income of ^^1750 a 
 year? 
 
 But by thus reducing your money with the brokers to 
 ;^i 50,000, you leave a margin between you and your Three 
 per cents, so limited, that fluctuations in the ordinary 
 movements of your business may oblige )'ou to resort to 
 your Consols more frequently than would be expedient. 
 Every now and then you may have to buy or sell ; and 
 as a rule you will have to buy when money is cheap, and 
 sell when it is dear. You will thus, for the most part, have 
 to buy in the dearest, and sell in the cheapest market. 
 You might of course avoid selling, by borrowing on your 
 Consols : but frequent borrowing, or selling, or buying 
 had best be avoided. Do not let the adjustment of your 
 finances become subject to the fidgets. Give yourself at 
 all times a sufficient margin within which to work. This 
 will pay }-ou better in the long run, than by working 
 things continually within a hair's breadth of necessity 
 and within a stone's cast of danger. 
 
 But why Consols, you ask, and always Consols ? Why 
 
 * Economist, 19th May, 1883.
 
 2 1 8 The Country Banker. [let. xxix. 
 
 not invest a portion of the reserve in other first-class 
 securities yielding a better return of interest? 
 
 The reason is this — Consols stand unrivalled and 
 alone in the supreme quality of convertibility. They 
 are the one security which you can, with absolute cer- 
 tainty, turn into cash at any hour of any business day 
 in the worst throes of panic. You cannot rest assured 
 of this in respect of any other description of securities 
 — not even of the British Government itself Your 
 Consols are virtually so many Bank of England Notes 
 in a latent form, but with this advantage, — that they 
 yield you three per cent, whilst practically forming a 
 portion of your till-money. 
 
 Re-discounting. The re-discount, or sale of a por- 
 tion of its bills, is often an important feature in the 
 financing of an English country bank. 
 
 If you sold ;^500,000 of your bills, you could discount 
 an equal amount in fresh ones with the proceeds, and, as 
 a rule, make a profit on the transaction; but not always. 
 It would be a reasonable estimate to put the profit on 
 such transactions at one per cent, per annum, or ;^5000 a 
 year. But against this you have to set the possible loss 
 on the extra iJ"2,ooo,000 in bills, which you will have to 
 discount every year in order to realize this profit. 
 
 Even that is a minor objection. Your liabilities to the 
 public already exceed your paid-up Capital and Rest in 
 the proportion of nearly six to one ; and it would not be 
 desirable to add, by your own act, half a million to these 
 liabilities, and thus raise the disproportion to a higher 
 figure. 
 
 The District Union Bank, as the holder of so large an 
 amount of deposits, ought never to be seen in the re-dis- 
 count market. It ought to work within its own resources. 
 Not to do so, would be to inflate its proper business be- 
 yond its natural limits, and to increase any strain upon its 
 credit in adverse times. 
 
 But the objections which apply to banks having ample
 
 LET. XXIX.] Banking Fi7ia7ice. 2 1 9 
 
 resources within themselves, do not apply to banks 
 placed in districts of threat industrial activity, where 
 deposit money is scarce and the demand for loan capital 
 is great. There is nothing opposed to sound banking 
 principle in banks, thus placed, supplementing their re- 
 sources, by re-discounting portions of their bills, and thus 
 drawing supplies from the London market. A bank, by 
 this process, merely transfers that portion of its discount 
 business to London, which is in excess of its local means 
 to meet it. 
 
 This I say is a legitimate branch of the business 
 of such banks, provided the banks do not allow it to 
 tempt them to maintain a too limited reserve to meet 
 their other liabilities. If it be a wise and necessary 
 course for a bank which never re-discounts a bill, to 
 maintain at all times an ample reserve to meet any pos- 
 sible demand upon its deposits, it cannot surely be less 
 incumbent on a re-discounting bank to do so? If the 
 District Union Bank holds a reserve of one-third the 
 amount of its deposits, in its present position ; it would 
 surely not hold less than a third, if it should add one- 
 fifth to its other liabilities in the form of bills re- 
 discounted ? The deposits of a re-discounting bank 
 are not less likely to be drawn upon in times of 
 pressure, than those of other banks : the same relative 
 adequacy of reserve ought, therefore, to be held against 
 them. 
 
 It will go against the grain, no doubt, when a Mana- 
 ger finds himself obliged at times to replenish his reserve 
 by re-discounting bills, at a percentage considerably be- 
 yond what the proceeds will yield him at call ; but he 
 must accustom himself to face this form of depletion with 
 Spartan endurance, and to meet any suggestion to the 
 contrary, come from what quarter it may, with resolute 
 resistance. The re-discounting bank \\ hich should dis- 
 regard the principle of maintaining at all times a suffi- 
 cient reserve, and rely exclusively on re-discounts to 
 replenish its till when necessary, would become virtually 
 beholden to the good-will and ability of its London
 
 220 The Coimtry Banker. [let. xxix. 
 
 agents or bill-brokers, to carry it through the first 
 monetary crisis. 
 
 The Bank which should rest its financing on so narrow 
 a plank as this, would manifestly place itself within 
 measurable range of disaster: for it is no disparagement 
 to London banks or London bill-brokers, to imagine a 
 time, in the monetary vicissitudes of the future, in 
 which they might be unable to afford it the assistance 
 required. There has been a time, within living memory, 
 when you could not discount even an Exchequer Bill of 
 the English Government in all Lombard Street.* 
 
 The danger of the situation to such a bank will be 
 seriously enhanced, if its London agents and brokers 
 already hold as much as they care to hold of its indorse- 
 ments, in the existing condition of the money market. 
 And another danger may lie in this — the choicest bills 
 of the bank may be already under re-discount. Its port- 
 folio may have been denuded of all, except bills of a 
 quality which would only pass muster in ordinary t'mes. 
 When most in need of bills of supreme quality, it may 
 have none of them to carry it through the Black Friday 
 of the future, should that evil day ever come again. 
 
 Let us hope that it never may ; but that the Bank 
 which has placed itself in a position so full of peril may, 
 nevertheless, be pulled through somehow, ancl the very 
 worst avoided. In this event, the anguish of mind which 
 its Directors and Manager wall have passed through, 
 during the terrible march of the crisis, w^ill have revealed 
 to them, with an emphasis to be remembered, the sicken- 
 ing possibilities which may attend the working of any 
 bank on an inadequate Reserve. 
 
 * The late Mr. Masterman made tliis statement in the House of Com- 
 mons, in October, 1S47 ; and tlie Act of 1S44, to the best of my recollection, 
 was suspended the following day.
 
 LETTER XXX. 
 
 ADVANCES. 
 
 It is certain thai the greatest part of trade is driven by young 
 merchants upon borroioing at interest ; so as if the usurer either 
 call in or keep back his money, there will ensue presently a great 
 stand of trade. Bacon. 
 
 Under the headinf^^ of Advances, in your balance- 
 sheet, are included overdrawn accounts, temporary and 
 special advantages, and, to avoid detail, various minor 
 heads of account ; but for all purposes of argument, it 
 will suffice to treat the whole as consisting of overdrafts 
 and advances. 
 
 The limit we assigned to these was ;^96o,ooo, and was 
 thus arrived at: — 
 
 Paid up Capital and Rest . ^450,000 
 20 per cent, of Deposits, etc. . 5 10,000 
 
 ;^96o,ooo 
 
 The figures are purely arbitrar)', as were those on 
 which we based the other apportionments of your assets. 
 Whether they represent the exact quota of your resources 
 which may with prudence be thus employed, is a point 
 on which opinions will differ, — some will think the 
 proportion too restricted ; others will regard it as over- 
 much. 
 
 The usage of London banks in this matter necessarily 
 differs from that of the provinces, because metropolitan
 
 222 The Country Banker. [let. xxx. 
 
 deposits are subject to greater fluctuations than those of 
 country banks : a London bank must, therefore, retain a 
 larger relative proportion of its resources in living forms 
 of asset. The deposits in country banks consist, for the 
 greater part, of the savings of quiet country people ; who 
 do not trouble their heads, as we have seen, about the 
 state of the foreign exchanges, the reserve of bullion, or 
 the ups and downs of the money and share markets. 
 They are not of a speculative turn. In the management 
 of their banking affairs they are rather restful than 
 fidgety ; and will at times leave their deposits for years 
 undisturbed, except for the accretion of fresh savings or 
 accrued interest. They know that the money is at their 
 command, principal and interest, in full, at any time 
 when wanted ; they are therefore content to let it rest 
 at a moderate rate of interest, until a good mortgage 
 offers itself, or a tempting bit of property comes on the 
 market. 
 
 No doubt there are varieties of provincial depositors 
 to which this pastoral sketch will not apply. There 
 are portions of country deposits, especially in the 
 larger towns and cities, which are as restless and 
 fugitive as those of the metropolis : — nevertheless, the 
 dominant feature of pro\incial deposits is a limited 
 range of fluctuation and consequent steadiness of 
 total 
 
 It is this stabih't)' in the general mass of their deposits, 
 which enables country banks to employ a considerable 
 percentage of them in o\crdrawn accounts and advances; 
 but this percentage will be governed, to some extent, 
 by the nature of the overdrafts. Many of these, 
 no doubt, will be as fixed in character as your Bank 
 buildings or your office fittings, and therefore equally 
 unavailable for the payment of deposits. At the same 
 time, these permanent oxerdrafts are )^our most lucrative 
 form of account ; and they will always be the last which 
 you will seek to disturb, so long as they continue 
 within their appointed limit, in the marshalling of your 
 assets.
 
 LET. XXX.] Advances. 223 
 
 On the other hand, your temporary advances on first- 
 class railway stock, or on produce warrants, or other 
 marketable securities, arc only second in a financial 
 point of view, to bills of exchange themselves. You 
 cannot, it is true, re-discount such advances and 
 turn them into money at any moment; but they will 
 turn themselves into money, when due, equally with 
 paper of the first quality. They will afford you 
 the principal means wherewith to maintain the 
 equilibrium of your finances, with least friction ; be- 
 cause, being impersonal advances, — loans based more 
 upon the value of the security than on the respon- 
 sibility of the borrowers, and made at the lowest rate 
 of interest to which the market can be pressed down, 
 — you have no hesitation in regulating the amount 
 of such loans in absolute accordance with the re- 
 quirements of your own business. In these and other 
 forms of temporary advance, you have a quasi Reserve, 
 of which you can avail yourself at any time, in whole or 
 in part, without scruple and without offence. When the 
 demands upon you for more lucrative forms of advance 
 increase in volume, you allow your railway and other 
 forms of temporary loans to run off in a correspond- 
 ing ratio : when these demands slacken, the outflow of 
 your resources towards such temporary employment will 
 re-commence. The principle will be well-nigh self-act- 
 ing, like the ball-cock in a cistern. 
 
 B.ANK. Credits. Certain of your customers import 
 produce from foreign parts, for which, in some countries, 
 they have to pay before shipment. The seller abroad 
 will not part with his commodity before he has value 
 recei\cd, in money or its equivalent. This is provided 
 by the importer sending the seller your letter of credit, 
 which authorizes him to draw upon your Bank up to a 
 certain indicated amount. Another form of credit gives 
 authority to firms abroad to draw upon the Bank 'against
 
 2 24 The Country Banker. [let. xxx. 
 
 documents ' — that is, for the invoice amount of goods, 
 produce, or commodities, at specified hmits of price, 
 which are not to be exceeded. 
 
 The risks run in the issue of credits chiefly depend 
 upon the arrangements which you make with the parties 
 to whom you issue them. You are bound to accept the 
 drafts drawn under these documents when they are 
 presented for acceptance, if the drafts are in order, — 
 whatever may have happened to your customers in 
 the meantime. From the date, therefore, on which 
 you issue a credit to a customer, he becomes indebted 
 to you for whatever sums may be drawn upon you 
 under it. 
 
 If the Credit is for a specific amount, you must regard 
 that amount as so much advanced to the customer 
 on overdraft, and deal with it accordingly. The 
 fact that you may not be called upon to pay the 
 money for months — possibly not at all — does not 
 alter the fact, that you have undertaken a responsi- 
 bility which you may have to face, and against which 
 you have to protect yourself the moment it begins to 
 run. 
 
 If the Credit is for an indefinite amount ; that is 
 to say, if the bills drawn under it are limited to the 
 value of certain produce or commodities at indicated 
 prices, you will no doubt see that your customer 
 provides you with a margin, in cash or conv^ertible 
 securities, which will be amply sufficient to cover all 
 contingencies. 
 
 There are persons of good judgment, who look upon 
 this description of transaction, as being the busines ralhcr 
 of a mercantile house than a country bank. It involves 
 certain obvious risks ; it enlarges the volume of your 
 liabilities; it requires special mercantile knowledge to 
 conduct it with safety ; and even with the best of know- 
 ledge, you will hardly ei^ape collision on disputed points 
 and an occasional law-suit. Moreover, the rate of 
 commission has now become attenuated to a point that 
 renders the business barely worth the doing ; except
 
 LET. XXX.] Advmices. 225 
 
 with customers who have other claims upon you, and to 
 whom you cannot refuse this form of accommodation 
 when they require it. 
 
 To revert briefly to your advances as a whole: the 
 question remains — Will it be prudent to lock up 20 per 
 cent, of your deposits, in addition to your paid-up Capital 
 and Rest, in this form of banking asset, — the remaining 
 80 per cent, of your deposits being represented by cash, 
 Consols, and bills of exchange ? 
 
 It is a question of usage and expediency. We have 
 already discussed the advantages which accrue to a 
 bank from a strong balance-sheet. We have seen, on 
 the other hand, that profits derived from an over-invest- 
 ment of its deposits are often delusive, and more than 
 lost, in the long run, by collateral disadvantage and 
 danger. Against profits thus earned, you have to place 
 the profits that ' might have been ' — profits arising from 
 that increase of business which a strong balance-sheet 
 is calculated, as we have seen, to attract, and a weak one 
 to repel. 
 
 And you have also to keep in view that the sum 
 of your commitments in the direction of authorized 
 overdrafts is not merely what your debtors owe you 
 at the moment, but what they might owe you, if they 
 should avail themselves of their limits of overdraft 
 to the full. It is improbable that all your over- 
 drawn accounts will at any time stand at the extreme 
 range of their limits ; but it is more than probable 
 that your accounts will make a nearer general approach 
 to that position in a time of pressure, than in a time of 
 ease. 
 
 But whatsoever limit you decide to adopt as the 
 maximum of your overdrawn accounts, it will be well to 
 keep in mind that on one side of it lies safety, and on 
 the other the path to danger. There is no channel into 
 which your funds will flow with greater alacrity, if they 
 are not watched with care and checked by the strong 
 hand. The overdrafts of a bank bear some such rela- 
 15
 
 226 The Co2tntry Banker. [let. xxx. 
 
 tion to its stability, as dead-weight in cargo bears to the 
 sea-worthiness of a ship. Your overdrafts constitute 
 your financial dead-weight : admit too much on board, 
 and thus get below your load-line, and you will find the 
 Bank labouring heavily the first time you have to face 
 a head sea of discredit.
 
 LETTER XXXI. 
 
 ADVANCES TO SHAREHOLDERS. 
 
 A great part of the proprietors when they paid in their first 
 instalmetits, opened a cash account with the Ba?ik, and the 
 Directors .... allowed many of them to borrow upon 
 this cash account, ruhen they paid in upon all their subsequent 
 instalments. Such payments therefore only put into one coffer 
 what had a moment before been taken out of another. 
 
 Wealth of Nations. 
 
 You have a primary lien on the shares of your Bank 
 by your Deed of Settlement. In case of need, you can 
 hold them as against all other creditors, until your 
 advance upon them, principal, interest and costs, is paid 
 in full. Your £\o shares sell with steadiness in the open 
 market at £^0 each, and you take them at that price as 
 cover for advances. 
 
 But even in the case of London and North Western 
 Stock you require a margin when you make an advance 
 against it. If so, w'hy omit a similar precaution when 
 you make advances on the security of your own shares? 
 Moreover, the price of its shares, however sound a bank 
 may be, is subject to sw^ift and serious depression in 
 periods of distrust or panic. The shares of many of the 
 soundest banks in the Kingdom went down in a k\v 
 weeks, in the scare of 1878, some 30 to 40 per cent. An 
 equivalent drop in the price of your shares, would bring 
 them to i^20, and leave your margin 33 per cent, on 
 the wrong side ; — for every ^^3000 advanced against the 
 shares, your security would have shrunk to i^2000. 
 
 It is no answer to this objection, to plead that no such 
 drop in your shares did or ever will take place. We 
 
 227
 
 228 The Country Banker. [let. xxxi. 
 
 are not as yet in sight of the millennium of finance, nor 
 the perpetual repose of bank deposits ; and the course 
 of panic is capricious. 
 
 The storm passed high over the heads of the smaller 
 joint stock banks in 1878; but it does not follow that the 
 next disturbance in our monetary atmosphere will take 
 the same direction. 
 
 Moreover, the true value of its own shares to a bank, 
 is not their current price in the market, but their in- 
 trinsic value — that is, the amount which your paid-up 
 capital and rest would yield per share, if rateably divided 
 amongst your proprietors. 
 
 There are 30,000 of your shares, and your capital 
 and rest amount to ^450,000. The intrinsic value 
 of each of your shares is therefore ^15; or about 
 half the value at which you take them as a security for 
 advances. 
 
 Now, if a bank shall make it a part of its business to 
 allow advances on its own shares at market price, 
 looking to them as its sole and sufficient security, and 
 without regard to the means of the borrower, it must 
 happen in time, that a portion of its capital will be held 
 by people of little or no means. 
 
 What this portion may attain to, will depend upon 
 circumstances. It may never exceed a small percentage, 
 or it may reach a large one. But let us take a moderate 
 figure, and say that 5 per cent, of its capital, or 1500 of 
 its shares, shall come to be held, in process of time, by 
 persons who are indebted to the Bank to the full market 
 value of their holdings, — ^30 a share, and have no other 
 means or property to fall back upon. 
 
 Let us, then, imagine that by reason of frequent 
 losses, an unprofitable and decaying business, or any 
 other cause, you decide to wind up. In that event one 
 half of the ^^45,000 which you may have advanced 
 without other security to the impecunious amongst your 
 proprietary, would become a loss. 
 
 It may l)c about an even chance, as you protest, that 
 the skies shall fall, as that anything can ever lead to the
 
 LET. XXXI.] Advances to ShareJiolders. 229 
 
 winding up of the District Union Bank ; and the con- 
 tingency is sufficiently remote, with such a balance-sheet 
 as yours, to render it an unimportant factor in your 
 calculations. But the contingency is one, nevertheless, 
 which cannot be altogether ignored, in any view of the 
 matter which shall claim to be exact, and to embrace all 
 eventualities. 
 
 It has further to be observed, that the man who owes 
 his bank the full market value of his shares in it is, 
 strictly speaking, only a shareholder in name. The 
 Bank has virtually provided him with the means where- 
 with to purchase the shares, and they are pledged to it 
 to their full market price. The shares, it is true, stand 
 in his name, and he is entitled in right of them to attend 
 all meetings of shareholders and to carry himself thereat, 
 in all respects, as if he were an independent shareholder 
 and did not owe the Bank a shilling. 
 
 But, apart from the obvious objections to shareholders 
 of this type, there are others of equal gravity. No one 
 ought to become a shareholder in a bank, unless he is in 
 a position, not only to pay for his shares with his own 
 money, but also to meet, from the same source, whatever 
 calls may at any time be made upon them. 
 
 Your Directors have the power to make this an 
 indispensable condition of proprietorship : they are em- 
 powered by your Deed of Settlement to reject, as a 
 shareholder, anyone of whom they do not approve. 
 
 The proprietary of a bank, were they thousands in 
 number, are merely a huge business firm, and ought to 
 have the same liberty of choice which any private firm 
 has, in the selection of fresh partners. This privilege of 
 choice they delegate to their Directors ; and if it is not 
 exercised, portions of the stock may gradually drift into 
 the hands of persons of insufficient substance — with the 
 results which we ha\'e just indicated. 
 
 There is a yet further objection to adwances on the 
 security of your own shares, which is this; — If you lend 
 back your paid-up capital or an)' portion of it to your- 
 selves — for that is the practical operation of such ad-
 
 230 The Country Banker. [let. xxxi. 
 
 varices — your capital becomes diminished for the time 
 being by the total amount thus lent, and your financial 
 strength will be weakened in like degree. 
 
 It does not follow that those of your shareholders, who 
 require to borrow money, must therefore be driven from 
 your doors to seek for it elsewhere. It only follows that 
 they ought to cover the money borrowed, by security 
 other than their bank shares ; or that they should be 
 safe beyond all question for the loans without security 
 at all. 
 
 But even shareholders of means, or supposed means, do 
 fail occasionally, and their shares become forfeit to the 
 Bank. When this happens, the shares ought to be sold 
 with the least possible delay ; because, so long as they 
 remain unsold, they are simply a cancelment of that 
 portion of your capital which they represent. The Bank, 
 for the moment, has absorbed a portion of its own 
 substance.
 
 LETTER XXXII. 
 
 LARGE ACCOUNTS. 
 
 UTien you are indebted arty great su?;i, your creditor observes 
 you with no less regard than if he were bound to you for some 
 huge benefit, and will quake to give you the least cause of offence, 
 lest he lose his money. Ben Jonson. 
 
 In your preliminary enquiry into the position of your 
 overdrawn accounts, you will no doubt take special note 
 of those, if any, which are largely in excess of the 
 average of your individual advances. I say, if any, 
 because it is to be desired that your Bank may have no 
 such untoward burdens to carry, as a few huge accounts, 
 absorbing a large portion of its capital, and uncovered, 
 or imperfectly covered, by security. Every bank failure 
 which has happened during the last forty years, has been 
 brought about by reason of facilities of scandalous 
 extent granted to three or four favoured accounts. 
 
 I have before me some particulars, taken from the 
 detailed balance-sheet of a bank, with a paid-up capital 
 of a million and a magnificent connection, which failed 
 in 1857. Three-fourths of its business were as sound as 
 a banking business could be ; but the other fourth was 
 represented by a few accounts, which absorbed amongst 
 them a million and a half of money, in advances and 
 discounts which were well-nigh worthless. A powerful 
 bank was thus brought to the ground, and a business 
 worth i^jo.OOO a year scattered to the winds. 
 
 The balance-sheet of another bank, which failed in 
 1866. reveals the same story: a large paid-up capital and 
 a valuable connection ; more than half its business of 
 first-rate excellence ; the remainder as bad as it was in
 
 232 The Country Banker. [let. xxxn. 
 
 the power of foolish men to make it. Its large capital, 
 and half as much again, were swallowed up in a few 
 monstrous accounts, with the usual result — a final break 
 down and utter wreck of an institution, which, under 
 sane management, had before it a long career of useful- 
 ness and success. 
 
 The figures now quoted, however, although sufficiently 
 startling, were terribly surpassed by those of Overend, 
 Gurney & Co. 
 
 The Black Friday of 1866 was signalized by a failure 
 which, for a time, stood alone in its bad eminence 
 amongst the calamities of banking. The lowest deep in 
 banking disaster, it was felt, had been reached at last. It 
 was held to be beyond belief, that a noble business could 
 ever again be wrecked by such high-handed incom- 
 petency, and millions of money cast away with such dis- 
 astrous prodigality. But the bursting up of the City of 
 Glasgow Bank dissipated these complacencies as with 
 a thunderclap. The losses of Overend, Gurney & Co. 
 were enormous, but they stood eclipsed in the awful 
 shadow of the other failure. Shameful as were some 
 of the figures of the great discount house, they failed 
 to reach the altitude of five millions of loss on four 
 accounts. 
 
 If it be asked how such evils arise and are developed, 
 the answer is not far to seek — they arise from trans- 
 actions entered upon, either in sheer ignorance or in 
 reckless violation of the fundamental principles of 
 banking ; and once entered upon, they develop them- 
 selves with fatal swiftness of growth. 
 
 If the Directors and Managers who are account- 
 able for these things, had controlled their advances 
 on the commonplace principles followed by you at Ox- 
 borough, such overwhelming loss to shareholders, and 
 shame and scandal to British banking, would never have 
 arisen. 
 
 When you assume the management in chief, therefore, 
 of the District Union Bank, the homely ways of banking
 
 LET. XXXII.] Large Accounts. 233 
 
 which you have followed in Oxborough with success, 
 will be found of equal soundness if practised at head- 
 quarters, although you may have to apply them on a 
 larger scale. But let the largeness of the scale be always 
 within the limits of moderation, and let your face be 
 resolutely set against 'big accounts,' no matter how 
 large the apparent profit on them may be, unless you are 
 covered in every case by sufficient and immediately con- 
 vertible security. 
 
 No doubt there are firms in England, to whom it would 
 be as safe to advance without security i^ 100,000, as it 
 would be to advance ;^iooo t,o others. Nevertheless, 
 for the District Union, or any other Bank, to advance a 
 third of its capital on any one account, without immedi- 
 ately convertible security, would under any circumstances 
 be an act of financial temerity, which might place its 
 management some day on the same platform with those 
 developments of banking, the outcome of which the 
 nation has more than once beheld with shame and 
 resentment. 
 
 Even if covered by convertible securities, the amount 
 would be dangerously large. If the borrower should 
 stop payment in a time of monetary pressure, when 
 failures most abound, and when the public appetite for 
 evil report is at its highest capacity of digestion, the 
 result might be seriously detrimental to the credit of 
 your Bank. Even if after many days you get your 
 money back again, a doubt will have been engendered 
 as to the prudence of your management, which may 
 not be without its effect on the future of your business. 
 The putting of too many eggs in one basket, has a 
 homely significance even in the ordering of a banking 
 business. 
 
 With such a cap''..d as yours, it would be more ex- 
 pedient to lay ;^ioo,000 out in a hundred advances of 
 ;!^iooo each, than in a block to one huge borrower. For 
 one reason, the risk would be less. It is better to have 
 a hundred men liable for a given sum, than only one 
 man. E\'en if you select your smaller borrowers so
 
 234 T^^^ Country Banker. [let. xxxn. 
 
 badly, that a score of them shall collapse during the 
 course of the first commercial crisis; these petty failures, 
 compared with the smashing up of your big customer, 
 would be as the rattle of musketry to the explosion of a 
 
 shell. 
 
 And there is another argument in favour of the smaller 
 class of accounts. They pay better. The turn-over on 
 such accounts is relatively greater than on large ones. 
 The capital of the shopkeeper is turned over more 
 frequently than that of the merchant. A business which 
 involves large transactions, at long dates, in distant lands, 
 is easily distanced in the matter of turn-over, by one con- 
 ducted on the principle of the ' nimble penny,' 
 
 And there is yet another consideration. You are less 
 liable to be drawn in, when the account is of moderate 
 amount. When a client, whose overdraft is already 
 up to its limit, comes to you on the third of the 
 month, and threatens that unless you assist him with a 
 further advance without security to meet his acceptances 
 for the morrow, he must suspend his payments ; I 
 conclude that you will refuse to be thus ' cornered.' 
 You will prefer to stand where you are. You will decline 
 to furnish him with a fresh grant of the Bank's money, 
 in order that he may pay certain creditors in full, and 
 leave the Bank by so much further in the lurch. 
 
 But when the great Anglo-Indian house of Synkheim 
 Brothers, with a capital of a million, ' as eveiybody 
 knows,' and on the strength of which they are already 
 in debt to their bankers a tenth part of that amount : I 
 say, when these gentlemen come to their bankers, with 
 a list of their acceptances for the month, amounting, let 
 us say, to some fifty thousand pounds, the case is dif- 
 ferent. It ought not to be, but unhappily it is so. The 
 Brothers Synkheim represent to the Bank Manager that 
 their shipments of Manchester and other goods to the 
 East have been unusually large, and the markets for their 
 sale unusually adverse; and that, in consequence, their 
 remittances by the present mail will not suffice, without
 
 LET. XXXII.] Large Accounts. 235 
 
 a further temporary advance from the Bank, to provide 
 for their acceptances now becoming due. 
 
 The Manager, awed by the presence of the members 
 of a firm worth a milHon of money, summons courage, 
 nevertheless, to murmur something about security. This 
 the firm would cheerfully give ; but, as it happens, the 
 whole of their resources at the present moment are un- 
 fortunately at the other side of the globe. 
 
 We all know what has too often happened ; the extra 
 advance will be conceded, and the power of the Bank to 
 resist further involvement by so much impaired. 
 
 A bank can make its mind up, without serious effort, 
 to face the loss of a thousand or two ; but no bank can 
 regard, without dismay, the possible stoppage of a house 
 owing it ^100,000. It would be infinitely b*etter for all 
 concerned, as a rule, to let the house go down at once — 
 even if it should carry the Bank with it, rather than put 
 to risk another pound. 
 
 But this has not been the usage always. On the con- 
 trary, we find that in too many cases, a few large accounts 
 are allowed to grow to abnormal figures, until a point is 
 reached when the borrowers become masters of the Bank, 
 and they and it drive blindly on to mutual perdition. 
 
 You put the question — Are such culpable perversions 
 of banking principle possible in the future ? Will credit 
 ever again be shattered, or the public conscience outra""ed, 
 by a second Overend & Co., or another City of Glasgow 
 Bank ? I think the question may confidently be answered 
 in the negative. 
 
 For one reason, nearly every joint stock bank in the 
 three Kingdoms is now bound to publish a balance-sheet, 
 at least once a year ; and that balance-sheet has to be 
 signed and certified by three of its Directors and its 
 Manager as true, under penalties which few gentlemen 
 will care to face, if it prove to be false. If they have 
 put their signatures to a deliberate mis-statement, 
 the shame and the punishment will now be sure and 
 swift.
 
 236 The Country Banker. [let. xxxn. 
 
 But, in addition to the testimony of the Directors and 
 Managers, there will henceforth be required a declaration 
 on the face of every balance-sheet, signed by indepen- 
 dent auditors, that it affords a true and accurate state- 
 ment of the affairs of the Bank for the time being. I 
 hold this certificate to be of more importance even than 
 that of the Directors themselves, without thought of 
 disparagement to them. 
 
 In the first place, in nearly every case, it will be the 
 declaration of men whose training for life has been the 
 analysis of accounts and the science of book-keeping. 
 In the methods of research which are necessary to a 
 responsible audit, they are experts, whom no sleight of 
 hand in double-entry or fraudulent arithmetic will serve 
 to hoodwink for a moment. 
 
 In the second place, the testimony of a public auditor 
 is disinterested. He has no object to serve in deceiving 
 the public, or the shareholders, as to the actual position 
 of the Bank. His interest is to tell the truth, come 
 what may. 
 
 Lastly, the auditor is not appointed by the Direc- 
 tors. He is chosen annually by the shareholders, and 
 his remuneration is fixed by them. He is not 
 therefore a serv^ant of the Board ; it can neither influ- 
 ence nor dismiss him. He is virtually the detective 
 of the shareholders, — chosen by them to keep an 
 eye upon the Directors : not necessarily an eye of 
 doubt, or suspicion ; but to test and verify their annual 
 statement of facts, and make assurance of their figures 
 doubly sure. 
 
 A fraudulent balance-sheet, under the altered con- 
 dition of things, appears to me, therefore, to be no 
 longer a possible thing. It is impossible that the books 
 of any bank can ever again be materially falsified by the 
 most astute or the most nefarious of officials, without 
 immediate detection. 
 
 Therefore, there can be no more falsified bank balance- 
 sheets. Losses in banking will no doubt arise at times 
 in the future, if banking principle be disregarded; but
 
 LET. XXXII.] Large Accounts. 237 
 
 they will be subject to early detection and prompt 
 exposure. There will be no more ruinous bolstering up 
 of large and dangerous accounts. The auditors will see 
 to this, if the Directors do not: so that a second edition 
 of the City of Glasgow Bank, even on a reduced scale, 
 is henceforth beyond the range of probability.
 
 LETTER XXXIII. 
 
 BILLS OF EXCHANGE. 
 
 A?nongst many roses some tJiistles grozu, some bad weeds and 
 enormities, which much disturb the peace of this body politick, 
 eclipse the honour and glory of it, fit to be rooted out and with all 
 speed to be reformed. Anatomy of Melancholy. 
 
 The bill of exchange is the highest form of banking 
 security. It even excels Consols, as such, in one 
 respect — its principal sum is not subject to deprecia- 
 tion ; it will be paid in full when it reaches maturity ; 
 whereas an equal sum invested in Consols would yield 
 on realization simply the price of the day. The price 
 may have advanced, it is true, but it is equally possible 
 that it may have receded. A bill, moreover, is unsur- 
 passed in facility of transfer. The mere signature of the 
 indorser transfers all property in the instrument to you 
 as effectually as if the transfer were embodied in a 
 conveyance of the regulation length on lawyers' vellum. 
 
 If the first bill of exchange had been framed by a 
 leading conveyancer, reduced to shape in a committee of 
 the whole House, and had suffered periodical amend- 
 ment at the hands of the Legislature ever since, it 
 becomes a curious speculation what complexity of form 
 and measure of length this simplest of documents would 
 have attained by this time. Fortunately for the com- 
 mercial interests of the human race, it has escaped this 
 ordeal, and remains to us an instrument altogether 
 matchless in brevity of form, facility of transfer and 
 simplicity of title. There is no difficulty in settling the 
 title to a bill of exchange. You have but to assure 
 yourself that the indorser is none other than himself 
 and the point is settled. And you can with equal 
 238
 
 LET. XXXIII.] Bills of Exchange. 239 
 
 promptness and ease render the document inalienable, 
 except by your own act and deed, by the simple pro- 
 cess of specially indorsing- it to the Bank, whereby you 
 render it useless plunder to a thief. 
 
 At a previous stage of this correspondence, we sought 
 to analyse the class of bills which you would chiefly 
 meet with, in a quiet country town like Oxborough. 
 
 We have now to glance at the varieties of paper with 
 which you may have to deal, in the populous and busy 
 commercial town where your Bank has its head-quarters, 
 when you come to rule as its Manager in chief. 
 
 In the first order of merit, come bills bearing the 
 names of banks or banking houses, as drawers, accep- 
 tors, or indorsers, together with other names of high 
 standing. These bills stand A i in the estimation of 
 the discount market, and the fanciful speak of them as 
 gilt-edged. Then we have 'remittance paper' — bills 
 drawn by houses abroad on banks, or correspondents in 
 England. Then comes 'inland drawn' paper — bills 
 drawn by the shippers of goods on the agents in 
 England of the houses abroad, to whom the goods are 
 shipped. Anon we come upon brokers' paper — bills 
 drawn by importers against commodities placed in 
 brokers' hands for sale. Then we reach the immense 
 class of bills arising out of our manifold trades and 
 industries, which pass under the term of 'trade paper:' 
 and finally, we have a nondescript class, of limited 
 amount, consisting of promissory notes or loan-bills; 
 such as those of Bowdler on Starkey, and the like. 
 
 It may chance, however, unless due caution has been 
 exercised by your predecessor in office, that bills are to 
 be found in your portfolio which do not come strictly 
 within any of these definitions. We have seen that even 
 in quiet humdrum Oxborough, bills may be fabricated 
 and set afloat against values purely fictitious. 
 
 But bills may be drawn against \'alucs only too 
 ponderous. Bills, for example, are sometimes drawn
 
 240 The Country Banker. [let. xxxm, 
 
 against ships or steamers in the course of construction. 
 Where the acceptor is a man of sufficient means him- 
 self, or where he has an 'ownery' for the vessels, from 
 whom he is able to collect the money needful to meet 
 the bills as they mature, there is little to be said : but 
 if his ownery is not in hand, — if it consists of persons who 
 owe their existence for the most part to a hopeful imagi- 
 nation, — he will not be able to meet his acceptances at 
 maturity; and if the builder cannot take them up, the 
 bills will have to be renewed and additional ones drawn, 
 to provide the wherewithal to complete the vessel and 
 send her to sea. 
 
 What may next happen is problematical ; she may 
 prove a lucky ship, or she may prove to be the reverse : 
 but in either event, the native element of vessels thus 
 launched and sent to sea, is manifestly paper. They 
 float as much on bills as on the ocean wave ; and the 
 outcome to the discounters of such paper — as witness 
 the experiences of Overend, Gurney & Co. — is ordinarily 
 more disastrous than exhilarating. 
 
 It is not the province of banking to discount bills, the 
 proceeds of which are to provide the acceptors with fixed 
 capital. A man may properly be drawn upon against 
 goods, produce, or commodities which he is turning over 
 in his business from day to day ; but not against his 
 buildings or machinery. These are not floating capital. 
 He cannot meet his acceptances with factories or 
 fixtures, buildings or machinery. These represent his 
 fixed capital, and are provided by himself out of his own 
 means, or they ought to be. In any case, they are no 
 basis to run bills of exchange upon ; neither are vessels 
 in course of construction, or navigating the high seas. 
 
 A ship-owner, or ship's husband, may properly be 
 drawn upon for sails, or cordage, or stores supplied to 
 his ships, because there is a tangible fund in his in- 
 coming freights to meet such marine engagements: but 
 when he accepts against the hull of a ship, he passes the 
 recognized limits of negociable value, and his paper be- 
 comes ultra-marine in the estimation of the bill market.
 
 LET. XXXIII.] Bills of Excharige. 241 
 
 Your larc^est holding of paper will, no doubt, consist 
 of trade bills, the features of which we discussed at length 
 in a former letter, and of which we took for an average 
 sample the draft of Cartridge on Booker & Co. 
 
 Next in probable amount will come your holding of 
 'brokers' bills,' — a description of paper unknown to 
 Oxborough — drawn by the owner of produce upon the 
 broker in whose hands he has placed it for sale. The 
 bill is usually accompanied by the written undertaking 
 of the broker to apply the proceeds of the merchandise 
 in payment of the bill. When this undertaking is supple- 
 mented by a warehouse warrant, shewing that the mer- 
 chandise has been transferred into the name of the 
 Bank, no safer transaction could well be offered you. 
 
 But the legal transfer of the property into the name 
 of the Bank is indispensable, if absolute security is to 
 be insured. If this is not done, neither the owner nor 
 the Bank has control over the produce or commodity 
 advanced upon. In that respect they have to trust 
 entirely to the honour of the broker. It is rarely that 
 this trust is abused, but it has been in certain flagrant 
 instances; and this species of malversation will always 
 be a possibility, where the letter of hypothecation is not 
 backed by a warehouse-warrant in name of the Bank. 
 
 It is difficult to understand why this should not be 
 done in every case, on principle ; unless we are to concede 
 that the borrower of money has a greater claim to be 
 the holder of the commodity borrowed upon, than the 
 Bank which lends the money ; a contention which is 
 clearly untenable, not to say ridiculous. By all laws of 
 reason and business usage, the lender of money is held 
 to be the natural holder of the property advanced 
 upon. 
 
 You question whether leading brokers will take this 
 view of the matter. If so, all that need be said is, so 
 much the worse for the leading brokers ; because they 
 will thus divert such business into the hands of less sub- 
 stantial people, who will not be deterred by sentimental 
 16
 
 242 The Country Banker. [let. xxxiu. 
 
 scruples from giving business validity to business 
 transactions. 
 
 With respect to bills drawn, indorsed, or accepted by 
 banks, at home or abroad, of undoubted means and 
 stability, and bearing other names of high standing, 
 there will be no difficulty of selection. They will turn 
 into bank notes of their own accord, as they fall due, and 
 you will be without a care or anxiety in respect of 
 them. 
 
 Bills drawn by houses abroad on their correspondents 
 in England against actual shipments of merchandise to 
 this country, and known to banks and bill-brokers as 
 remittance paper, are frequently drawn upon banks or 
 houses of the highest mercantile standing, and are in 
 high repute and favour in the discount market. 
 
 As between this class of bills, and those drawn by 
 English shippers on the agents in England of houses in 
 India, China, or elsewhere abroad, there is this difference: 
 in the case of remittance paper, the bills are drawn 
 against value on its way to this country ; in the other, 
 the bills are drawn against value which is leaving this 
 country for distant parts of the globe. A bill drawn 
 against value which will be in hand before the bill falls 
 due, obviously rests on a different basis from a bill 
 drawn against commodities which, at the maturity of the 
 bill, are being realized in the distant markets of the East 
 or West. 
 
 Kite-flying. We have thus far dealt with bills 
 drawn against ' value ' actually given by the drawers 
 and received by the acceptors of the bills ; although we 
 have not found the value of approved quality in every 
 case. Nevertheless, we have found a value of some 
 kind, underlying and forming the basis of each trans- 
 action. Every genuine bill of exchange is in fact the 
 presentment and voucher of a mercantile or trading 
 transaction, which has actually passed between the
 
 LET. XXXIII.] Bills of Exchange. 243 
 
 parties to the instrument. But we have yet to speak of 
 certain bills of more nebulous quality — bills drawn and 
 accepted against values received which have no existence 
 — bills which have their origin and exclusive base in the 
 predatory instincts of their makers. You have met, as 
 we have seen, with an obvious ' kite ' or two at Oxbo- 
 rough ; but the character of this class of bill is not 
 always so apparent : there are diversities of kites, as of 
 other things. 
 
 When Mr. Julius Webber tenders for discount his 
 draft on Wefton & Co., and you already hold certain 
 drafts of theirs upon him, both being customers of your 
 Bank, and both in the same line of business, you will not 
 only look aslvince at the proffered transaction, but will 
 naturally desire to know the basis on which the bills 
 already afloat are supposed to rest. You will be 
 vehemently assured, no doubt, that actual value has 
 passed in every case. When Wefton & Co. run short of a 
 certain class of goods, the friendly Webber lets them have 
 some of his, and draws against them ; similarly, when 
 his stock requires 'assortment' they, with equal courtesy, 
 furnish the needful and draw upon him therefor with 
 equal promptitude. Nothing, they will assure you, could 
 be more regular than their drawings upon each other. 
 
 In a certain sense — possibly not; but when two firms 
 in the same trade take to exchanging goods with each 
 other, and to drawing bills against the total of each 
 exchange, instead of for the difference only, it is manifest 
 that such bills have no more real foundation to rest 
 upon, than if the same bale of goods were shuttlecocked 
 backwards and forwards between the parties, whenso- 
 ever either of them was moved with the desire to 
 draw. 
 
 Let us suppose that Webber has bills running on 
 Wefton & Co. for, sa)', ;^I500, for which he has sold and 
 delivered them goods of equal value ; and that Wefton 
 & Co. have drafts running upon him for a similar 
 amount, and for which they have supplied him with
 
 244 The Country Banker. [let. xxxm. 
 
 actual \'alue in goods. It is clear that by these opera- 
 tions they have raised ^^"3000, without thereby adding a 
 shilling of value to their respective stocks in trade. It 
 is further manifest that by this financial hocus-pocus, 
 bills might be set afloat to an amount, not merely equal 
 to, but largely in excess of their combined stocks 
 in trade, — if banks could be found incautious enough 
 to discount paper of this light and airy description. 
 
 And there are other methods of kite-flying, equally 
 plausible, more difficult of detection, and only a shade 
 less censurable. 
 
 A. has imported a cargo of produce, — value, say, ^^5000, 
 which he sells to B., who buys it on speculation, and 
 re-sells it also on speculation to C, who disposes of it to 
 D., a wholesale dealer ; who finally parts with it to the 
 trade, and draws upon the smaller buyers against sales. 
 Now, if bills are drawn at every stage of the process, as 
 they may easily be, a single cargo might thus be used 
 as a base to set afloat bills to three or four times its 
 value. The proceeds of each bill ought, in strictness, 
 to be applied, as soon as the bill is drawn, to take 
 up and cancel the previous one ; but this is not the 
 usage. As a rule, A., B., C, and D., will prefer to have 
 i^5000 each to play with for a few months, and their 
 respective bankers meanwhile will be the holders of 
 ^20,000 in bills, three-fourths of which amount have 
 gone for the time being into other forms of commercial 
 speculation. 
 
 There is yet another description of paper against 
 which you have to be on your guard. The drawer and 
 acceptor of the bills may both be respectable English 
 firms ; and there may be nothing on the face of the bills 
 to suggest irregularity. The drawer is an importer of 
 the produce or commodity which it is the special 
 business of the acceptors, his brokers, to deal in and 
 dispose of, and evcr)thing seems fair and above-board; 
 until some day, to your amazement, both firms give way
 
 LET. XXXIII.] Bills of Exchange. 245 
 
 together. You then discover that the bills were drawn, 
 not against produce or commodities in the hands of the 
 acceptors, but to provide the drawer with means to make 
 advances to growers abroad, in anticipation of expected 
 crops. 
 
 You further find, that the parties have been carrying 
 this speculative game on for years, and that the frequent 
 result of such trading has followed, and brought both 
 concerns to grief You have been an unconscious in- 
 strument in effecting your own heavy loss, and abet- 
 ting them in their own undoing. You have been treat- 
 ing as genuine commercial paper a series of flagitious 
 kites. 
 
 Your excuse is, that the bills had every appearance 
 of validity. There was respectability at both ends, and 
 probability in the ostensible transactions ; but unhappily 
 there was a want of candour. The bills, in every case, 
 purported to be drawn as against so much value in 
 hand and not against so much value in expectation. 
 Had they been so drawn, it is needless to observe that 
 they would never have seen the inside of your bill- 
 case. 
 
 The polite moralist may draw a distinction betwixt 
 the fabrication of bills of this description and the vulgar 
 game of thimble-rig ; but the banker who finds himself 
 hocussed by such paper is apt, in his rage, to think that 
 in dealing with a professed trickster, he would at least 
 have the advantage of being on his guard. 
 
 You ask how you are to detect such paper when 
 offered ? By the simple process of requiring, as in the 
 case of other brokers' paper, that the acceptors shall 
 hypothecate and transfer to the Bank the commodity 
 against which the bills are drawn. By a resolute enforce- 
 ment of this necessary condition, you will avoid being 
 the holders, henceforth, of bills drawn against \alues in 
 the air. 
 
 But if we would know one of the causes of recurring 
 panic and widespread banking loss, we have to look at
 
 246 The Country Banker. [let. xxxm. 
 
 methods of kite-flying, practised at higher levels and on 
 areas of wider range, than are accessible to the Webbers 
 and Weftons, or the Bargoods and Laxeys of trade; whose 
 offences, compared with those of the larger practitioners 
 of the craft, dwindle to petty larceny. 
 
 More than once during the current half century, bills 
 have been drawn by certain large houses of the period 
 on each other, against merchandise purporting to be on 
 its way either to England or to English houses abroad, 
 to the extent of millions — merchandise which had no 
 existence bcN'ond its fraudulent inscription on the face 
 of fictitious bills. 
 
 The credit given to these houses was not made to rest 
 on the homely principles on which banking at Oxborough 
 is conducted. The credit given was not based upon an 
 intimate knowledge of the parties themselves, their habits 
 of life, their business capacities, their liabilities and their 
 resources; but was accorded with lavish hand, in ignorance 
 of these essential facts and regardless of the conclusions 
 to which they might lead. 
 
 Neither would there seem to be much ground for hope 
 that matters will be different in the future, so long as 
 the engagements which any mercantile house may come 
 under, in excess of its capital, are subject to no law of 
 control, beyond what the house may see fit to impose 
 upon itself. Limits are assigned to other things. We 
 breathe and move in a labyrinth of legal and moral 
 restraint ; but there is no limit, in law or equity, to the 
 most baleful expansion of commercial credit. In the 
 progress of each decade, it grows and spreads unseen, 
 until its presence, like the fire-damp, becomes known 
 only by explosion. 
 
 If the paper of each house were to centre in any one 
 bank, or discount house, some limit might be put to this 
 fertile source of banking misfortune ; but this is im- 
 practicable. Such paper is scattered throughout the 
 country : here a little, there a little : each banker 
 knowing how much he himself holds, but knowing 
 nothing of the aggregate paper afloat of each house.
 
 LET. XXXIII.] Bills of Exchange. 247 
 
 In this ignorance, he hugs himself with the belief that 
 his few thousands on a house worth its plum, are as 
 safe as the bank notes in his till — a form of delusion 
 from which, every ten years or so, he has a rude 
 awakening. 
 
 I protested five and thirty years ago, that the then 
 recent losses on this pernicious brood of ' kites,' were 
 sufficient to strike bankers dumb — but they would 
 appear to have had the more serious effect of striking 
 certain of our number blind. We have lived to witness 
 developments of the bill system of 1847, and of other 
 so-called forms of banking, on a scale of magnitude, in 
 comparison with which the figures of that time shrink 
 into abject insignificance. The practitioners of that 
 early period were as pigmies, compared with the levia- 
 than operators of a later time. 
 
 One cause, which has rendered the manufacture and 
 negociation of such bills practicable, still exists. The 
 intense competition for so-called high-class paper among 
 London and other banks and discount houses, is still 
 such as to enable any astute and speculative firm to 
 have discount facilities in half-a-dozen different quarters 
 at the same time. 
 
 Now, one old-fashioned rule of country banking was, 
 and still is, to require that a man shall have only one 
 banker, and to close his account if it is discovered that 
 he has two ; and you will do well to adhere in all cases 
 to this prudential rule in respect of your own customers. 
 How can you know, with any approach to exact figures, 
 what a man is doing, or how his affairs stand, if he is 
 transacting a portion of his business elsewhere ? The 
 very fact of his doing so excites a suspicion that he has 
 some reason for withholding certain of his operations 
 from your obserxation. When you lend him money, 
 and discount his bills, you have a right to know the 
 whole of his banking transactions ; otherwise you may 
 awake some day to the knowledge, that he has been 
 availing himself of facilities elsewhere, by means of
 
 248 The Country Banker. [let, xxxm. 
 
 which he has succeeded in deluding you as to his real 
 position. 
 
 And you will find that some of the discount establish- 
 ments in London afford such facilities to parties whom 
 they know to be customers of country banks. Even with 
 money of your Bank lying with them at call, they hold 
 themselves at liberty to compete against you, with your 
 own customers, for discounts, at your very doors. It is 
 not a neighbourly policy, nor altogether a wise one ; it 
 is a question whether it even ' pays.' The broker who 
 should practise this sort of competition would have no 
 ground for complaint, if he found the money placed 
 with him at call or short notice by the bank competed 
 against, taking to itself wings to seek a more friendly 
 shelter. 
 
 Would it not be a better way, even as a question of 
 profit and loss, for a London bill broker gradually to 
 limit the discount business coming to him from the pro- 
 vinces, to the bills of Country banks seeking re-discount? 
 The same volume of country paper would still have to 
 seek London for discount ; but then, all such paper 
 would reach the brokers through the medium of bankers 
 on the spot. The broker would thus have the assurance 
 that the bills had been selected by those who had un- 
 rivalled means of judging of their regularity and safety; 
 and this assurance would be strengthened by the indorse- 
 ments of the banks. A broker's chances of loss on country 
 paper would thus be reduced to vanishing point. If 
 such a policy were gradually adopted — if London dis- 
 counters of bills were gradually to close the door against 
 all country business, except that coming to them from 
 Country banks, or from provincial houses having no 
 local bankers, the * fast' firms of the future would find 
 themselves pulled up by their bankers, long before 
 their liabilities could reach the monstrous figures of the 
 recent past. 
 
 By dealing direct with provincial customers, the dis- 
 count broker no doubt obtains a rate of discount 
 slightly in excess of what he would obtain, if the bills
 
 LET. xxxiii.] Bills of Exchange. 249 
 
 came to him through a Country bank and under its 
 indorsement. But if against the small fraction of profit 
 thus realized during, say, the last ten years, were 
 placed the losses on such transactions ; who can 
 doubt on which side the balance of advantage would 
 incline ? 
 
 You ask how a Country banker, under the existing 
 order of things, can best guard himself against danger in 
 furnishing his bill-case with its necessary quota of first- 
 class paper? You say that if enquiry had been made 
 as to the position of any one of the large houses which 
 have failed during the last quarter of a century, the 
 answer, up to the very eve of their failure, w'ould in all 
 probability have been that their credit was beyond ques- 
 tion. That is true, and because it is true, I would sub- 
 mit that a country bank had best secure its first-class 
 paper through a first-rate discount house, and under 
 its guarantee. This would render the operation safe 
 beyond the reach of doubt, and would be doing by 
 the bill brokers as you would have them do by you ; 
 you would thus avoid meddling with their business, as 
 you would have them abstain from interference with 
 yours. 
 
 Let us suppose that you choose instead, to select your 
 first-class paper on the strength of your own judgment, 
 and thereby gain a quarter per cent, per annum on 
 each transaction. On a bill for ^^"5000, having three 
 months to run, your gain will be ^3 2s. 6d., and no 
 more. This will be the extent of your gain, by working 
 without the light of a broker's e.xperience, or the sub- 
 stantial backing of his guarantee. 
 
 Let it be the result of a discount business thus per- 
 sonally conducted, that the bill becomes a loss — a con- 
 tingency which would not be without precedent — and 
 the gain of £1 2S. 6d. for the sake of which you have 
 risked so much, will seem pitiful indeed. Beware of 
 these petty allurements of gain, which are as calculated
 
 2 50 The Country Banker. [let. xxxm. 
 
 to swallow dividends up, every now and then, as to 
 enlarge them. ' I was caught by a morsel,' was the 
 mournful reflection of the fish in the adage. 
 
 When you have completed the investigation of your 
 bill-case and made a synopsis of its contents, and would 
 know the financial value of the whole, — deduct from the 
 total, the amount of your promissory notes and loan 
 bills, and all paper of dubious quality, if you hold any, 
 and the difference will be the result required. In other 
 words, the amount remaining in )'Our bill-case, after this 
 deduction is made, will represent the net amount of 
 negociable paper which you hold — that is to say, the 
 total of your bills available for re-discount in case of 
 need. 
 
 What proportion of unmarketable paper it may be 
 prudent for you to hold at any time, must be determined 
 by the same laws which guide you in fixing the limits of 
 your other forms of asset. 
 
 In constructing your balance-sheet, we assumed that 
 the whole of the i^ 1,190,000 in bills of exchange 
 were of negociable quality. These, added to your 
 cash and Consols, represent a total of readily avail- 
 able resources, equal to 80 per cent, of }-our deposits — 
 a position of undeniable strength. But, if certain 
 of your bills are not negociable, this percentage will 
 have to be reduced : if you hold unmarketable paper 
 to the extent of say ^^300,000, the percentage would 
 drop from 80 to 68 — and your financial barometer 
 would indicate a fall of 12 degrees. The amount you 
 hold of promissory notes or loan bills may, therefore, 
 be an important item, in estimating from time to time 
 the general strength of j'our position. 
 
 The degree of that strength, it may be well to note, 
 is always to be measured by the proportion which 
 your fusible assets bear to your liabilities to the 
 public. Your cash in hand and at call may be regarded 
 as assets in actual fusion : your Consols and negociable
 
 LET. XXXIII.] Bills of Exchange. 251 
 
 bills as fusible into cash in a high degree : your pro- 
 missory notes and loan bills as in-fusible, within any 
 exact time ; and the bulk of your overdrafts as opposing 
 an obstinate resistance to fusion, whatever heat of appli- 
 cation may be brought to bear upon them.
 
 LETTER XXXIV. 
 
 RESERVE LIABILITY. 
 
 Set it down to thyself, as well to create good precede^its, as to 
 follota them. Reduce things to the first institution, and observe 
 wherein and hozu they have degenerate : but yet ask counsel of 
 both times : Of the ancient time what is best ; Of the latter time 
 what is fittest. Bacon. 
 
 The failure of the City of Glasgow Bank may be said 
 to have brought unlimited liability in banking to a 
 violent end. As the circle of ruin occasioned by the 
 catastrophe widened in its sweep, from day to day, the 
 consternation among shareholders in unlimited banks 
 became intensified. Men began to ask themselves, 
 whether it was not an act of insanity, to continue owners 
 of a description of property, the holding of which had 
 brought even wealthy men to the ground, and hundreds 
 of the well-to-do to privation or beggary, with as little 
 warning as an earthquake gives. 
 
 The terror, as we know, was exaggerated. It was 
 proveable that there could never again be such a 
 lengthened course of falsification, never such a piling up 
 and secret hoarding of accumulated disaster. Never- 
 theless, the fear remained. ' That which has been is that 
 which may be.' To the minds of many, there appeared 
 to be no choice between getting rid of their bank shares 
 at once, or finding themselves sucked down in some 
 other banking maelstrom. 
 
 The banks were thus threatened with the loss of the 
 most cherished names amongst their proprietaries. 
 Men of wealth and position would gradually sell out ; 
 252
 
 LET. xxxiv.] Reserve Liability. 253 
 
 and persons with little substance and less standing 
 would gradually take their i)laces. 
 
 One would make a struggle to meet a definite lia- 
 bility, and might rely on friends for assistance : but a 
 limitless debt appals the imagination, and breaks the 
 heart of effort. The victim will not even look it in the 
 face, but goes miserably under at once. 
 
 Unlimited liability, it was held, might thus become in 
 time the mere shadow of itself — a husk without its 
 kernel. The unlimited liability of a body of share- 
 holders of limited substance, would cease to reckon 
 for much, in the event of a breakdown and adverse 
 liquidation. 
 
 The question, therefore, became urgent, — was it 
 possible to assign some limit to the liability of share- 
 holders, and yet make ample provision for the security 
 of depositors ? If this were feasible, the banks would 
 be able, not only to retain their proprietaries intact, but 
 men of property and influence would become holders of 
 bank shares, who had never held such shares before. 
 The solution of the difficulty was found in the principle 
 of ' reserve liability,' and was embodied in the Act of 
 1879. 
 
 The Act empowered every bank, with the consent of 
 its shareholders, to increase, if it should see fit, the 
 nominal amount of each of its shares, and thus enlarge 
 to any extent, the total of its subscribed capital — a 
 process which was impracticable as the law then 
 stood. 
 
 The Act further empowered every bank which should 
 register under it, whether with its capital thus enlarged, 
 or as its capital actually stood, to place the whole, or 
 any portion of its uncalled amount, in the form of reserve 
 Habilit}'. 
 
 The Act, therefore, enabled every bank which 
 adopted its provisions, to set aside and hypothecate a 
 certain portion of its registered capital, as an inalienable 
 fund for the protection of its depositors, in addition
 
 254 TJie Country Banker. [let. xxxiv. 
 
 to the protection already afforded them by its paid-up 
 capital and rest. 
 
 A bank could thus create for depositors a security 
 which claimed to rank in substance and availability with 
 unlimited liability itself — diluted, as that form of liability 
 might become, by the defection of the strong and the 
 infusion of the weak. 
 
 It became a reasonable proposition, that a liability 
 for a given amount, which was limited but available, 
 might be of larger yield than the liability of a 
 deteriorated proprietary, which was unlimited, but 
 comparatively barren. It was held that a million, 
 which was certain of collection, might prove a more 
 absolute security, than unlimited millions of sterile 
 liability. 
 
 But the Act, whilst it thus effectually protects the 
 depositor, still further safe-guards his interest in other 
 ways. Every bank, as we have before stated, which 
 registers under the Act, has to publish a balance-sheet, 
 which shall set forth its exact financial position at least 
 once a year. 
 
 It has further to submit the whole of its books and 
 accounts, its money and securities, to the investigation 
 of public auditors, in order that they may certify, or 
 decline to certify, as the case may be, to the correctness 
 of the balance-sheet. 
 
 Every bank has, in addition, to append to its title the 
 word ' limited.' In the case of banks with large capitals 
 paid up and large reserve funds, this precautionary term 
 was regarded by many as needless, and, to a certain extent, 
 misleading. The law required it to be applied alike to the 
 London and Westminster Bank, with its i^i 3,000,000 of 
 capital and rest, and the Bank of Swindelhurst, which 
 may have started business with a capital limited to a 
 ;^iO note, there being no law to the contrary. The 
 mere title of a bank, it was urged, conveys of itself no 
 distinctive idea to the mind of a certain type of 
 depositor. A bank it is a bank to him, as the prim- 
 rose was to Peter Bell, and it is nothing more. But as
 
 LET. XXXIV,] Reserve Liability. 255 
 
 it was open to every bank, by way of rider to the 
 obnoxious term, to have imprinted on its documents, 
 if it should see fit, the amount of its capital and rest ; 
 this special objection to the limiting word was without 
 bottom. 
 
 All fears, indeed, as to its effect on the minds of 
 depositors have proved groundless, and have long since 
 vanished. To find the word 'limited' as an appendage 
 to the title of a bank is no detriment nowadays ; it 
 is rather held to be a distinction. It is known and 
 recognized as an assurance that the Bank's affairs are 
 thoroughly gone into, and truly set forth, at least once in 
 every year. 
 
 No measure, perhaps, has ever worked a revolution 
 so momentous or so swift, in the financial basis of 
 our banking system, or had a more critical time in 
 Parliament. The session of 1879 was within three days 
 of its close before the Bill had reached even the stage 
 of second reading, and 'reserve liability,' as expounded 
 in the Bill, was still a financial conundrum to the House. 
 Fortunately, a definition of the principle was thought 
 of at the eleventh hour, and embodied in a clause, 
 which expressed in a few lines, what occupied as 
 many pages in the print of the Bill. The amending 
 clause was frankly adopted by Sir Stafford Northcote, 
 who had charge of the measure on behalf of the 
 Government ; and, with cordial help from both sides of 
 the House, the Bill was rushed through the Commons, 
 in time to pass with equal swiftness through the Lords, 
 and receive the Royal assent, literally at the twelfth 
 hour. 
 
 The Bill could no doubt have been improved in 
 certain points of detail, had time permitted : but the 
 almost universal adoption of the Act, as it stands, may 
 be taken as evidence that its defects are slight compared 
 with its advantages. The great principle of resei"ve 
 liabilit)', which it embodies, has been accepted on all 
 hands, by depositors and shareholders alike, as a whole-
 
 256 
 
 The Country Banker. [let. xxxiv. 
 
 some substitute and reasonable equivalent for unlimited 
 liability. 
 
 In evidence of this, I have before me the returns of 
 forty of the Banks which have registered under the 
 Act, and which shew an increase of nearly ^^30,000,000, 
 or some 1 5 per cent, in their deposits, since the date of 
 registration. 
 
 At the date of the passing of the Act, there were in 
 the three Kingdoms eighty-two unlimited banks, and of 
 these seventy-five have since registered under the Act, 
 leaving only seven Banks now unregistered. But the 
 banks which have availed themselves of the Act, have 
 done so in a wise and liberal spirit. In seeking to put 
 a limit to their liability, they have so broadened the 
 basis on which their credit stood, as to leave their 
 liability still practically unlimited. Their subscribed 
 capitals and profits in rest, which in 1879 stood at 
 82 millions, now stand at 166 millions; so that, in 
 availing themselves of the Act, they created fresh 
 Capital to the extent of more than 80 millions, as 
 further security to their depositors.* 
 
 * The following summary, which has been chiefly compiled from one of 
 those interesting and valuable returns for which the banking community is 
 so frequently indebted to the ' Economist,' will give more exactly the figures 
 of the movement. 
 
 Position of Seventy-five Banks 
 registered under the Act of 1879. 
 
 Capital paid up . 
 
 Capital to call 
 
 Capital in reserve liability . 
 
 Rests, or reserve funds . 
 
 Seven Unlimited Banks. 
 Paid-U]i capital , 
 
 In 
 
 1879. 
 
 ;^27,739,ooo 
 
 40,373.000 
 
 nil. 
 
 ^■68, 1 12,000 
 . 13,807,000 
 
 ^^81,919,000 
 
 Reserve funds 
 
 31 Oct. 
 1884. 
 
 ;^30,367,ooo 
 44,288,000 
 76,592,000 
 
 ;^I 5 1,247,000 
 15,512,000 
 
 ;^i66,759,ooo 
 
 ;i^I,OI 7,000 
 804,000 
 
 ;^I,82I,000
 
 LET. XXXIV.] Reserve Liability. 257 
 
 This is the equixalent which the banks have given for 
 Hmited h'ability. Their deposits amount to 270 milhons, 
 and their resources to meet them sum up in all to 437 
 milhons. So much for ' limited ' liability under the 
 Act of 1879.
 
 LETTER XXXV. 
 
 CAPITAL AND SHARES. 
 
 Albeit much of that we are to speak iii this present cause may 
 
 seem to a number perhaps tedious, perhaps obscu?'e, and ifitricate. 
 
 They unto who?n we shall seem tedious, are in no 
 
 wise injuried by us, because it is in their otvn hands to spare that 
 
 labour which they are fiot willing to endure. Hooker. 
 
 Your Bank is registered under the Act of 1879, with 
 a subscribed capital of i^ 1,200,000, divided into 30,000 
 shares of ^^"40 each, on which £\o have been paid up — 
 the remaining ^^30 per share, or ^900,000 in all, having 
 been placed in ' reserve liability.' 
 
 You have called into existence this novel description 
 of capital, and it will expressly exist for the protection 
 of your depositors, in addition to the ^^"450,000 of your 
 paid-up capital and rest. It will afford them a guarantee 
 for nearly a million sterling ; a guarantee which cannot 
 be tampered with, or diminished, because you cannot 
 call up or use any portion of it for the purposes of your 
 ordinary business. It can only be called up, in the 
 w^ords of the Act, — ' in the event and for the purpose of 
 the Bank being wound up.' It is a perpetual guarantee, 
 which can be neither abridged by use, nor barred by the 
 Statute of Limitations. 
 
 The security, therefore, which you offer to your depos- 
 itors would appear to be sufficiently ample. 
 
 Your assets actually in hand, according 
 to your balance-sheet, amount to . . ;^3,ooo,ooo 
 
 But in addition to these you have capital 
 in reserve liability to the amount of . 900,000 
 
 Making together ^^3 ,900,000 
 
 258
 
 LET. XXXV.] Capital and Shares. 259 
 
 But your liabilities to your depositors and others 
 amount only to ^2,550,000. So that your resources 
 exhibit a margin of ;i^i, 350,000 in excess of your 
 liabilities. 
 
 Your means of payment are consequently 65 per cent, 
 in excess of your indebtedness. For every i^ioo which 
 you owe to a depositor, you give him security for 
 .^165. 
 
 The term ' limited,' therefore, as applied to your 
 Bank without qualification, is somewhat misleading. 
 There is certainly a limitation of liability, such as it is. 
 Your shareholders are not bound to find more than 65 
 per cent, beyond what you are owing to your de- 
 positors : against your debt to them of two millions 
 and a half, you are limited to giving them security for 
 more than three millions nine hundred thousand pounds. 
 In other words, your margin for contingencies is 
 ;^i, 350,000: that is to say, you might make bad debts 
 to that amount, and still have resources left, which 
 would enable you to pay your depositors twenty shil- 
 lings in the pound. 
 
 But the idea of the bad debts of a bank like yours 
 ever coming within measurable distance of such a total, 
 is preposterous. Even a Board of financial lunatics, with 
 a maniac for Manager, could not pile up such a mountain 
 of loss, if they had a whole decade to do it in, without 
 detection or disturbance. 
 
 But they would not go undetected nor undisturbed for 
 a tenth part of that time. Within the compass of the 
 first twelve months of their maladministration, these 
 gentlemen would find themselves, under the new order 
 of things, put in financial durance by the auditors, to 
 await the just wrath of their shareholders. 
 
 No doubt there will be banking josses in the future. 
 To a certain extent they are unavoidable ; but they can 
 never attain to vast and overwhelming totals again, 
 because hereafter they will be checked in time. There 
 can never again be successful concealment of e\'il-doing 
 stretching over periods of time. You will have to render
 
 26o The Country Banker. [let. xxxv. 
 
 an annual account of your stewardship, and that account 
 must henceforth be verified by the sharpened vision 
 of skilled accountants. Losses will henceforth have to 
 be dealt with as they arise. The nursing of doubtful 
 accounts to figures more and more portentous, year after 
 year, will no longer be possible. The enormities 
 of our banking past, can never be re-enacted ; the 
 banking misfortunes of the future will be trifles light 
 as air, compared with the desolating experiences of 
 the past. 
 
 We have thus far dealt with the proportion which 
 your entire capital, called and uncalled, bears to your 
 liabilities. This proportion is the measure of your ulti- 
 mate stability as a Bank. 
 
 But this larger question involves a less — namely, your 
 immediate stability — of which a popular, but inexact 
 measure, is found in the relative amount of your working 
 capital. This is taken in your balance-sheet at ^^450,000 
 — that being the united amount of your paid-up capital 
 and rest. 
 
 In the same document, your liabilities to depositors 
 and others are taken at ^2,550,000. The ratio of 
 liabilities to working capital, therefore, in your case, 
 is as six to one. 
 
 But this ratio differs greatly amongst banks. In some 
 it is only as two to one ; in others, the excess is even 
 as eight or ten to one. There is no accepted rule in 
 the matter, and it would be difficult to frame one. The 
 Bank with the lowest ratio of working capital may, in 
 reality, be as safe for its engagements as the bank 
 with the highest. It is mainly a question of assets. 
 If they are equally sound in either case, the pro- 
 portion of working capital to liabilities is of secondary 
 importance. 
 
 Nevertheless, the public will be apt to regard the 
 immediate stability of a bank, which is only indebted to 
 twice the amount of its paid-up capital and rest, as more 
 assured, than that of a bank whose indebtedness stands
 
 LET. XXXV.] Capital and Shares. 261 
 
 at ten times the amount of both. To avoid either 
 extreme, I have placed the District Union Bank in an 
 average position, about midway between ten and 
 two. 
 
 If this be accepted as the normal ratio which your 
 working capital should bear to your liabilities, the ques- 
 tion next arises, — how to provide additions to your 
 capital as they may be required, which shall yield the 
 greatest advantage to your shareholders, and give most 
 contentment to your depositors ? 
 
 Your shares are registered as £AtO each, with ;^io 
 paid and ^30 in reserve liability ; but you are doubtful 
 whether it would not have been equally politic to have 
 placed only ;^20 in the latter form, and thus left i^io 
 further to call on each share. Let us, therefore, put 
 your method to the test of figures. Let us assume 
 that, in the course of time, your deposits shall become 
 doubled in amount, and that your working capital, 
 in consequence, has likewise been doubled, by succes- 
 sive calls on your existing shares, which would then 
 stand at ^20 paid, and i^20 in reserve hability. Let 
 us further assume that your Rest, sharing in the general 
 prosperity of your business, has experienced the same 
 ratio of increase, and now stands at twice its former 
 amount. 
 
 Your position will then be as follows : — 
 
 Deposits . .... ;^5 ,000,000 
 
 Assets in hand : — 
 
 As against Deposits . . . ;^5 ,000,000 
 
 " Capital Paid up . . 600,000 
 
 " Rest .... 300,000 
 
 ;i^5 ,900,000 
 Add Capital in reserve liability . 600,000 
 
 Aggregate resources ^^6,500,000
 
 262 The Country Banker. [let, xxxv. 
 
 Showing a surplus of a million and a half, or 30 per 
 cent, in excess of your liabilities to depositors. 
 
 Let us now put the other method to the test of figures, 
 and assume, that you have provided the addition to your 
 paid-up Capital and Rest by successive issues of new 
 shares, identical in all respects with your existing ones, 
 and that they have been distributed rateably amongst 
 your proprietors. 
 
 The average price at which your shares have sold for 
 many years past, appears to have been i^20 premium. 
 If you issue the new shares therefore at, say, £\o pre- 
 mium, you may confidently rely upon their being taken 
 up with avidity. 
 
 This amount of premium, on 30,000 new shares, 
 would enable you to add ^^"300,000 to your Rest, and 
 thus raise the total of that fund to ^450,000; whilst 
 on the shares thus emitted, there would be a profit, 
 measured by the market price, of ;^io on each, — thus 
 affording your proprietors a share bonus of ^300,000. 
 Your position would then be as under : — 
 
 Deposits ..... ;^5 ,000,000 
 
 Assets in hand : — 
 
 As against Deposits . . 5,000,000 
 
 " Paid-up Capital . 600,000 
 
 " Rest . . . 450,000 
 
 Total in hand . . . 6,050,000 
 
 Add Capital in reserve liability 1,800,000 
 
 Aggregate resources ;^7,850,ooo 
 
 These figures give a surplus of ;^2,850,ooo, or 57 per 
 cent, of means in excess of liabilities. 
 
 From a depositor's point of view, there can be no 
 doubt which position of the two will most commend 
 itself to his favour. He will rather that his margin of
 
 LET. XXXV.] Capital and Shares. 263 
 
 safety stood at 57 per cent, than at 30:'^ he will rather 
 that your resources exceeded your indebtedness by 
 three millions sterling than by only a million and a 
 half. 
 
 Moreover, if you admit the principle, that the security 
 which you give to depositors ought to increase rateably 
 with the increase in your deposits, your method of pro- 
 vision would not meet this requirement. To make a 
 call upon subscribed capital already in existence, makes 
 no addition to its amount: it merely alters its form. 
 Your subscribed capital, when your deposits were only 
 2\ millions, stood at ;C 1,200,000; and it would stand at 
 that figure, and no more, when your deposits had in- 
 creased to 5 millions. 
 
 It is true, as you point out, that by your method, the 
 remaining liability on each of your shares would be 
 reduced to ;6 20 ; whereas, by the method actually adopted, 
 the liability would continue at ^30. What effect this 
 might have on the market price of your shares is hardly 
 worth discussion. It will probably have none ; but, put 
 it at what you may, it will be but a feather's weight of 
 set-off, against the moral disadvantage of allowing your 
 deposits to be doubled in amount, without ^dding a 
 pound to your subscribed capital. 
 
 In the altered conditions of English banking which 
 the Act of 1879 will enforce, it is impossible, humanly 
 speaking, that the shareholders in any bank will ever 
 be called upon to find a sixpence on account of their 
 reserved liability. Before that point can be reached, a 
 bank must have squandered, in a single year, the whole 
 of its paid-up capital and rest in bad debts, which is 
 beyond rational belief Even in the most recklessly 
 managed banks on record, it has taken periods of years 
 to reap such a harvest of disaster. 
 
 Reserve liability, then, virtually exposes a shareholder 
 to nothing, and costs him nothing. It is a liability which 
 he may dismiss from his thoughts, as a thing which will 
 never touch his pocket or trouble his rest.
 
 264 The Country Banker. [let. xxxv. 
 
 But although the Hability may be thus Hghtly regarded 
 by shareholders, it will afford an abiding ground of 
 assurance to the minds of depositors. Reserve liability 
 is to them the equivalent of so much capital locked in 
 your cash vaults, in trust for their special protection. 
 
 It may not exist in the actual form of bank notes or 
 gold, but it is convertible into these at any time when 
 occasion demands. No portion of it can be called up and 
 exposed to the risks of your business : it is an inviolable 
 fund, which you cannot tamper with, or deplete, even if 
 you would. 
 
 Seeing then that reserve liability costs shareholders 
 nothing, whilst it gives lasting assurance and comfort to 
 depositors, in proportion to its amount, it would seem an 
 act of bootless thrift not to make it ample. 
 
 In making any additions to your capital, you will 
 proceed tentatively ; you will not seek to enlarge it the 
 moment the general level of your deposits indicates a rise. 
 You will defer taking action till it is seen whether the 
 increase is casual or permanent : whether it is the result 
 of a gradual and durable rise over the whole area of your 
 district, or an exceptional and transitory increase here and 
 there. 
 
 This precaution is necessary, because, although an 
 increase in your deposits ought to be followed eventually 
 by an increase in your capital, it does not follow that the 
 reverse of the principle holds good. Theoretically, a 
 reduction of your deposits ought to be followed by a 
 proportionate reduction of your capital ; but in banking, 
 theory has sometimes to give way to practice and expe- 
 diency. 
 
 For a bank to reduce its capital, on any pretext, is to 
 adventure upon a ticklish operation. If it does so, be- 
 cause its depositors have seen fit to withdraw certain of 
 their moneys, a reduction of its capital is not calculated 
 to entice the deposits back again, nor to attract fresh 
 ones. To advertise even the District Union Bank as 
 ' limited and reduced,' might give the impression, to the
 
 LET, XXXV.] Qapital and Shares. 265 
 
 minds of the ignorant, that the Bank has got into trouble 
 and is going to wind up. You must be well assured, 
 therefore, that any important increase in your deposits 
 has in it the element of permanence, before you make a 
 relative increase in your capital; because banking capital, 
 once paid up, is practically beyond recall.
 
 LETTER XXXVI. 
 
 PROFIT AND LOSS. 
 
 Proportion thy expenses to what thou hast in possession, not to 
 thy expectancies ; otherwise, he that feeds on wind, must needs be 
 griped with the cholic at last. Fuller. 
 
 It is still a matter of wonder to many people how 
 banking profits are made ; how, especially, while the 
 Bank of England rate of discount, on the average of 
 years, rules at barely 3 J per cent., Banks can realize, and 
 do annually disburse, dividends ranging from 10 to 20 
 per cent, on their paid-up capitals. 
 
 But the problem is not difficult of solution. We have 
 merely to take your balance-sheet, and construct upon 
 the basis of its principal figures, what shall be at least an 
 approximate guess at the results of your operations for 
 any given twelve months. 
 
 Profits of Banking. It will simplify the calculation, 
 if we assume that the expenses of the Bank will be cov- 
 ered by the commission charged on its overdrawn and 
 other accounts and transactions. These charges are de- 
 signed to cover such expenses, and ought to suffice for 
 that purpose. 
 
 Your Capital and Rest, being your own property, and 
 not therefore subject, like your deposits, to withdrawal, 
 may safely be laid out on a class of accounts to bring you 
 in a steady 5 per cent. 
 
 Your deposits, on the other hand, not being your own 
 money, but that of other people, and subject to repay- 
 266
 
 LET. XXXVI.] Profit and Loss. 267 
 
 ment at short notice or at call, must be invested in less 
 productive but more available forms of security. If 
 invested in the proportions of cash in hand and at call, 
 Consols, bills of exchange, and other items, as set forth 
 in your balance-sheet, your deposits will bring you in 
 from 3^ to 3^^ per cent, on the average of years, — that is, 
 on the supposition that your discounts and temporary 
 advances will yield you, all round, one per cent, above 
 Bank rate.* It follows, that if your rate of deposit 
 interest is from 2^ to 2\ per cent., your deposits, as a 
 whole, will yield you a return of one per cent. 
 
 Proceeding upon these data, we have the following 
 result, as the estimated sum of your profits : — 
 
 Capital and Rest ^^450,000 @ 5 % ;^22,500 
 Deposits . . 2,400,000. @ I % 24,000 
 
 ^^46,500 
 This would enable you to pay your 
 
 usual dividend of 15 per cent., or . 45,000 
 
 and leave a surplus of . . . £1,^00 
 
 To this will have to be added the profits on your 
 circulation of notes, and on the other minor items in 
 your balance-sheet. Your surplus, thus supplemented, 
 ought to provide you with a margin amply sufficient to 
 cover bad debts. 
 
 * Average Bank of England rate of discount for ten years, ended 
 31st December, 18S4 — £2> y- 'i'^- 
 
 Average rate for Call and Notice Money with brokers, same period, 
 £z 2s. 8</. 
 
 ;i^200,ooo in till, yielding Nil. 
 
 350,000 at call, at £2 2s. S</. per cent. . . £7A(>S 
 
 300,000 Consols, at £3 P^r cent. . . . 9,000 
 
 1,040,000 Discounts "I ^ /• , ^ 
 
 5 10,000 Advances | =^' ^^ 3^- i !'/■ per cent. . 65,035 
 
 ;^2,400,0C)0, yielding .... . . ^81,500 
 
 = 3g per cent.
 
 268 The Country Banker. [let. xxxvi. 
 
 These figures give prominence to the fact that the 
 profits of a bank, beyond what are derived from the 
 employment of its own capital and rest, largely depend 
 on the amount of its deposits. Let your deposits, for 
 example, be increased by half a million — your other 
 figures remaining the same — and you add ^^"5000 to your 
 yearly profits : or rev^erse the operation, and the result 
 will be reversed. 
 
 It has to be admitted that this method of arriving at 
 the constructive profits of a country bank, is a rough 
 and ready one, and would require, in almost every case, 
 manifold adjustments to give it complete exactitude : 
 but it may serve to shew how large dividends may be 
 honestly earned and lawfully disbursed by country 
 banks, even when a low general rate of interest 
 prevails. 
 
 Risks of Banking. The business of a bank is swift 
 of movement and enormous in volume. It combines 
 the widest area of risk with the lowest rate of profit. 
 The business of a trader is by comparison slow in move- 
 ment, limited in volume, and carries a high rate of profit. 
 It combines the smallest area of risk with the largest 
 rate of gain. 
 
 Your Bank will be glad to employ any portion of its 
 deposits in the discount of high-class paper at a net 
 profit of one per cent, per annum. On a bill at three 
 months' date for ;{^5000, your profit would consequently 
 be £\2 \os., and no more. But a merchant or trader 
 would not consider even 5 per cent, an exorbitant rate 
 of profit, on any ordinaiy line of trading or mercantile 
 operations. That percentage, however, on ^^"5000, would 
 produce ^^250, or twenty times the rate of banking 
 profit. 
 
 Let us suppose that the bill for ^5000 is drawn upon 
 one of those large houses which do fail at times, and 
 that the dividend is five shillings in the pound, which 
 unhappily would be a more than liberal estimate, and
 
 LET. XXXVI.] Profit and Loss. 269 
 
 that you arc thus saddled with a loss of ;^3750. It may 
 not strike you at the moment, but you will find by a 
 simple process in arithmetic, that it will require three 
 hundred times the profit of ;^I2 lOi'. to repair the loss. 
 In other words, you will have to discount, without loss, 
 fresh sheaves of high-class paper to the startling total of 
 a million and a half, in order to replace the deficiency on 
 this ill-starred bill for ;{^5000. A banker's choice of first- 
 class bills had needs be infallible, when these may be the 
 consequences of a single slip. 
 
 It has further to be noted, that the risks of a banking 
 business are not measurable by the moneys owing to a 
 bank on discounts, overdrafts, or advances, on any given 
 day ; because the items which constitute these aggregates 
 are in the course of perpetual change. As series after 
 series of risks run off, they are immediately replaced by 
 others. The bills and advances due and paid to-day, 
 will be succeeded by fresh discounts and advances to- 
 morrow ; so that, to find the true measure of banking 
 risk, we must take the sum turned over in these trans- 
 actions. 
 
 ■ Taking your bills of exchange, for example, your in- 
 vestment in them is turned over, on the average, four 
 times in the year. Your banking risks on Bills of Ex- 
 change alone, therefore, extend to ^^"4,760,000 in the 
 course of the twelve months. You discount fresh bills, 
 and consequently incur fresh risks, to that amount, 
 and thus invest and re-invest, in discounts alone, a 
 sum equal to your entire capital and rest ten times a 
 year. 
 
 The profits of an ably managed bank, holding deposits 
 to five or six times the total of its capital and reserve, 
 are no doubt large in aggregate : but they owe their 
 largeness to their multitude, not to their scale. The 
 ;^45,000 of net profit, which you annually disburse in 
 dixidends to your proprietors, if resolved into its ele- 
 ments, would be found mainly to consist of millions of 
 minute particles of interest and charges, which have 
 accrued day by day on many thousands of accounts.
 
 2 JO The Country Banker. [let. xxxvi. 
 
 The ultimate atoms of banking profit are mainly to be 
 found to the right of decimal point, even when that point 
 has only a farthing for its integer. 
 
 The total in money, or monetarial value, received and 
 paid by your thirty Branches, averages ;^4000 a day for 
 each, and the average for your Head Office is ;^5o,ooo, 
 making in all a million a week, or a total annual move- 
 ment of fifty millions. Where banking profits are reck- 
 oned by tens of thousands, therefore, they are extracted 
 from tens of millions of pounds of transactions, the per- 
 centage of risk on which had needs be infinitesimal, and 
 next door to nothing. 
 
 A prudent trader, taking annual stock of his affairs, 
 would not consider lO per cent, too much to write off his 
 book-debts, in order to arrive at their probable value to 
 realize : but if your book-debts — that is to say, your 
 overdrawn accounts, advances, and discounts, had to be 
 subjected to a like measure of abatement, you would 
 have to write your paid-up capital off as lost and gone 
 once a year. 
 
 Provision for Loss. A Banker, in writing off his bad 
 debts for the year, is apt to console himself with the 
 reflection, in respect of some of them, that he can never 
 make exactly such again, because he will know how to 
 guard against them. That may be ; but losses may already 
 be in embryo which will come to him from directions as 
 yet unsuspected. In making his annual provision for 
 bad debts, therefore, he will rather be guided by the 
 average of his past experiences, than by the figures for 
 any current year. If these amounted, for example, to 
 ;£^5000, whereas his annual amount of bad debts over a 
 period of years has averaged ^^7500, he will do well to 
 set a sum aside which shall more nearly approach the 
 latter than the former amount : because, if his losses are 
 less than the average this year, they may be equally in 
 excess of it next. He*will thus give increased uniformity
 
 LET. XXXVI.] Profit and Loss. 271 
 
 to his rate of dividend, and consequent stability to the 
 price of the Bank's shares. 
 
 In deahng with accounts or bills individually, which 
 have become more or less doubtful, a liberal treatment 
 is always best. When you have to provide for loss on any 
 given account or bill, do not minimize the risk ; do not 
 scale it at the least, but at the worst that may happen ; 
 and let your provision be in accordance with your prin- 
 ciple. It is difficult to imagine a more depressing pro- 
 cess than the perusal of a bad debts ledger, wherein the 
 debts have been insufficiently written down. You open 
 this mortuary of debt, with a faint hope, perhaps, that 
 you may chance upon some account that has been over 
 provided for, or some stray dividend which has been 
 overlooked ; but you will find this hope misplaced. 
 These remains of departed accounts are more likely to 
 require fresh grants from your profits to provide for their 
 final interment. Looked upon as assets, they are as 
 devoid of substance as the ghosts in Tartarus. Better, 
 surely, at all times be in a position to inform your 
 proprietors that your estimate of loss has been in excess, 
 than that the reality has exceeded your worst anticipa- 
 tions, and that you have so many more thousands 
 to write off? It will accord with their humour rather 
 to write misfortune off at once, than by exasperating 
 dribblets. If a tooth has to come out, it is better to 
 have the operation perfected by one wrench than by a 
 series. 
 
 There is a certain grimness of comfort experienced by 
 the shareholders of a bank, when they know that their 
 Directors uniformly take the worst view of things, and 
 make such ample provision for bad debts, that there is 
 never any residue of loss to provide for. In thus dealing 
 with actual or anticipated disaster, your fund for losses, 
 instead of being in a chronic state of exhaustion, will 
 generally have a growing balance at its credit, to provide 
 against exceptional mishap. Your holding of over-due 
 bills, ill-starred advances, and moribund accounts, in- 
 stead of being featured by a hopeless sterility, will
 
 272 The Cottntry Banker. [let. xxxvi. 
 
 rather suggest to the fancy a gathering of financial 
 wreckage, from which, every now and then, there 
 comes ashore the flotsam of an unexpected dividend, 
 or the jetsam of some derelict security. A bad debt 
 fund, thus nourished, will give you back of your abund- 
 ance, and become to your Board an intermittent source 
 of found money and pleasurable emotion. 
 
 Dividend and Bonus. It is the usage of some 
 banks to distribute their annual profits to their pro- 
 prietors entirely in the form of dividend. Others make 
 the distribution partly in this form, and partly in the 
 shape of bonus. 
 
 In favour of the latter course, it maybe urged that you 
 can with certainty fix upon some rate of dividend which 
 you will be able to pay, under all circumstances. Your 
 shareholders would thus know that, up to a certain 
 figure, they might reckon upon a regular income from 
 your shares, as surely as if it came to them from the 
 Three per cents. The ' bonus ' is thus supposed to be 
 relegated to the uncertainties, and the edge of disappoint- 
 ment to be taken off, when this form of largess is not 
 forthcoming. 
 
 I think this is a sanguine view to take of the feelings 
 of shareholders, when the supposed default happens, 
 and would suggest that your annual distribution of 
 profits, whether it be partly by way of bonus, or wholly 
 in the shape of dividend, should, as nearly as possible, 
 be uniform, one year with another. The property of 
 steadiness in your rate of dividend will be more 
 esteemed by your proprietors, than if it varied from 
 one half-year to another, and gave to the price of 
 your shares a corresponding degree of change and 
 uncertainty. 
 
 If you find, for example, that on the average of years 
 your profits will sustain an annual distribution of 15 per 
 cent., it would be well to adhere to that rate, even though 
 you could in exceptional years divide considerably more ;
 
 LET. XXXVI.] Profit and Loss. 273 
 
 because, in less fortunate times you may have consider- 
 ably less to divide. Let your divisible profits for two 
 consecutive years be, let us say : — 
 
 1st year ;^48,ooo, or 16 per cent, on capital. 
 2nd " ;^42,ooo, " 14 " 
 
 Average 15 " " 
 
 Instead of dividing 16 per cent, the first year, and 14 
 the next, it would be a wiser policy to carry i per cent, 
 forward from your fat year to supplement the profits of 
 its less fertile successor, and thus pay 15 per cent, in 
 both. 
 
 It has to be admitted that, theoretically, this course 
 would be open to objection. The purist would say that 
 you have no right to make an artificial and arbi- 
 trary division of annual profits. However much, or 
 however little, you have to divide, it ought to be 
 divided, without regard to what your next dividend 
 may be. 
 
 If the majority of your shareholders were persons 
 who thoroughly understood such matters, this contention 
 would be more tenable: but your proprietors, as a body, 
 are not versed in matters of banking finance. As a rule, 
 they are conspicuously ignorant of this branch of know- 
 ledge. It is no disparagement to the average compre- 
 hension of country shareholders to affirm, that if 
 you pay them 16 per cent, one year, and return to 14 
 the next, it will be difficult to persuade the bulk of 
 them that the reduction has arisen from natural causes. 
 They will witness with concern a corresponding fall in 
 the price of the shares, and will be apt to fear that the 
 Bank has met with serious disaster. Your high dividend 
 of the one year will cause that of its successor to look 
 doubly disappointing. It will seem to this section of 
 your proprietors that }-ou have put 2 per cent, into their 
 pockets one year, only to take it out again the next. 
 Moreover, for every pound of variation in dividend, you 
 18
 
 2 74 ^^^^ Country Banker. [let. xxxvi, 
 
 may have caused many times the variation in the market 
 price of their shares. 
 
 All this may be sound in theory, but the majority of 
 your shareholders will have a disposition to look upon 
 this way of managing their affairs as an upsetting and 
 inconvenient thing in practice. 
 
 In common with other Banks you divide your net 
 annual profits in the form of a percentage on your 
 Capital alone. But as your Rest is as much the property 
 of your shareholders as the paid-up capital itself, your 
 virtual rate of distribution to your proprietors on their 
 own money, taking your annual distribution at ;^45,ooo, 
 is lo per cent, and not 15 ; as thus : — 
 
 ^^300,000 Capital @ 10 per cent. = £^0; 
 ;^i50,ooo Rest (a) 10 per cent. = ;^i5, 
 
 ,000 
 ,000 
 
 As .000 
 
 A high rate of dividend has a certain influence, no 
 doubt, on the minds of the outside public. It is looked 
 upon by many as evidence of a bank's stability and 
 success. On the other hand, there are those amongst 
 your customers, who imagine that the terms on which 
 you work their accounts must be usurious, to enable you 
 to pay 15 per cent. You and I, of course, know that this 
 is a fallacy ; and that high dividends in banking do not 
 arise from inordinate rates of profit, but from magnitude 
 of operations. A difference of an eighth per cent, in the 
 interest on Gold worthy's deposit of i^ioo, for example, 
 would make a difference to him of an annual half-crown ; 
 but the same fraction per cent, would make a difference 
 to you, on the total amount of your deposits, of three 
 thousand pounds a year. A loss or a gain to Gold- 
 worthy has to be multiplied by twenty-four thousand, 
 to find the resulting loss or gain to you. Banking 
 profit, as we have seen, is a noun of multitude — an
 
 LET. XXXVI.] Profit and Loss. 275 
 
 aggregation of atoms; and banking transactions are 
 conducted on terms which would be impossible, except 
 for the prodigious multiplier provided by their volume. 
 
 A high rate of dividend, moreover, is apt to excite 
 envy and lead to opposition. Fifteen per cent, per 
 annum, in these days, is a high rate of interest for an 
 ardent promoter to conjure with ; and on the whole, it 
 is at least an open question whether bank dividends had 
 not better be based on Capital and Rest combined, than 
 on Capital alone.
 
 LETTER XXXVII. 
 
 THE REST. 
 
 He who, when he should not, spends too much, shall, when he 
 would not, have too little to spend. Feltham. 
 
 Your Rest or Reserve Fund has been accumu- 
 lated out of undivided profits, set aside from time to 
 time to meet unforeseen losses, so that your usual rate 
 of dividend may not be trenched upon should such 
 losses arise. 
 
 This being the object of the fund, it ought to bear a 
 certain proportion, not to the amount of your paid-up 
 capital, but to the total of your assets ; because that 
 total is the true measure of your domain of loss. 
 
 Your resources represent three millions of money, 
 invested in multifarious items of banking asset, and your 
 Rest is put at 5 per cent, of this aggregate. 
 
 This percentage, like most of our other figures, is a sug- 
 gestion merely. It is larger in some banks, and less in 
 others ; but for the sake of argument it may be taken 
 as it stands. This at least is certain — the larger your 
 rest, the higher your rate of dividend will be. The 
 fund, whatever its amount, is practically a sum lent you 
 in perpetuity without interest. As forming a portion of 
 your working capital, you can safely invest it in the 
 less available and more lucrative forms of advance. If 
 invested to yield 5 per cent, it would bring you in ^7500 
 a year, or an annual contribution of 2\ per cent, towards 
 your dividend. 
 
 A large rest inspires belief in the continuity of your 
 rate of dividend. In this way it gives support and 
 276
 
 LET. XXXVII.] The Rest. 277 
 
 steadiness to the market price of your shares. Your 
 shareholders could not well have a safer, or, as we shall 
 see, a more politic in\'estment. 
 
 Nevertheless, there are those to be found in bank 
 proprietaries, here and there, who are covetous of these 
 rests or reserves of undivided profits, and would have an 
 immediate division of at least a portion of them, if they 
 had their way. Why, they urge, leave this large fund 
 for the benefit of posterity ? Why not leave future share- 
 holders to provide their own reserve funds? 
 
 To test the soundness of these views, let us imagine 
 that your shareholders suffer themselves to be persuaded 
 that your bank can be worked equally well on a Rest 
 of half its present amount ; and that the other half, 
 iJ^75,000, ought to be divided amongst them rateably, 
 and that it is divided accordingly. The distribution will 
 yield a cash bonus of £2 \os. on every share held by 
 your existing proprietors. 
 
 But in making them this presentation, you lose for 
 ever the use of the ^^75,000 thus given away — a sum 
 which, at 5 per cent., produced ;^3750, or i^ per cent, of 
 your annual dividend ; which would, therefore, have to 
 be reduced from 15 to 13! per cent. 
 
 What effect this reduction will have on the market 
 price of your shares, it is hard to say ; but that it will at 
 least be proportionate to the drop in the dividend, goes 
 without saying. In all likelihood it will be considerably 
 more; a drooping dividend has a more prejudicial and 
 immediate effect on price than a rising one : but let us take 
 thedropat its arithmetical equivalent — £2 io.y. per share. 
 
 A man, then, holding a hundred of your shares will 
 have received a bonus of ^^^250. But if the market value 
 of his shares has thereby become diminished to pre- 
 cisely the same amount, it is impossible to see what he 
 has gained by the operation. His hundred shares, which 
 were worth ^^3000, are worth only £2y^O now, and the 
 probability is that they w'ill be worth a good deal less; 
 but under no circumstances can he gain by the trans- 
 action. You cannot, even in banking, eat }'our cake and
 
 278 The Country Banker. [let. xxxvn. 
 
 have it : you cannot enlarge your financial blanket 
 by cutting a portion fi-om one end to tack it on the 
 other. 
 
 But if it is impossible to see how your shareholders 
 could benefit by this self appropriation of fifty per cent, 
 of the Rest, it is not difficult to see what they might lose 
 by it. 
 
 In the first place : it will cause, as we have just said, 
 a reduction in your usual rate of dividend. If this should 
 be attributed on all hands to the actual cause, little harm 
 might come of it ; but it will not be so attributed. 
 There is a widespread ignorance and open-mouthed cre- 
 dulity about banking affairs, which you have always to 
 reckon with. It will suffice for the majority of people 
 to know that the District Union Bank is paying a lower 
 dividend than heretofore, to conclude that the Bank is 
 not doing so well as formerly. Not content with this, 
 they will proceed to hazard conjectures as to the cause. 
 Some will assign it to bad debts, others to a falling off 
 in its business, others to something else. But regarded 
 in whatever light, a reduction in your ordinary rate of 
 dividend will wear an unfavourable aspect to a large 
 .section of the community. 
 
 In the second place : you have to take into account 
 what effect the reduction will have on the minds of those 
 who can read a bank balance-sheet perfectly, and 
 take the exact measure of its weakness or its .strength. 
 Such critics are limited in number, it is true ; but tiiey 
 are on the increase, and their opinion has a weight which 
 makes itself felt, and is apt to spread. To such ob- 
 servers, the abstraction of ;^75,ooo from your Rest, to 
 put into your own pockets, will present itself as neither 
 more nor less than the voluntary extinction of one-sixth 
 of your working capital, whereby the strength of your 
 position will be impaired in a like degree. It will be 
 impossible for them to regard the operation with favour, 
 or to speak of it with approval. It will appear to them 
 an impolitic weakening of your position, without even 
 the poor excuse of an equivalent to justify it.
 
 LET. XXXVII.] The Rest. 279 
 
 Once again : a large proportionate Rest is accepted 
 by the public as evidence of prudence and ability in 
 the management of a bank : and you will command a 
 larger future for your business by maintaining your rest 
 at ^150,000, than by taking half of it back again to 
 yourselves, and working on the other half. If you would 
 have your business go forward and your custom increase, 
 do not yourselves take a backward step. In banking, as 
 in other things, nothing succeeds like success ; and the 
 extinction of half your Rest will not have this appear- 
 ance, put on it what complexion you may. 
 
 As an alternative course, you suggest that the;^75,000, 
 instead of being paid to your shareholders in cash, might 
 be added to the amount of their shares, which would 
 thus be raised from ;^io to £\2 \os. paid. 
 
 The alternative would have this advantage — it would 
 leave the amount of your working capital unreduced and 
 your financial position apparently untouched. But the 
 operation, regarded in the light of a bonus, would, as in ■ 
 the previous case, defeat itself Your revenue, it is true,, 
 would be unaffected by it. Your divisible profits would 
 still be iJ"45,ooo : but out of these you would have to pay 
 dividend on the ^^75,000 added to your capital: so that 
 your annual rate of distribution would sink from 15 per 
 cent, to 12. The operation would, in fact, be as broad 
 as long. A dividend of 12 per cent, on £\2 \os. would 
 be the exact equivalent of 15 per cent, on ;i^io. To 
 take from one pocket to put into another, is a futile 
 way of enriching yourselves, and a mere fooling with 
 figures. 
 
 You have yet another course to suggest, in the event 
 of the attack on your Rest proving successful : you 
 would create 7500 new shares, and distribute them 
 gratis amongst your shareholders, first paying up ;^io 
 on each share out of that fund. This would enable you 
 to give each of your shareholders one new for every four 
 old shares held by him. He would thus receive a bonus 
 equal to £"] \os. on each old share, taking the market 
 price as before at £},o. But the market price would not
 
 28o The Country Banker. [let. xxxvii. 
 
 continue at that figure. You would have created and 
 added ;!^75,000 to your paid-up capital, without adding 
 a farthing a year to your revenue. Out of the same 
 balance of divisible profit, you will now have to pay 
 on a capital enlarged by one fourth. So that your rate 
 of dividend, as in the previous case, will drop from 
 15 per cent, to 12, and your apparent bonus will dis- 
 appear in a corresponding shrinkage of price. One 
 hundred of your shares at the old price, made them 
 worth ^3000 to the holder : and 125 of them at the new 
 price of £2^, will make them worth no more to him. 
 His means, as far as they consist of your shares, will 
 not have been enlarged a single pound by the distri- 
 bution, and the bonus of £y \os. per old share v/ill 
 prove itself a mere delusion and arithmetical Jack-o'- 
 lantern. 
 
 Nevertheless, of the three methods of partition, the 
 last would be the least objectionable. Like either of 
 the other processes, it would equally denude your Rest 
 of half its substance : but it would have this in its favour 
 — it would add three times its own amount to your 
 reserve liability, whereas the other methods of appro- 
 priation would add nothing to that reserve. They 
 would simply absorb the £'j^,Q)O0, and render back 
 nothing in return. They would pamper a present, at the 
 cost of a future appetite. They would not exactly kill 
 the goose that lays your golden eggs ; but they would 
 do it grievous bodily harm. 
 
 A reduction of your Rest to one half its amount, 
 therefore, by whatever method the reduction is carried 
 out, involves matter for consideration which lies outside 
 the mere question of its practicability. An exercise in 
 the rule of subtraction will suffice for that purpose at 
 any time. 
 
 If you had determined from the outset that 2\ per 
 cent, on your assets would have provided a sufficiency 
 of Rest, and had stopped it accordingly at ;^75,ooo, 
 and divided all accumulations beyond that figure from 
 time to time as they arose ; that would have been a
 
 LET. XXXVII.] The Rest. 281 
 
 different matter. It is one thing to give a certain 
 amount of security to depositors and stop there ; but it 
 has quite another effect upon the imagination to with- 
 draw a security which you have once given. 
 
 At whatsoever percentage of your assets, therefore, you 
 decide to put the hmit of your Rest, that hmit, once 
 reached, had best be adhered to as a minimum, and the 
 Fund thereby created held sacred from touch, except 
 to provide for unforeseen disaster. To break into it in 
 cold blood, for partition amongst yourselves, would be a 
 delusive gain, and a short-sighted act of improvidence.
 
 LETTER XXXVIII. 
 
 OPENING OF NEW BRANCHES. 
 
 The artist himself was at that time busy upon two great 
 designs ; the first to sow land with chaff, whe?-ei?i he affirmed the 
 true seminal virtue to be contained, as he de?nonstrated, by several 
 experijnents, which I was not skilful enough to comp7-ehend. 
 
 A Voyage to Laputa. 
 
 When you receive a memorial * numerously and 
 influentially signed,' as the phrase is, inviting your 
 Bank to open a Branch at some place, in opposition to 
 an existing bank; it will be well, before you take any 
 other step, to have the history of the document closely 
 investigated. You will especially seek to know with 
 whom the movement originated. There may be 
 ground for such a memorial now and then, but such 
 instances are rare. It will not seldom be found that the 
 promoter of the memorial has an eye to the manage- 
 ment of the new Branch for himself He may be a 
 school teacher, or a book-keeper out of place, or a trader 
 on his last legs, or something else. He may be as unfit 
 to be manager of a bank as to be Chancellor of the 
 Exchequer ; but that in no way abashes him. His 
 concern is not with his fitness for the position, but with 
 its fitness for him. It is such an easy berth : short 
 business hours, — all the regular work done by clerks, 
 except the ' sweating ' of obnoxious customers, — a luxury 
 which he will reserve to himself; a good salary ; a house 
 to live in ; rent and taxes free, with fuel and light thrown 
 in ; — these are the delights which stir the covetous desires 
 of your average memorial-monger, Avho would have )ou 
 invade the territory of a neighbouring bank, in order to 
 282
 
 LET. xxxviii.] Opening of New Branches. 283 
 
 provide him with a situation. If questioned as to his 
 qualifications for the position, he has no misgivings. He 
 presumes that he will be instructed in everything, what 
 to do, and he flatters himself that he will be found equal 
 to the doing of it. In respect of his claims, he submits 
 that the memorial itself settles that point. It is his 
 parchment of title, whereby the position is conveyed to 
 him for life by the memorialists. 
 
 There is unfortunately no difficulty in obtaining signa- 
 tures to such things. People by scores will sign them, 
 without a thought as to the consequences. It never 
 occurs to them that their signatures may lead one bank 
 to do grievous injury to another, not only without 
 benefit, but with serious detriment to itself But this 
 loose signing of documents, which may be fruitful of evil, 
 is set down to careless good nature ; as if calculated 
 enmity could do more to set a couple of friendly institu- 
 tions by the ears. 
 
 When the usual 'deputation,' therefore, come to 
 present the memorial, and assure you that the other 
 bank is most unpopular in the place, and that scores 
 of its customers will come over to you as soon as 
 you open there, you will receive their allegations 
 with outward courtesy, but with inward distrust. You 
 will promise to consider the matter. With this view, 
 you will have the statements of the deputation carefully 
 investigated in the locality itself It may turn out by 
 possibility that they are grounded on fact. The result 
 of the enquiry may be that the resources of the existing 
 bank are insufficient for the growing wants of the 
 district, and that there is actual room and need for 
 another bank. 
 
 But probability runs quite the other way. Your 
 Inspector is more likely to find that the other bank has 
 ample means and is fairly popular, except with the 
 needy few, and that these are the only customers of 
 theirs who are likely to come over to you in scores 
 — an accession of custom which you will hardly look 
 upon as a thing to be desired.
 
 284 The Country Banker. [let. xxxvm. 
 
 The influential signatories, it will be found, attached 
 their names to the memorial without an idea of trans- 
 ferring their banking accounts to you. They signed it, 
 they will tell you, because they were asked to do so, 
 and thought it would be a good thing for the place; 
 that was their sole motive. 
 
 No doubt circumstances will arise which will justify 
 your opening a fresh Branch from time to time in places 
 either destitute of banking accommodation, or whose 
 monetary^ wants have outgrown the means of the exist- 
 ing banks. It may even be necessar^^ sometimes to 
 plant a new Branch at a given point, on purely strategic 
 grounds. If on the line of towns A., B., and C. you 
 have Branches at A. and C. only, you could not allow 
 another bank to occupy B. You would have to do so 
 yourselves, although you might have to work the 
 Branch at a loss. 
 
 This is practically your position at Oxborough. 
 Between it, on the main line to your next Branch, lies 
 Midgely, — more than a village and less than a town — with 
 its 500 people, resolv^ed with one consent to have a bank 
 in the place, if memorials and importunity can effect it. 
 
 You may assure them that the place is not large 
 enough, as yet, to support the expenses of a bank, but 
 that will not move them in the least. You may seek 
 to prove that no bank would be foolish enough to 
 neglect a chance of adding to its profits, but your 
 reasoning will fall upon ears deaf to persuasion. Midgely 
 has set its heart on having a bank, and a bank it will 
 have ; and if you persist in your refusal to open there, 
 they must apply elsewhere. 
 
 Even if you accede to their desire so far as to give 
 them a sub-branch, open one day a week, it will be a 
 costlier step to you than you will ever be able to make 
 them understand or believe. 
 
 Your Manager at Oxborough will have to give one- 
 sixth of his time to that mite of an establishment. 
 He will have to be absent one day out of six from the
 
 LET. XXXVIII.] Opening of New Branches. 285 
 
 important business of Oxborough, in order to conduct 
 the Lilliputian finance of Midgely.^a sacrifice of which 
 you can estimate the true weiy;ht and value, but which 
 you will fail to render obvious to the Midgelyites, who 
 are not given to thinking lightly of their monetary 
 affairs. 
 
 Your opening at Midgely, even one day a week, will 
 go against the grain ; but if your choice comes to lie 
 betwixt your going there, and allowing another bank to 
 do so and appropriate your Midgely connexions bodily, 
 the choice ceases to be optional. Better the Midgely 
 business, minus fresh expense and trouble, than, so to 
 speak, minus itself.
 
 LETTER XXXIX. 
 
 THE DIRECTORATE. 
 
 Not imlike those ivhich, at the instant and importunate sute of 
 their acquaintance, refuse a cunning Pilot and chuse an unskilfull 
 Mariner, which hazardeth the ship and themselves in the calmest 
 sea. EuPHUEs. 
 
 The leading subject on which you will take counsel 
 with your daily Board will be as to the safety and sound- 
 ness of proposed discounts or advances as they arise 
 from day to day. In matters of pure finance or adminis- 
 trative routine, the Directors will rather look to you for 
 guidance, than seek to advise you ; but as regards the 
 safe employment of the funds of the Bank, their advice 
 will be above price. 
 
 As men engaged in active business, they will be 
 daily on 'Change, and will thus keep abreast of things. 
 Whether money is being made or lost, in this direction 
 or that, by this firm or another, they can hardly fail to 
 hear of it, and either by direct knowledge, or through 
 business friends, will be able to trace evx^ry rumour to 
 its source and take its proper measure. You cannot 
 yourself be a frequenter of 'Change. Even if that were 
 desirable, you have other matters to supervise which 
 will keep you a prisoner at the Bank during business 
 hours. Your daily Board will transact your out-of-door 
 work for you with greater efficiency than you could 
 hope to do it yourself 
 
 The record of your daily proceedings is revised by 
 
 your whole Board, which meets once a week for that 
 
 and other purposes. Two of your six Directors retire 
 
 annually by rotation, but are eligible for re-election, 
 
 286
 
 LET. XXXIX.] The Directorate. 287 
 
 and as a rule they are re-elected accordingly. Your 
 form of government appears to be suitably adapted 
 for the successful administration of a country bank. 
 
 In some banks, the retiring Directors cannot be re- 
 elected for a time. They must retire from the service 
 of the bank for at least twelve months. That term 
 of retirement served, they are again eligible for elec- 
 tion. The framers of this proviso no doubt believed 
 that there was an element of safety in it. They 
 conceived that a Board, the individual members of 
 which were never changed, might avail themselves of 
 their oneness, in the event of things going wrong, to 
 withhold the fact from the knowledge of the share- 
 holders ; whereas an annual change in the membership 
 of the Board would render this form of reticence less 
 feasible. 
 
 This was, to put the matter mildly, to take a dis- 
 paraging view of directoral integrity. But letting that 
 pass, — does the rule really afford the check for which 
 it was designed ? In the case of a bank like your 
 own, for example, if two of your Directors were obliged 
 to go into honorary retirement every year, but could 
 be re-elected the year following, the protection afforded 
 by this arrangement against wrong-doing would obvi- 
 ously be slight. Your Board would virtually consist of 
 eight members instead of six. 
 
 Unhappily, there have been instances in the course of 
 the last half-century, in which Directors of banks have 
 been guilty of conduct which it would be difficult to 
 denounce in language of sufficient emphasis : but to 
 infer from these few and exceptional cases that all 
 banking Boards are tarred with the same brush, would 
 surely be an unwarranted perversion of the law of 
 evidence. But even if the inference were as just and 
 reasonable, as it is untrue and ridiculous, the annual 
 audit by public accountants of the books and balance- 
 sheet of a bank has put an end for ever to successful 
 collusion on the part of its Directors or Managers, to 
 hoodwink its proprietary.
 
 288 The Country Banker. [let. xxxix. 
 
 There is heard at your meetings of shareholders an 
 occasional demand for * fresh blood ' on the direction. 
 The cry, if traced to its source, will not seldom be found 
 to have originated with someone who has a secret desire 
 to join the Board himself. However this may be, the 
 ground usually taken is, that a Board which never 
 changes its members, unless by death or voluntary retire- 
 ment, becomes virtually self-elective, with a tendency to 
 intellectual stagnation and the impairment of business 
 vigour. 
 
 If one of your Directors has become incompetent or 
 ineligible, by reason of age or infirmity, or any other 
 cause, it is not only the right but the duty of the share- 
 holders to replace him ; but if the infusion of fresh 
 blood is to be achieved by the discharge of able and 
 experienced men, for the mere sake of change, or the 
 gratification of furtive ambition, such a course on the 
 part of shareholders may be as unwise as it would be 
 ungenerous. It may involve the dismissal from their 
 service, of gentlemen who are possessed of a knowledge 
 of the accounts and business of the Bank, which it has 
 taken them many years to acquire ; in order that their 
 seats may be taken by other gentlemen, who for some 
 years to come, can have no reliable knowledge of the 
 accounts or business, or the general working and policy 
 of the Bank. 
 
 No shareholder would adopt a policy of change like 
 this in the conduct of his own business. He would not 
 dismiss tried and experienced hands, in order to re- 
 place them with the unskilled and inexperienced, for the 
 pure love of change. 
 
 Even where a Director has to retire for the year only, 
 his retirement involves a certain waste of power. When 
 he returns to office, his mind will have become a blank 
 in respect of the operations of the Bank for a whole 
 twelve months. Not a single bill will be in the bill-case 
 which was in that repository at the date of his retirement, 
 nor will the position of a single account hi all proba- 
 bility be exactly what it was. The continuity of his
 
 LET. XXXIX.] The Directorate. 289 
 
 knowledge of the daily transactions of the Bank in 
 bills and advances will have been broken, and he will 
 consequently return to the Board with his usefulness in 
 council proportionately impaired. 
 
 There are those, it is true, who deem themselves quali- 
 fied at a moment's notice, to undertake the management 
 or chief direction of a bank, without any previous training 
 in the conduct of a business which is liable beyond all 
 others to swift destruction in inexperienced hands. And 
 to this cause are mainly to be assigned the past calamities 
 of banking on both sides the Tweed. Our bank failures, 
 without exception, have been the result of either a 
 deplorable ignorance, or a culpable disregard of the first 
 principles of every-day banking. So far from the 
 control or management of a bank being a thing which 
 anyone can understand at sight, there is perhaps no 
 business more difficult of ready grasp. I have given 
 a long business life to the practice and study of it, 
 but do not look upon my education as even yet com- 
 plete. Every now and again I still come upon some- 
 thing new — some fresh ' wrinkle ' — some side-light, which 
 goes to enlarge or qualify, sometimes to upset, old 
 and cherished impressions, and to divest experience of 
 finality. 
 
 Your shareholders will do well, therefore, to have as 
 few amateur financiers on the Board at any one time as 
 may be. Vacancies in your direction will arise in the 
 natural course of things, with sufficient frequency to 
 prevent mental stagnation at the Board, and these must 
 necessarily be filled up with ' fresh blood.' Such vacan- 
 cies will be wide enough apart, to ensure at all times a 
 majority of experienced men on your Direction ; so that 
 the 'prentice hands upon it may have time to master 
 some of their duties before they rise to command. 
 
 To force the hand of time, and anticipate natural 
 change in this matter, is to venture upon a game of 
 administrative hazard. You can inject fresh blood by 
 force into the veins of your Board, no doubt, and thereby 
 stimulate it to greater action ; but it does not follow that 
 19
 
 290 The Country Banker. [let. xxxix. 
 
 it will be a healthy action. It is just as likely to result in 
 friction and a war of opinion betwixt the old lights and 
 the new. Your Board might thus become divided 
 against itself, and that uniformity of principle in the 
 action of the Bank, which is of supreme importance to 
 its highest interests, would be jeopardized. The decision 
 of to-day might be upset by the vote of to-morrow — the 
 policy of one period by the opposite policy of another. 
 The management of the Bank might thus become 
 uncertain and capricious. Your constituents would never 
 rightly know how they stood with you, nor w'hat to rely 
 upon. If this should happen, they will be apt in time to 
 seek elsewhere for that steadfastness of purpose in the 
 direction of a bank, which is essential to the smooth 
 working of their own business arrangements. 
 
 There is, no doubt, as you observe, a feeling in 
 some minds that the accounts of Directors had better be 
 kept at any other bank than their own. It is urged 
 that they ought not to sit in judgment on their own 
 accounts. 
 
 But the grounds for this objection are more fanciful 
 than real. It is not to be supposed that the Director of 
 a bank would ever seek better terms for himself than 
 would be granted to any other customer. But, if he 
 should, his colleagues would surely have the moral 
 courage to refuse him ? They would hardly expose them- 
 selves to the taunt that they favoured themselves more 
 than they favoured other people. For this reason alone, 
 no Director is likely to seek exceptional terms for him- 
 self; and if he did, no Board, nowadays, with the inevi- 
 table yearly audit of the books and accounts before 
 them, would dare to listen to him. If a Director will 
 comply with the rules of the Bank, as regards security 
 and all other conditions, so that his account shall be as 
 safe and profitable as any other account of its class, 
 there can be no reason for his keeping it elsewhere. 
 On the contrary, his own Bank has clearly the first 
 claim to it.
 
 LET. XXXIX.] TJie Directorate. 291 
 
 Once in every year, accompanied by two of your 
 Directors, who take the duty by rotation, you make a 
 round of visits to your Branches, in order to check the 
 cash, and investigate the accounts, bills, and securities of 
 each Branch on the spot. 
 
 The Board as well as yourself arrive in this way at a 
 personal knowledge of )-our chief provincial customers, 
 who niust otherwise remain to you mere human abstrac- 
 tions, with no more character or individuality about them 
 than their names and avocations afford in the index to 
 your ledgers. Instead of mere headings of ledger folios 
 alphabetically arranged, they will thus become living 
 entities,' with whom you will have largely improved your 
 chances of intelligent dealing and mutual business satis- 
 faction in the future. 
 
 The majority of your customers will approve of being 
 thus looked up, although some 'icw may have substantial 
 reasons for disliking it extremely. The major part will 
 have a pride in feeling that their accounts will bear the 
 closest scrutiny in the strongest light. They will deem 
 it a compliment, moreover, that your Directors and your- 
 self should come amongst them once a year, to see how 
 things are getting on in * the old place ;' and a compli- 
 ment paid to their native town touches their municipal 
 bosoms with a pleasing elation. 
 
 These visits, moreover, enable you to revise and rec- 
 tify, from time to time, your record of the business 
 capacities of the Managers and other members of your 
 provincial staff. You will find some diligently forging 
 ahead, in knowledge and ability ; others standing where 
 they stood; and some icw you may discover losing 
 ground, it may be from age or from other causes. 
 
 With a customer's ledger account before you, and its 
 daily working exposed to view, you have ah unrivalled 
 opportunity of putting a Branch Manager ' through his 
 facings.' In many accounts, items will stand out from 
 the rest, in regard to which you will look to him for en- 
 lightenment. You will desire to know what such trans- 
 actions mean. You will expect him to read them for
 
 292 The Country Banker. [let. xxxix. 
 
 you — to explain where the money they represent came 
 from, or whither it went, and the why and the where- 
 fore, as the case may be. 
 
 While you thus give an excellent fillip to his under- 
 standing and memory, the comparative readiness, fulness, 
 and ability with which he shall answer your questioning, 
 will assist you in assigning to him his just rank in your 
 official scale of merit. 
 
 Moreover, these periodical visits will have a wholesome 
 effect in keeping the rank and file of your country staff 
 up to standard. It will be their natural desire to pass as 
 efficients. If they find, therefore, that you are not above 
 taking cognizance even of small things, and that you 
 take especial note of careless handwriting, blotted books, 
 frequent erasures, and waste and muddle wherever found, 
 the Deputation will administer a tonic which will have a 
 distinctly bracing effect. The delinquents will have an 
 eye to next salary Board, and will not imperil their 
 chances at that tribunal by persistence in habits, in 
 respect of which you have left them in unequivocal 
 possession of the sentiments of the Board and yourself
 
 LETTER XL. 
 
 THE RIGHTS AND DUTIES OF SHAREHOLDERS. 
 
 There is no defence in 7ciails, fortifications, and engines against 
 the power of Fortune ; we must proinde ourselves \\\\\'\\x\, and 
 when we are safe there, we arc invincible ; we may be battered, 
 but not taken. L' Estrange' s Seneca. 
 
 When a man becomes a shareholder in a bank he 
 becomes to all intents and purposes a co-partner in the 
 business transacted by it. He is as much concerned in 
 its success, to the extent of his holding, as if the business 
 were his own. The fact that he is only one partner 
 amongst hundreds or thousands, as the case may be, 
 neither releases him from responsibility, nor affects his 
 rights as member of a co-partnership. He has joined a 
 firm, no doubt a large one, in point of numbers ; but he 
 is just as much a member of it, as if his fellow-partners 
 numbered only two or three. 
 
 It is necessary to press this point — obvious and com- 
 monplace as it may seem — because it has yet to be real- 
 ized by many whom it largely concerns. There are 
 shareholders to be found here and there, to whom their 
 own Bank would appear to be a hostile institution, which 
 it is their business to attack on the slightest pretext. The 
 Naggleton of your annual meetings quarrels with the Rest 
 as too large, or with the profits as too small. He quarrels 
 with your Report. It is too concise ; he wants to know a 
 great deal more than what it tells him. He is disappointed 
 with the dividend, and objects to the balance carried for- 
 ward to next year as excessive. He cannot understand 
 why the District Union Bank pays only 15 per cent., 
 when it is well known that other banks pay 17 J or 20. 
 
 293
 
 294 ^^^^ Cotmtry Banker. [let. xl. 
 
 There must be bad management, or inexcusable losses, 
 or an over-salaried staff, or something. 
 
 This line of hostile remark is lawful to every share- 
 holder, but it is not always expedient. In easy times, 
 this splenetic indulgence in adverse criticism, although 
 it is impossible to see what good can come of it, may be 
 unproductive of harm ; but in times of monetary excite- 
 ment, when the air is filled with rumour to the prejudice 
 of banks, and whispers are heard of looming trouble 
 and impending loss, such a line of questioning rebuke 
 may be mischievous. 
 
 When such-like rumours, always dubious of birth, and 
 sometimes malignant of purpose, reach the ears of a 
 shareholder, it is at once his duty and his interest to 
 communicate with the nearest Manager of the Bank, in 
 the first instance, and ascertain the truth. For him to 
 stand up at one of your Bank meetings at such a time, 
 without notice, to ask if it be true that you have lost a 
 hundred thousand by Blank & Co., and another fifty 
 thousand by Cypher Bros., both of which rumours are 
 either sheer inventions or monstrous exaggerations ; is 
 only to play into the hands of the inventor of the calumny 
 and give wings to his malevolence. The very putting of 
 such a question carries imputation with it. The evil- 
 minded will conclude that there must be something in it, 
 with whatever emphasis of contradiction you may de- 
 nounce it. 
 
 Even more mischievous may be the question put by 
 some other reckless querist, who desires to know whether 
 there is a run going on upon some of your Branches. 
 The rumour may be as groundless as the other : but 
 even if it were true, and it is thus proclaimed throughout 
 your district that some of your Branches are being run 
 upon, it would hardly be matter for surprise if they were 
 all more or less run upon before a week was out. The 
 force of example is in nothing more absolute than in a 
 run — it spreads with the swiftness and virulence of 
 contagion. 
 
 I repeat, — that whatever a shareholder may at any time
 
 LET. XI..] RigJUs a7id Duties of Shareholders. 295 
 
 hear to the prejudice of his own Bank, it is not merely 
 his interest, but his bounden duty, to convey the rumour 
 in the first instance privately to the Manager, and not 
 primarily to his fellow shareholders in public meeting 
 assembled. ' It is an infatuated bird that fouls its own 
 nest.' 
 
 Not that I would circumscribe by the breadth of a 
 hair the privilege of shareholders to ask questions on 
 points concerning their own interests : they have a 
 right to know the truth, whatever it may be ; and it 
 will be the duty of the Board and yourself to reveal 
 the truth to them at all times without circumlocution or 
 evasion. I would merely have a shareholder to beware of 
 asking questions in public to his- own detriment, which 
 he might with equal ease and with more than equal 
 advantage ask in private. No doubt there are questions 
 which it may be politic for a shareholder to put to you 
 publicly, in order that you may publicly answer them ; 
 but he should be well assured of this before putting 
 them ; otherwise it may happen that in seeking to do 
 the Bank service, he may do it grievous injury. 
 
 The shareholder afflicted with that form of eccentricity 
 which incites him to intermittent attacks on his own 
 property, has his counterpart in the man in Hogarth's 
 picture, who is sawing through the perch on which he 
 is himself astride. 
 
 Mr. Naggleton is at times moved with a desire to 
 know the exact amount of bad debts which you have 
 made during the twelv^e months cov^ered by your state- 
 ment of profits. 
 
 If your losses have been of abnormal amount, you 
 will not wait for such a question to be put, — you will 
 anticipate it : but with regard to your ordinary annual 
 provision against loss, you cannot enter into particulars 
 with him. You set aside, out of profits every year, a 
 sum which will not only cover ascertained bad debts, 
 but which shall provide for contingent losses as well — 
 for losses which are not yet, but which may be. Look-
 
 296 The Country Banker. [let. xl. 
 
 ing, for example, at your holding of bills arising out of 
 any particular trade or industry, in which it is known 
 that heavy losses have been sustained, your Directors, 
 without being able to single out any one bill, or series 
 of bills, as likely to involve loss, might deem it prudent 
 nevertheless to set aside a sum in blank, so to speak, to 
 cover such eventualities. But this is a point upon which 
 your Report would properly be silent : you could not 
 refer to it, without saying either too little or too 
 much. If too much, the credit of individuals might be 
 compromised ; if too little — if you merely hinted that 
 such provision had been made — there would be no limit 
 to conjecture on the subject. The amount you hold of 
 such bills would first be guessed at, then steadily ex- 
 aggerated, and finally enlarged to an alarming total. 
 
 For these reasons, and for others, your shareholders 
 will do wisely to leave this particular point at all times 
 in the hands of the Board. Let them rest content with 
 the assurance of your balance-sheet, indorsed by the 
 certificate of independent auditors, that before striking 
 the balance of profits for the year, you have made ample 
 provision for every bad and doubtful debt. 
 
 When a heavy local failure takes place, which affords 
 irresponsible gossip a genial topic for reckless guess- 
 work and mischievous suggestion, it will be wise to 
 advise your Branches at once how you stand affected 
 by the failure; otherwise your Managers will be unable 
 to contradict any edition of the facts, however damaging, 
 which may reach the too receptive ears of the more 
 timid of your proprietary. 
 
 The shareholder in a Bank is a partner in a business 
 which, to the extent of his holding, is carried on for his 
 benefit. The greater the profits, the larger his dividend. 
 It is a duty which he owes to himself, therefore, to seek 
 to increase the business and thereby add to the profits of 
 the institution. 
 
 There are still in most districts numbers of people who 
 have never yet * kept a banker.' These are they who
 
 LET. XL.] Rijr/ifs aud Duties of Shareholders. 297 
 
 should move the special solicitude of the Bank share- 
 holder ; this is the quarry in which he should work. It 
 is his business to search out and bring the bankless in. 
 True, he is only one partner amongst a thousand others 
 in your Bank ; but that docs not release him from the 
 obligation of doing what he can for the common good. 
 Let him bring only one fresh customer to the Bank in 
 the course of every twelvemonths, and let us put the 
 addition thus made to your revenues at the modest 
 figure of twenty shillings a year; and let each of your 
 shareholders do the same; and the result, in the course of 
 five years, will be an increase of ^^5000 a year in your 
 profits; or an addition of lo per cent, to your annual 
 dividend. 
 
 This appears to you an over-estimate. You say that 
 in )'our proprietary hive at Oxborough the drones out- 
 numbered far the workers. But the extra activity of the 
 workers will sometimes out-balance the indolence of the 
 do-nothings, and the tale of expected work be thus 
 made up. 
 
 But to put the matter differently : let us suppose that 
 through the combined exertions and influence of your 
 customers and shareholders at Oxborough, a fresh 
 account or deposit came to your Branch there only once 
 in ten days? You will hardly regard this as an ex- 
 travagant estimate : but the result would be thirty new 
 accounts or deposits in the course of the year for 
 O.xborough Branch, and consequently nine hundred for 
 your Branches as a whole. 
 
 As we have seen, the profits of banking are in a great 
 measure made up of inconsiderable particles. The 
 shareholders in Banks therefore are not to disregard the 
 worth of small things, and because they cannot do much, 
 conclude to do not'ung. Pence and farthings, as well 
 as pounds and shillings, go to swell the annual tale of 
 Bank profits. 
 
 In times of panic, it is the .special duty of a share- 
 holder to stand by his own Bank. If he saw his own
 
 298 The Country Banker. [let. xl. 
 
 house on fire, he would at once seek to put out the 
 flames. If he sees the Bank in which he is a proprietor 
 attacked, with all the forces of panic fighting on the side 
 of the assailants, it is surely his duty to lift a hand in 
 defence of his own property. 
 
 If timid and foolish people are running for their 
 deposits, a man of wealth and influence might be able 
 to reassure many and disabuse them of their fears. He 
 would not overstep the limits of discretion if, in cases 
 when depositors have ceased for the moment to be 
 accountable beings, he should even offer to guarantee 
 their deposits ; for which the assets of the Bank would 
 be for him an ample cover and indemnity. And what 
 the rich and powerful amongst shareholders might do, 
 others less affluent or influential might do, each to the 
 extent of his ability, even if that were limited to turning 
 the alarms of the timid into ridicule, and laughing panic 
 out of countenance. 
 
 Nevertheless, incredible as it may seem, it is at a 
 critical time like this, that one of your shareholders 
 loses his head and throws his fifty shares on the market 
 for instant sale, thus causing a rapid fall in their market 
 price. It would be in vain to represent to a person thus 
 possessed, that the worst time to sell shares is when 
 there are no buyers. His one object is to ' get out,' let 
 the price go to what it will ; and when he has driven it 
 down some ;^5 a share, some one finds courage perhaps 
 to relieve him of his holding. 
 
 Now no one would object to his parting with his 
 shares at any sacrifice, provided he were the only sufferer. 
 But in forcing a sale of his fifty shares, he has brought 
 the price of all the shares held by his co-proprietors 
 down to the level of his own. He has emancipated 
 himself by inflicting six hundred times his own loss 
 upon others. Against his loss of ^^^250, you have to 
 place a drop in the value of his neighbours' property to 
 the extent of iJ"i 50,000. 
 
 And the mischief may not end here ; other nervous 
 shareholders, seeing the rapid fall in the price of your
 
 1ST. XL.] Rights and Duties of Shareholders. 299 
 
 shares, may likewise take fright, and your bell-wether be 
 followed by a score of sheep like himself Fresh batches 
 of shares may thus be thrown upon the market and the 
 price thrust further down. 
 
 The unexampled fall in the price of your stock will 
 not escape the notice of the outside public ; and if it 
 leads them to the conclusion that its own shareholders 
 have lost confidence in the Bank, who shall blame them ? 
 But such an impression, should it seize upon the minds 
 of your depositors, at a time when banking credit is at a 
 severe point of tension, might bring them upon you in 
 numbers. True, you are always prepared and ready for 
 the worst. With such a balance-sheet as yours, you 
 may set any run at defiance. But a weaker bank, 
 suddenly assailed, might be ovcrw helmed in this way — 
 stricken down by the hand of one of its own co- 
 partners. In his frantic haste to set himself free, he will 
 have brought the fabric about his own ears. Should 
 this be the result, there will be few to pity his dismay, 
 when he finds that the sale of his shares has not released 
 him from liability upon them for twelve months to come. 
 It will then come home to him, when it is too late, that 
 in his selfish haste to free himself from responsibility, at 
 the expense of others, he has brought upon himself the 
 very calamity, from which it was his effort and struggle 
 to escape. 
 
 The shareholders in banks, if they would act wisely 
 for themselves, will never attempt a sale of their shares 
 in a time of panic. 
 
 If a fear has been put into their minds as to the 
 soundness of the Bank, let them refer the matter to the 
 nearest Manager and have it cleared up at once. They 
 will thus at least give themselves the benefit of the 
 doubt. By forcing a sale of their stock in the midst of 
 a money crisis, they may render the catastrophe certain, 
 which is as yet only in apprehension. They may get 
 rid of their shares ; but in doing so they may get rid of 
 the Bank itself, and thus end their flight from responsi- 
 bility at the bottom of a precipice.
 
 300 The Country Banker. [let. xl. 
 
 And whilst you have thus sometimes to reckon with 
 mutiny within the camp, you are exposed to other forms 
 of attack from without. You will not always escape 
 calumny ; and your assailant will bide his time to give it 
 utterance at the right moment. The Bank's difficulty 
 will be his opportunity. 
 
 _ You hold that the man who would of malice afore- 
 thought seek to wreck a solvent Bank, has much the 
 same claim to virtuous motive, as the ruffian has who 
 would blow up a public building. The difference between 
 the two, you submit, is merely in degree. The minor 
 offence would not involve risk to human life : it would 
 only render life not worth living, to hundreds of innocent 
 people. 
 
 But calumny would be harmless if it were not spread 
 about. Do not give it circulation, and it will fall dead 
 from the lips of the traducer. It is therefore the special 
 duty of all shareholders in banks, to abstain from the 
 repetition of rumours to the prejudice of banking insti- 
 tutions, especially in times of monetary anxiety and 
 alarm. 
 
 Your proprietors ought rather to act as the guardians 
 and police of banking credit. The people who glibly 
 pass from mouth to mouth, slanders that might impair 
 the standing of any credit institution, do so for the most 
 part without evil intention ; but whether a bank is 
 brought down with intention or without, the result to its 
 shareholders is equally cruel and disastrous. 
 
 The failure of a Bank, moreover, in the midst of a 
 monetary crisis, adds fresh fuel of alarm to the prevail- 
 ing excitement, and may cause runs upon other banks to 
 their undoing ; and thus the banking system of a whole 
 district might be brought to a standstill. If this should 
 come to pass, the predictions of evil so recklessly scat- 
 tered by your gad-abouts, will have come home to roost. 
 If any of these persons shall happen to be depositors in 
 one or other of the suspended banks, they will have 
 locked their own as well as their neighbour's money up, 
 more or less effectually, for an unknown period. If
 
 LET. XL.] Rights a7id Duties of Shareholders. 301 
 
 borrowers from the Banks or discounters with thcni, they 
 will have shut up the sources of such facilities and may 
 have to come to a stand-still themselves — a result which 
 most people will look upon as a righteous judgment. If 
 they shall prove to be shareholders in any of the Banks, 
 they will have ruinously depreciated the value of their own 
 property. The stranglers of credit may thus find the 
 noose tightening about their own necks. In any event, 
 they will have helped to bring about a disaster, which 
 will subject thousands of people in trade to serious in- 
 convenience, — it may be to wearing anxieties and ruinous 
 business loss ; whilst scores of hardworking clerks and 
 officials, their wives and families, will be cast helpless 
 upon the world. 
 
 Unfortunately you cannot limit the consequences of 
 the stoppage of a bank, to those who bring the structure 
 down about their own ears. A bank — especially a bank 
 with numerous Branches — has wide ramifications : 
 
 // is a massy wheel 
 To whose huge spokes ten thousand lesser things 
 Are mortised and adjoined ; ivhich, when it falls, 
 Each small annexment, petty consequefice, 
 Attends the boisterous ruin.
 
 LETTER XLI. 
 
 THE FUTURE OUTLOOK. 
 
 Tlie Golden Age, it is but too true, is 7wt the lot of the gene- 
 ration in which we live ; but if it is to be found in any part of 
 the track marked out for human existence, it will be foutid, I 
 trust, not in any part which is past, but in some part which is 
 to come. Defence of Usury. 
 
 In dealing with possible fluctuations in the aggregate 
 of your deposits, we assumed a maximum pressure of lO 
 per cent., or the withdrawal of ^^"250,000 of the whole. 
 
 For nine years out of ten, looking at the past, this will 
 probably exceed their utmost point of depletion ; but if 
 the tenth year be visited with a commercial crisis, com- 
 bined with a money panic, the average level of your 
 deposits may suffer a more serious depression. 
 
 You ask, as regards this decennial year of affliction, 
 what of the future ? Will things continue to move in 
 the same grooves as heretofore, and each decade be 
 rounded off by a paroxysm in the money market ? 
 
 It is hard to say : we can do little more than set 
 before our minds the leading elements of the problem. 
 We can inquire of the past in what it differs from the 
 present, and of both what guidance they have for us in 
 the future : but to give a categorical answer to your 
 question would require the gift of prophecy. 
 
 As regards the present, then, we are still working our 
 monetary system on practically the same basis, in respect 
 of gold, as when the Act of 1844 was passed, although 
 the deposits of the Banks have since then more than 
 trebled in amount. 
 
 It is true that the reserves of the Banks, namely the 
 302
 
 LET. xLi.] TJie Future Outlook. 30^ 
 
 amount of Bank of England notes, and coin in hand, 
 money at call and Consols, have largely increased, and 
 that the average reserve now ranges, as we have seen, 
 from 24 to 36 per cent, of the liabilities ; but only a 
 small percentage of this average is held by the Banks in 
 gold. A recent estimate by the Coinage Committee of 
 the Institute of Bankers places the liabilities of the 
 Banks at 575 millions, and the gold held by them 
 at 25 millions, or 4J per cent* This is the golden pivot 
 on which the vast wheel of our monetary system 
 revolves. 
 
 It is beyond dispute, therefore, that if the Banks were 
 called upon to discharge their indebtedness, exclusively 
 in gold, on any one day, the transaction would be im- 
 possible ; but it is not less true that they could discharge 
 the whole of their liabilities to the public in far less time 
 than it has taken to build them up. 
 
 It is a property of money to create or cancel debt ; to 
 convey capital or money's worth, from hand to hand, 
 and from place to place, with ceaseless repetition, without 
 undergoing diminution itself It is the common carrier 
 of capital. Its function is akin to that of the railway 
 truck, which carries its customary load, performs its 
 appointed run, and is ready for any additional number 
 of loads and runs which may be required of it. The 
 same hundred pounds with which a debt is cancelled, a 
 payment made, or a purchase completed to-day, will 
 suffice for similar uses to-morrow and for any series of 
 to-morrows. If it changed ownership once a day, it 
 would complete operations to three hundred times the 
 sum of itself in the course of a year, and still be the 
 same i^ioo in money, and ready to enter upon the same 
 endless round of work. 
 
 And what is true in this respect of a hundred pounds, 
 is equally true of five and twenty millions of pounds. 
 They will suffice to cancel twent)'-five millions of debt 
 any day and be themselves undiminished by the process. 
 
 * Journal of the Institute, June, 1S83.
 
 304 The Country Banker. [let. xli. 
 
 Let the money owing to Bankers be repaid, in exact 
 ratio and coincidence with their repayments to their 
 depositors ; and, as a mere matter of manipulation, our 
 holding of gold would alone suffice to liquidate our 575 
 millions of banking indebtedness, in three-and-twenty 
 days. 
 
 But this is mere playing with figures. The process 
 is less suggestive of a sober act of business, than of 
 Bobadil's method of destroying an army. 
 
 The realization and distribution of 575 millions of 
 banking assets, in a given number of days, may be 
 demonstrable, as an exercise in arithmetic ; but looked 
 at in a practical light, such an operation is a chimera, 
 only surpassed in extravagance by the idea that the 
 necessity for it should ever come to pass. The imagined 
 process may nevertheless serve to shew how the con- 
 structive property of money enables us, as a community, 
 to run into a mutuality of debt and aggregate of 
 liability, so far beyond the amount which our reserve 
 of gold would enable us to discharge at any one 
 time. 
 
 But the financial skill which has enabled us, as a 
 nation, thus to economize the use of gold well-nigh to 
 vanishing point, has its disadvantages. 
 
 Whilst the public mind is at rest concerning monetary 
 affairs, the immense operations of banking, trade and 
 commerce go evenly and swiftly on ; money passes 
 readily from hand to hand, and the currency is equal to 
 its work : and by currency or money I here mean only 
 Bank of England Notes and specie. But when a time 
 of discredit supervenes, the circulative power of the 
 currency becomes impaired, — not necessarily from any 
 reduction in its amount, but from a growing indisposition 
 on the part of holders to part with it freely. 
 
 It follows that the same holding of currency or money, 
 which would suffice for our national requirements at one 
 time, might fall perceptibly short of these at another : 
 because it is manifest that a currency which changed 
 hands, let us say, once a week, would complete a larger
 
 LET. xLi.] The Futiwe Outlook. 305 
 
 tale of work than if it passed from hand to hand only 
 once in ten days. 
 
 And this is virtually what happens when clouds 
 appear on the monetary horizon and foreshadow a com- 
 ing pressure. That visitation is usually heralded by a 
 heavy fall in the exchanges, — the accredited barometer 
 of the money-market, — and a rapid upward movement of 
 the Bank rate. The enhancement of the rate has some 
 such effect in retarding the movement of the currency, as 
 the application of the brake has in lessening the speed 
 of a railway train. It induces Bankers and other 
 holders of money to slacken speed, and to part with 
 their funds with increasing caution. The result is a 
 * tightness ' in the money market, the initial twinge, 
 it may be, of approaching panic. 
 
 The tightness has barely made itself generally felt, 
 perhaps, before there is another rise in the rate : the 
 feeling of uneasiness is enhanced : and the disincli- 
 nation on all hands to part with money increases 
 visibly. 
 
 And whilst the mobility of the currency is thus being 
 impaired, a drain of gold may be diminishing its volume. 
 For every million of bullion leaving the Issue Depart- 
 ment, a million of Notes may be undergoing can- 
 cellation. 
 
 Meanwhile there is no abatement in the general 
 demand for money. The business commitments of the 
 community cannot be abridged in a day. The merchant 
 requires his bills to be discounted, and his existing en- 
 gagements to be met. Your manufacturers, farmers, and 
 traders require and expect their customary facilities. 
 The general pressure for money in fact rather increases, 
 and the Bank rate goes steadily up. 
 
 The depreciation in the value of shares and other 
 property — which is a feature and consequence of the 
 crisis — now tempts the investing class of your customers 
 to draw upon their credit balances. The more ex- 
 citable of your depositors, startled perhaps by the 
 failure of a bank somewhere, — it matters little where or 
 20
 
 3o6 The Coiuitry Banker. [let. xli. 
 
 which, when there is panic in the air — come for their 
 money, to withdraw and hoard it. The pressure be- 
 comes increasingly severe ; and half a score of failures, 
 more or less serious, in a few days, give intensity to the 
 crisis. 
 
 One step further and we are on the edge of a 
 precipice : another million of gold leaves the Issue 
 Department, the rate is put up to lO per cent, and the 
 strain reaches that point of tension, when something 
 must give way, or our monetary system go over the 
 brink. 
 
 Fortunately, at the last moment, the Government of 
 the day suspend the Act of 1844: and behold, before 
 the day is out, the Panic has disappeared, like the base- 
 less fabric of a vision. 
 
 And what has Government done ? It has simply 
 relieved the public mind of a dread which threatened 
 our whole monetary system w'ith paralysis. It has 
 made arrangements with the Bank of England, under 
 which its notes may be had, on conditions — at a price; 
 and that moment apprehension begins to subside, and 
 the currency, freed from general arrest in bankers' 
 safes, merchants' cash boxes, and the secret hiding 
 places of the timid, begins to flow again through the 
 arteries of our monetary system. 
 
 Briefly stated, these were some of the leading features 
 of the panics of 1847, 1857 and 1866; and the lesson 
 which they hold for us, would seem to lie mainly in the 
 fact, that each panic was brought to a climax by a drain 
 of gold. 
 
 Now a drain of gold is usually the result of overtrading 
 or speculation. That being the case, the question which 
 we have next to ask is — Have we seen the last of over- 
 trading and speculation ? \Vc might almost as well ask, — 
 Have we seen the last of human nature? We have not 
 seen the last of these things. On the contrary, when 
 they next take place they will probably be on a larger 
 scale than heretofore, — a scale proportioned to the enor- 
 mous increase in our commercial and monetary transac-
 
 LET. xLi.] The Future Outlook. 307 
 
 tions since the time of our last panic. It is possible 
 indeed to imagine such a conjunction of disturbing events 
 and adverse influences, at some critical point in the 
 future, as may result in more intense pressure upon our 
 monetary system than it has ever suffered in the past ; 
 unless when the evil time comes, the Act of 1844 is 
 promptly suspended, or judiciously amended meanwhile. 
 
 As matters stand, the Ministry of the day must either 
 look helplessly on during the march of a crisis, and see 
 the country arrive at a condition of monetary dead-lock, 
 or take the grave responsibility of suspending an Act of 
 Parliament. Would it not be a more politic arrange- 
 ment, by means of a short rider to the Act, to empower 
 the Government, when things shall arrive, in their judg- 
 ment, at panic point, to suspend the restricti\'e clauses 
 of the Act, — the same high rate of discount, be it 8, or 
 10, or 12 per cent., being maintained, until any excess of 
 issues thus occasioned shall have returned to the Issue 
 Department and been cancelled ? The probability is 
 that no such excess would then ensue. What adds to 
 the intensit}' and peril of a money crisis, is the well- 
 founded dread that the time is at hand, when, owing to 
 the operation of the Act, it will be impossible to obtain 
 bank notes at any price or at any sacrifice : hence the 
 forestalling and hoarding, in view of eventualities, which 
 locks a large portion of the currency up, and practically 
 withdraws it for the time being from circulation or use. 
 
 There is nothing revolutionary in the suggestion here 
 made : on the contrary, it is precisely what has been 
 done, and with the happiest results, on each of the three 
 occasions on which the Act has been suspended. All 
 that I would urge is that, in this respect, the measure 
 shall be rendered self-acting, and not, as at present, self- 
 destructive. Let its relaxation at the right moment be 
 a fulfilment of the law and not a breach of it. 
 
 The Act makes no provision for an abnormal con- 
 dition of things. Its working is faultless, so long as the 
 times are easy, and there is smoothness in the money
 
 3o8 The Country Banker. [let. xli. 
 
 market ; but when there comes a general breakdown of 
 credit, the Act in its operation, so far from allaying 
 public alarm, enhances it to a point bordering on frenzy, 
 and then breaks down itself 
 
 ' Notwithstanding the beneficial operation of the Act 
 of 1844,' says Mr. John Stuart Mill, ' in the first stages 
 of one kind of commercial crisis, (that produced by over- 
 speculation) it, on the whole, materially aggravates the 
 severity of commercial convulsions : and not only are 
 contractions of credit made more severe by the Act — 
 they are also made greatly more frequent.' 
 
 The framers of the measure would appear to have 
 taken for granted the perpetual sanity of all classes of 
 the community in respect of monetary affairs, and made 
 no provision for casual aberrations. The Act was not 
 framed, so as to yield or bend for a moment to that 
 final rush of unreason and alarm which culminates in 
 panic, and like a tidal wave sweeps all before it, the Act 
 itself included. 
 
 It may be said that it is for the public ad\antage that 
 the strength or weakness of our banking system should 
 now and then be put to the test. There is no objection 
 to this. The objection is to the construction of the test, 
 the peculiarity of which is, that its application is calcu- 
 lated to embarrass the soundest institutions equally with 
 the weakest. In its operation it presses alike upon the 
 prudent and the reckless. If there are any weak places 
 in our banking system, a pressure of less than 10 per 
 cent, will assuredly find them out. A five per cent, rate 
 sufficed to sink the West of England Bank, and the City 
 of Glasgow Bank went down in a monetary calm. 
 
 But banks and bankers are not alone concerned in the 
 Operation of the Act of 1844. They can, in most cases, 
 protect themselves, by a peremptory recall of advances 
 and curtailment of discounts ; but this is only to pass 
 the pressure on to merchants, manufacturers, traders, and 
 others, so that it comes to rest in the end upon the 
 shoulders of the business community. 
 
 The working of the Act in a time of excitement and
 
 iiiT. xLi.] The Future Outlook. 309 
 
 swiftly spreading apprehension, suggests to the imagina- 
 tion, a boiler with its safety-valve screwed down and 
 a blazing furnace underneath : whereas the proposed 
 power of relaxation would enable it, when the pressure 
 became extreme, to blow off steam, instead of some day 
 blowing our monetary system into space, — which it may 
 corK:eivably do, the first time the suspension of the Act 
 is too long deferred by an irresolute Government. 
 
 It may be urged that any relaxation in the stringency 
 of the Act might lead to a suspension of specie pay- 
 ments. The reply is that we have put this hazard to the 
 test on three memorable occasions, and that no such 
 result has followed, or was ever "within the range of 
 probabilit)'. The danger to be feared did not lie in that 
 direction. The danger was that if the Act had not been 
 suspended when it was, the country was, on each occasion, 
 within measurable range of the suspension of all pay- 
 ments whatsoever, in specie or anything else. 
 
 In pursuance of your inquiry then, — Have we seen the 
 last of our money panics ? — it has to be confessed that 
 we have not, thus far, found much encouragement for the 
 future, in either the past or the present condition of 
 things ; and we have yet to add to the adverse features 
 of the situation, the humiliating fact that, even in this 
 nineteenth century of civilization and culture, we arc not 
 yet exempt from the folly and mischief of runs. 
 
 In the scare which had ita rise in the failure of the 
 City of Glasgow Bank in Oct. 1878, only six years ago, 
 and culminated in the stoppage of the West of England 
 Bank in the following December, some of the most 
 powerful banks in England were fiercely run upon, and 
 notably those of unlimited liability. What had usually 
 been deemed to afford the greatest security was, in 1878, 
 suspected to afford the least. There was this peculiarity, 
 moreover, in the direction taken by the movement: it 
 did not assail the Banks that held deposits by tens or 
 hundreds of thousands : it was the l^anks that held 
 deposits by threes and fives and tens of millions, which
 
 3IO The Country Banker. [let. xli. 
 
 had to face the .storm. We have to take into account 
 therefore, that our next scare may take a lower and wider 
 range. Having assailed the Titans of banking in vain, the 
 next paroxysni of distrust may try conclusions with the 
 smaller and more numerous class of banking institutions ; 
 let us hope, with the like baffling result. 
 
 On the other hand, it is in our favour that there can 
 never again be a failure like that of the City of Glasgow 
 Bank, nor even a modified edition of Overend, Gurney 
 & Co. The all but universal adoption of the Act of 
 1879, has rendered calamities like these beyond the 
 reach of accomplishment by any stretch of human 
 wickedness or imbecility. Bank failures we may have 
 now and then, but not catastrophes like these. Our 
 future failures, if any, will arise from imprudent bank- 
 ing, — from the locking up of deposits in unavailable 
 forms of security, to cover excessive rates of deposit 
 interest ; but there is no reason to suppose that this 
 description of banking prevails to any extent. 
 
 The existence of Leeman's Act is another point in 
 favour of our future outlook. Under that Act, the broker 
 who offers bank shares for sale must have the shares to 
 sell. He must give the name of the seller, or the numbers 
 of the shares to be sold. He cannot now execute 
 unlimited ' bear ' operations in the shares of any Bank 
 which he may select for attack, and thus place its credit, 
 and possibly its existence, at his mercy. 
 
 It was argued against the measure that only weak and 
 badly managed banks had anything to fear from this 
 process; but that was not so. Moreover, badly managed 
 banks may, with safety, be left to go to the wall, without 
 this questionable form of propulsion. The Act was 
 designed by the Legislature, to protect perfectly solvent 
 Banks against a form of attack which, in critical times, 
 might bring the strongest Bank into a position of embar- 
 rassment and danger. 
 
 It is a fallacy to contend that the market has the same 
 moral right to speculative dealings in the shares of
 
 LET. xLi.] The Future Outloo^. 3 1 1 
 
 Banks as in those of Railwaj' companies. However 
 much you may depreciate the price of any Railway 
 Stock by bearing operations, the undertaking itself 
 remains intact : but it may be far otherwise with a Bank. 
 It depends for its existence upon credit. Sap that, by 
 fictitious sales of its shares in a time of monetary excite- 
 ment, and bring its depositors upon it in a rush, 
 and you smash up, it may be, a perfectly solvent 
 institution". 
 
 It has been argued that the Act, by prohibiting 
 ' operations for the fall ' in Bank shares, leaves the 
 shareholders in discredited or insolvent concerns in a 
 fool's paradise, until it is too late to get rid of their 
 responsibilities : but as they can only rid themselves of 
 these by transferring them at the last moment to the 
 shoulders of other people, a measure which puts this 
 manner of escape from liability under modified restraint, 
 will scarcely be looked upon by the community at large 
 as a grievance to be removed. 
 
 Had the Act not been in operation in 1878, when 
 some of the strongest banks in the country were assailed 
 for weeks together with persistent virulence, it is at least 
 conceivable that the scare of that time might have been 
 so enlarged and intensified, as to lead to a crisis of 
 destructive range and severity. 
 
 The panics of the future will be influenced to some 
 extent in their direction and force by the action of the 
 public press. Its universal eye will always be upon us. 
 What any leading newspaper says to-day, as to the 
 monetary outlook, will be repeated throughout the land 
 in a million or so of broad sheets to-morrow morning. 
 The press cannot, it is true, prevent the fabrication of 
 malicious and mischievous rumour, but it can refuse to 
 give it circulation. In the strained condition of things 
 which precedes and heralds panic, what is to be said, for 
 
 example, of some such paragraph as this ' Two 
 
 Banks in shire are freely spoken about ' ? What 
 
 advantage such a paragraph can yield to any one, passes
 
 312 The Country Banker. [let. xli. 
 
 comprehension ; but the evil it may do is not difficult of 
 estimate. Before night of the day of publication, not 
 two, but half-a-score of Banks will be freely spoken about, 
 their depositors and shareholders needlessly alarmed, and 
 fresh fuel added to the prevailing excitement. 
 
 The nearly universal adoption by Banks of * reserved 
 liability ' is another element in the problem of the 
 future. It will afford a solid ground of assurance to 
 depositors in times of pressure and alarm. Capital in 
 this form cannot, as they know, be called up and lost 
 in the business of a bank. ,It constitutes an inviola- 
 ble reserve for their protection, and insures the safety 
 of their deposits, whatever may happen to the Bank 
 itself 
 
 A further and abiding ground of confidence to deposi- 
 tors and the public, will be found in the compulsory 
 audit, at least once a year, of the books, accounts and 
 securities of every bank which has registered under the 
 Act of 1879. It is beyond question that, if this safeguard 
 had been in force since the institution of Joint Stock 
 Banking, the most ruinous failures of the past would have 
 been averted. It would have been impossible for any 
 body of Directors to nurse enormous and ever growing 
 accounts, year after year, long after they had become 
 more than doubtful, without even a suspicion of the 
 fact reaching the ears of shareholders; until the Banks 
 themselves capsized and went down before their eyes. 
 The * fierce light ' of the inevitable audit would have 
 rendered impossible this cumulative form of banking ruin 
 in the past, and will render it absolutely impossible in the 
 future. 
 
 Nevertheless, we must not rely on either reserve 
 liability or compulsory audit, as unfailing panaceas for 
 panic in all time to come. There have been times, and 
 there may be again, when sections of the community 
 become deaf to reason. If there is panic about, no 
 matter how baseless it may be, they are sure to catch it 
 with greater or less severity. Be your reserve liability
 
 LET. xLi.] The Future Outlook. 313 
 
 of what amount it may, or your financial position a very 
 fortress and citadel of strength, — if they hear of people 
 running for their money, no matter where, nor for what 
 reason, they will run too. 
 
 My counsel to you, therefore, for what it may be 
 worth, would be to maintain your finances at all times, 
 and under all circumstances, in a position of impregnable 
 strength ; because panic, when it comes, will travel like 
 other things no\v-a-days on electric wings. Be less 
 anxious for your dividend than solicitous about your 
 financial safety. Let that be assured, whatever the 
 immediate effect on your profits may be. A dividend 
 based on financial strength, may suffer occasional abate- 
 ment ; but one earned by a more adventurous policy, at 
 the cost of financial weakness, is a precarious one at the 
 best ; at the worst, it may fail you altogether some 
 day, and dividend. Bank, and Manager simultaneously 
 disappear. 
 
 If the movement by depositors on the Banks in the 
 December of 1878 had become general, and been 
 coincident with a commercial crisis, a ten per cent. 
 Bank rate, a rapid depletion of the reserve in the 
 Banking Department, and a persistent drain of bullion, 
 the ordeal for English banking might have been one 
 of unexampled severity. In the struggle for existence 
 which would have ensued, the question of the hour 
 would have been, not the forthcoming dividends of the 
 Banks, but the survival of the fittest. 
 
 Be especially on your guard in sluggish times of 
 business and low rates of interest for money. The 
 temptation to depart from the lines of prudent banking 
 is then at its greatest. It is then, if ever, that a bank 
 is drawn towards ' chancing it ' — towards advances on 
 securities of an outside character and uncertain negoci- 
 ability, in order to secure a larger return of interest. 
 
 We have seen what this may lead to, should pressure 
 come upon a bank unawares. The stream of monetary 
 events runs with smoothness to the very verge of the 
 rapids, and you may adventure upon its current once too
 
 ,14 The Country Ba7ike7'. [let. xu. 
 
 far. Your only safe rule is steadfastly to abide by the 
 limits which }-ou have assigned to your various forms of 
 asset, so that you may alwaj's have your resources well 
 in hand, come what may. 
 
 Let your device as a banker be that of the strong man 
 armed, and your motto aye ready. You will not other- 
 wise be prepared, at all points and at all times, to en- 
 counter and overcome the difficulties which may be in 
 store for English banking in the large uncertainties of 
 the future. Above all things, in the regulation of your 
 finances, place no reliance on the chapter of accidents 
 for seeing you through. ' He digs in sand and lays his 
 beams in water,' says Feltham, ' who builds upon ev^ents 
 which no man can be master of
 
 INDEX. 
 
 Acceptances of Customers, 
 
 75. 80. 
 Acceptors. Safety of, 73. 
 
 Accounts of Customers. 
 Giles Borax, 10 — Stokes Sc 
 Co., 12 — Samuel Titson, 45 — 
 Philip Bargood, 69 — Bricknall 
 & Co., 113— L. S. D., US- 
 Silas Wheeler, 146 — Basil 
 Crofton, 156. 
 
 Accounts exempt from Com- 
 mission, 140, 147. 
 
 Act of 1844. Suspension of, 
 306. 
 
 Act of 1879. Provisions of, 
 253 — results of, 256. 
 
 Advances. Recall of, 57 — ad- 
 vances to committees, 57 — 
 object of advances to be de- 
 clared, 58 — recall of, re- 
 sented, 60 — pro forma limit 
 of, 221, 225 — advances on 
 railway stock and warrants, 
 223 — on Bank credits, 
 223 — on the Bank's shares, 
 227. 
 
 Annuitants as Principals, 
 9 — as sureties, 92. 
 
 Assets of Bank. Constructive 
 estimate of, 203 — relative fusi- 
 bility of, 250 — average -in- 
 terest product of, 267. 
 
 Assets of Traders, 19, 23, 27. 
 
 Attendance, 174. 
 
 Audit. Of Bank accounts, 236, 
 254, 279, 312. 
 
 Bad Debts. Provision for, 270. 
 
 Balance-sheet of the Bank, 
 204 — compulsory publication 
 of, 235. 
 
 Balance-sheets of Traders. 
 Their benefit to clients, 15 — 
 form of balance-sheet, 18 — 
 appraisement of assets, 19, 23 
 — insurance against fire, 19 — 
 balance-sheets of Daniel Hyde, 
 20 — Railton & Co., 21 — 
 Abel Trowcll, 22 — fraudulent 
 balance-sheets, 24. 
 
 Bank Charges, 140 — 149. 
 Bank Credits, 223. 
 
 Bank Failure. Disastrous 
 effects of a, 212, 300. 
 
 Bank Ledger. Evidence of, 10. 
 
 Bank of England. Average 
 
 rate of discount, 133. 
 Bank Pre.mises, 167. 
 Banker. Use of a, 156. 
 Bankers' Institute, 120. 
 Banker's Opinion, A, 15, 17, 
 
 185.
 
 3i6 
 
 Index. 
 
 Banking Finance. Balance- 
 sheet of the Bank, 204 — con- 
 struction thereof, 203 — move- 
 ments in deposits, 205 — the 
 financial reserve, 206 — a re- 
 serve of 20 per cent. 207 — a 
 reserve of one-third, 213 — 
 composition of reserve, 216 — 
 Consols as a component of 
 reserve, 217 — rediscounting, 
 2 1 8 — inadequate reserves, 2 1 2, 
 219. 
 
 Banking Profits, 266. 
 
 Banking Risks, 249, 268. 
 
 Bankruptcy. Cases for leni- 
 ency — over -stringency — 
 reasons against nursing of 
 accounts — compositions ver- 
 sus bankruptcy, — the new Act, 
 62 — 67. 
 
 Bearer Securities, 99 — cus- 
 tody of, 1 01. 
 
 Bill-Case, analysis of contents, 
 
 250. 
 Bill of Sale as cover, 109. 
 
 Bills of Exchange. Varie- 
 ties of — drawn against ship- 
 ping — brokers' bills — remit- 
 tance and inland drawn paper 
 — kite-flying, 238 — 251. See 
 also Negociable Bills and 
 Trade Bills. 
 
 Bills of Lading as security, 
 
 105. 
 Building Land as security, 
 
 113- 
 Buildings and Machinery 
 
 as security, 1 1 5. 
 
 Capital and Shares. Work- 
 ing capital — denomination 
 of shares — lial^ilities and re- 
 sources — additions to capital 
 — reduction of, 258 — 265. 
 
 Capital uncalled, 26, 
 Cash Orders, 87. 
 Cashier. Duties of, 5. 
 Cheques drawn in Blank, ii. 
 Chief Manager. Office of, 198. 
 
 Chief Secretary. Duties of, 
 
 199. 
 Choice of First-class Paper, 
 
 249. 
 Circulation of Notes, 152 
 
 — Scottish currency, 142. 
 
 City of Glasgow Bank, 252, 
 
 309- 
 
 Clergymen as principals, 9 — 
 as sureties, 92, 
 
 Collateral Security, 94 — 
 107. 
 
 Commission, exemptions from, 
 140 — 142, 145 — on with- 
 drawals, 143 — on overdrafts, 
 145- 
 
 co.mmittees, .a.dvances to, 57. 
 
 Competition in Banking, i88 
 — 192. 
 
 Compulsory Audit of Bank 
 accounts, 236, 254, 279, 312. 
 
 Correspondence, 182 — 187. 
 
 Country Banks and Dis- 
 count Houses, 248. 
 
 Cover for Debt. Safety de- 
 pendent on security — danger 
 of exceptions — constraining 
 influence of usage — character 
 as security, 31 — 41. 
 
 Credit Balance, A, not proof 
 of means, 12 — interest on 
 credit balance, 145. 
 
 Crf.dit, personal, 6 — 13 — of 
 limited companies, 26 — 30. 
 
 Currency of Bills, 81. 
 
 Customers' Accounts. See 
 Accounts of Customers.
 
 Index. 
 
 17 
 
 Deposit of Title Deeds, 94. 
 
 Deposits. Varieties of, 121 — 
 runs upon, 124 — 130 — interest 
 on, 131 — Country exceeds 
 London rate, 1 32 — movements 
 in deposits, 205 — London and 
 Country deposits, 221. 
 
 Directorate, The. Consti- 
 tution of board — compulsory 
 retirement — fresh blood — im- 
 promptu directors — directors' 
 accounts — visits to branches, 
 286 — 292. 
 
 Discount Houses and Coun- 
 try Banks, 248. 
 
 Discount on Bills. Bank 
 of England average, 133 — 
 Country rate and London rate, 
 134- 
 
 Discounts. See Bills of Ex- 
 change. 
 
 Dividend and Bonus on 
 capital, 272 — on capital and 
 reserve, 274. 
 
 Drafts after Date, 150. 
 Drafts on Demand, 151. 
 Drawers. Safety of, 74. 
 Duties, routine, 174 — 181. 
 
 Expenses, Office, 167 — 173. 
 
 Failure of a Bank, 212, 300. 
 
 Finance of Banking, 203. 
 
 Fire Insurance, 19. 
 
 Fraudulent Balance- 
 sheets, 24. 
 
 Function of Manager, i — 4, 
 174 — 181. 
 
 Future Outlook, The. Gold 
 held by Banks, 302 — liquida- 
 tive property of currency, 303 
 
 Future Outlook — conUnued. 
 — variations in its efficiency, 
 304 — rise and progress of 
 panic, 305 — suspension of the 
 Act of 1844, 306 — proposed 
 rider, 307 — panics of the 
 future, 309 — runs still possi- 
 ble, 309 — Leeman's Act, 310 
 — influence of the press, 311 
 — reserve liability and com- 
 pulsory audit, 312 — no abso- 
 lute prc\entive of panic, 312 
 — conservation of resources 
 the only safeguard, 313. 
 
 Guarantee. Personal, 89. 
 
 House Property as a se- 
 curity, 106. 
 
 Incidental Expenses, 169. 
 Indorsers. Safety of, 74. 
 Insolvent Trading, 48. 
 Institute of Bankers, 120. 
 Instructions from Head 
 
 Office, 179. 
 Insurance against Fire, 19. 
 
 Interest. On country deposits, 
 131 — basis of rate — danger of 
 excessive rate, 133 — interest 
 on overdrafts, 1 38 — on creditor 
 accounts, 144 — on the aggre- 
 gate assets of a Bank, 267 — 
 average bill-brokers' rate, 267. 
 
 Kite -FLYING. Bargood on 
 Laxey & Co.. 69 — 71, 79 — un- 
 readable bills, 80 — Webber 
 on Wefton & Co., 243 — re- 
 duplicated bills — bills for 
 values in expcctancv, 244 — 
 the higher levels of kite-fly- 
 ing, 246.
 
 3i8 
 
 Index. 
 
 Large Accounts. Dangers of 
 — experiences of Overend & 
 Co., and City of Glasgow 
 Bank — small accounts to be 
 preferred — Synkheim Bro- 
 thers, 231 — 235 — on future 
 restriction of large accounts, 
 235. 259. 
 
 Law of Property, simplifi- 
 cation of, 97 — multiplication 
 of laws, 112. 
 
 Leeman's Act, 310. 
 
 Letters to Customers, 184. 
 
 Letters to Head Office, 
 183. 
 
 Life Policies as a security, 
 108. 
 
 Limited Companies. Credit 
 of — Imperial Slab Co. — ana- 
 lysis of assets — uncalled ca- 
 pital — liquidation — guarantee 
 of directors, 26 — 30. 
 
 Liquidation of a Company, 
 28. 
 
 Loan Bills. Bowdler on Star- 
 key, T"] — renewals, 79 — un- 
 readable bills, 80 — customers' 
 acceptances to be watched — 
 promissory notes — currency 
 of bills, 81. 
 
 Local Bills Unmarketable, 
 
 85. 
 Local Shares as Cover, 102. 
 
 Lodgments on Country Ac- 
 counts, 141. 
 
 London Interest on De- 
 posits, 131. 
 
 Machinery as security, 115. 
 
 Manager. Branch, function 
 of, I — 4 — routine duties, 174 — 
 
 Manager in Chief. Office 
 
 of, 198. 
 Memorandum of Deposit, 98. 
 Mining Securities, 117. 
 Mortgage, equitable, 96 — short 
 
 form of, 98. 
 Mutual Benefit Bank, 193. 
 
 Naval and Military Offi- 
 cers as principals, 9 — as 
 sureties, 92. 
 
 Negociable Bills. Must be 
 payable in London, 85 — lo- 
 cally accepted bills not nego- 
 ciable, 85 — troublesome of 
 collection, 86. 
 
 New Bank for Oxborough, 193. 
 
 New Branches. Opening of, 
 282. 
 
 Nursing of Accounts. Dan- 
 gers of, 63, 231. 
 
 Opening of New Accounts, 
 
 15- 
 Opening of New Branches, 
 
 282. 
 
 Outlook, The Future, 302 — 
 
 314- 
 Overdrafts. See Overdrawn 
 
 Accounts. 
 
 Overdrawn Accounts. Pro- 
 fits of, 42 — financial objec- 
 tions, 43 — difficulty qf recall 
 43 — a lock-up of resources 
 — not always a gain to bor- 
 rower, 45 — case of Samuel 
 Titson, 45 — an injustice to 
 solvent traders, 49 — insolvent 
 trading, 50 — occasional over- 
 drafts, 52 — unscrupulous bor- 
 rowers, 53 — means of repay- 
 ment should invariably be 
 tangible, 53 — exceptional ac-
 
 Index. 
 
 319 
 
 Overdrawn Accounts — con. 
 counts, 54 — financial limits of 
 overdrafts, 55 — interest on, 
 138 — commission on, 145. 
 
 OVEREND & Co., 310. 
 
 Own Notes, 152. 
 
 OXBOROUGH Mutual Bene- 
 fit Bank, The, 193. 
 
 Panic. Rise and progress of, 
 305 — panics of the future, 
 309- 
 
 Personal Credit. As rest- 
 ing on hearsay — measure of 
 its value — annuitants as bor- 
 rowers — evidence of the Bank 
 Ledger — testimony of a bal- 
 ance-sheet, 6 — 13. 
 
 Personal Guarantee, 89. 
 
 Private Conduct of Offi- 
 cers, 177. 
 
 Professional Men as princi- 
 pals, 9 — as sureties, 92. 
 
 Profits of Banking, 266 — 
 minuteness of items, 274, 297. 
 
 Promissory Notes, 81. 
 
 Provision for Loss, 270. 
 
 Railway Stock as security, 
 98, 223. 
 
 Reading of Accounts. See 
 Accounts of Customers. 
 
 Recall of Advances, 57. 
 
 Re-discount of Bills, 218. 
 
 Renewals, 79. 
 
 Reserve Liability, 252 — 257, 
 261, 312. 
 
 Reserve, The. Financial, 206 — 
 reserve of 20 per cent., 207 — 
 reserve of one-third, 213 — 
 composition of reserve, 216 — 
 Consols the highest security, 
 217. 
 
 Responsibilities of Officers, 
 180. 
 
 Rest or Surplus Fund. 
 Based on extent of the Bank's 
 risks — its reduction impolitic 
 — sundry methods of partition 
 reviewed, 276 — 281. 
 
 Rights and Duties of 
 Shareholders. As co- 
 partners in the business — 
 mischievous questioning at ' 
 meetings — productive work 
 for shareholders — their duty 
 in time of panic — the suicidal 
 shareholder — a Bank failure, 
 293—301- 
 
 Risks of Banking, 249, 268. 
 
 Runs, 124, 294, 305, 309. 
 
 Safe Custody of documents, 
 
 99, lOI. 
 
 Salaries, 161. 
 
 Second Mortgages as cover, 
 no. 
 
 Secretary, duties of, 197. 
 
 Securities. General, 89 — 120. 
 
 Securities involving liabilitv, 
 116. 
 
 Securities, personal, 89 — 93. 
 
 Securities to bearer, 99 — 
 custody of, loi. 
 
 Shares of the Bank. De- 
 nomination of, 258. 
 
 Shares, local, 102 — subject to 
 calls, 116.
 
 320 
 
 Index. 
 
 Shareholders. Advances to 
 shareholders of hmited means 
 — result in a wind-up — choice 
 of new proprietors in hands 
 of Board, 227 — 230 — rights 
 and duties of shareholders, 
 293—301- 
 
 Shipping Securities, 103. 
 
 Small Accounts as compared 
 with large, 233. 
 
 Sub-Branches, 284. 
 Subscriptions and Charities, 
 
 171. 
 Sureties. Financial worth of, 
 
 90. 
 
 Title Deeds as security, 94. 
 
 Trade Bills. Cartridge on 
 Booker & Co., 68 — 76 — Bar- 
 good on Laxey & Co., 69 — 
 accounts to be watched, 71 — 
 a man should have only one 
 banker, 72, 247 — safety of 
 acceptors, 73 — safety of 
 
 Trade Bills — continued. 
 drawers and indorsers, 74 — 
 synopsis of a discount account, 
 74 — the discount of customers' 
 acceptances undesirable, 75 — 
 currency of bills, 81. See 
 also Bills of Exchange and 
 Negociable Bills. 
 
 Transfers in Blank, too — 
 at risk of borrowers, loi. 
 
 Uncovered Advances. Dan- 
 gers of, 32, 39. 
 
 Unreadable Transactions, 
 80. 
 
 Use of a Banker, 156. 
 
 Visits to Branches, 291. 
 
 Warrants, Advances on, 
 223.
 
 A NEW AND REVISED EDITION, WITH EIGURES 
 BROUGHT DOWN TO DATE OF 
 
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 A HISTORY OF THE VARIOUS ISSUES OF PAPER MONEY 
 BV J'HE GOVERNMENT OF THE UNITED STATES. 
 
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