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or money at short notice.” To do that would have been to force the brokers on to the Bank of England, and thus risk a panic of incalculable calamity. If such a calamity had come upon us, where was the remedy? A Chancellor's letter? And 5,800 bank offices as points of attack. I fear that a Chancellor's letter would have availed little. It is cash you want in time of crises, and Mr. Lidderdale summed it all up when he said, “ Keep more cash.” We are concerned with the growth, the development, the evolution of a system. The clearing system has the exquisite nicety of a masterpiece of mechanism, but it wants driving power, and the driving power is cash.
The consolidation of our banks into a few great institutions goes on.
There are ten English banks with more than 100 branches each ; they have nearly 1,100 branches among them. One small and powerful group of English banks (seven) holds over 240 millions of deposits. But in these quiet and prosperous times we may safely ask, Do each of the banks of the United Kingdom recognise that it is part of sound banking to keep unemployed a sufficient proportion of their deposits to ensure in their own strength their individual safety in times of difficulty, and also their ability to contribute to, and not take from, the general safety? I am aware that to keep reserves costs money, and it is no use insuring the day after the fire. Look at the figures-770 to 780 millions of liabilities, 52 millions of cash. Where is the reserve ? If we analysed the balance sheets of the banks individually, we should find varying conceptions of the proportion that should be kept as cash on hand. That shows the fallacy of an average, and the difficulty of bringing all the banks into line.
Some keep merely." cash on hand”-till-money; and some keep sufficient cash to enable them to bear their own burdens in times of stress. The group of London clearing bankers has a vast sum of country bankers' money at “call and short notice," and in that respect they no doubt regard their deposits as peculiarly liable to be withdrawn in any time of real stringency. But the London agency system as we knew it 20 years ago is changing. The London agent is giving place to the London office. The banker who was indirectly interested in the welfare of half a score of country correspondents and their branches, is now at the head of a huge establishment which has absorbed-amalgamated —the country correspondent, and he is directly and vitally concerned in maintaining the credit of his bank over a spider web system of branches that may extend over 200 towns. To
an imperial scale should be to accept imperial responsibilities.
It may be appropriate at this point to mention another factor of considerable gravity in discussing the question of bankers' reserves. And that is the no reserve policy of the savings banks. The Government take in from individuals deposits up to £50 a year, and allow 21 per cent. They invest the money at 24 per cent. nominal, in securities that are now at a premium, and consequently yield a return varying with the amount of the premium. On such a basis the system does not pay. If the system is intended for the benefit of the working classes, successive Chancellors have a singularly limited experience of life if they have brought themselves to believe that individually working people save £50 a year. Why do we need old age pensions if there is this general opulence ? Consols will not always be at a premium. They fall in times of public distress—when there is war-scarcity of employment, such as has been, and unhappily will be again, and at such a time it is reasonable to suppose that a people pinched by the evils of the day will take out more money in a twelvemonth than they can put in.
The savings banks fund under such conditions would not be solvent—although the depositors would be safe, and the loss on securities sold below par would fall on the general taxpayers. But where would the post-office authorities find cash if they wanted a few millions ? They don't keep cash, that is admitted ; therefore, any pressure on the savings banks would fall on the Bank of England (the centre of the nervous system of commerce) —and for this reason the Bank of England is the Government banker. The cash reserve of the Bank of England—the mainstay of credit-would then, and perhaps under deplorable circumstances, be subjected to a new and serious call. The facts should only need to be stated for their seriousness to be admitted. But what has been done so far? In this matter we do not want a politician but a statesman.
The foregoing considerations lead to the questions : (1), Do we need a larger central stock of gold ? (2), Where should the central stock of gold be kept ? (3), Do bankers generally keep a sufficient percentage of loose cash ?
In the first place—the English market is the free market for gold. All foreign liabilities—including the deposits of foreign Governments, and the obligations to foreign bankers-are payable in gold. In a sense London is the financial Rome of the civilised world. It is believed that here gold can be obtained ; hence it is.
the practice of foreign bankers" to hold in their portfolios great amounts of bills on London which give them the power to withdraw gold. The free market is the market from which it is natural to take gold when it is needed for shipment to meet a foreign loan-even if that loan be arranged in Paris or Berlin. But what happens if a few millions are wanted for export? The bank begins to take precautions-raises its rate. We get uneasy. In time of international disagreement it is quite possible, with our attenuated gold reserve, that a foreign Government might strike its most effective blow by aiming at our financial supremacy. The power to act on our few millions of gold might be acquired by an enemy able to deplete the bank and bring on a crisis. We are absolutely alone in the magnitude of our responsibilities, in the perfection of our credit system, in the success with which we have excluded coin, and notes based on coin, from our ordinary modes of payment, and also in our unpreparedness to meet in gold a reasonable proportion of the obligations we have undertaken.
Russia is a poor country relatively to England, but the Russian Government has collected an enormous mass of gold to ensure the convertibility of her notes, and to give her a war chest. The Austrian Government has got together many millions-Germany has the military chest of Spandau. The following figures illustrate my meaning :
GOLD AND SILVER IN STATE BANKS.
Poorer countries than England have collected gold - we can do so also, if we believe that we need it and are prepared to pay for it. The free market with the biggest liabilities-contracts actually made-has the smallest provision.
In 1890 the Bank of England borrowed from the Bank of France and thus calmed the crisis. Should we as
a matter of settled practice allow our financial solvency to depend on the chance of being able to borrow a few millions ? A continental combination to squeeze England, which included France, Germany and Russia would effectually veto a timely loan to prevent our crisis becoming panic. War is not merely the movement of armies or fleets, it may strike at credit. Should it not be a cardinal principle of our national finance that we keep a sufficient amount of gold—a central stock-bankers' reserves—to protect our international solvency, to ensure our financial supremacy, and the safe working of our banking system ?
We have no great State bank, such as the Bank of France, with branches all over the country. We have evolved a system of our own-an insular system, and we must accept the system we have and perfect it. As there is no one State bank, the responsibility becomes an individual and a collective one for all the banks. Should it not, therefore, be an axiom of English banking -possibly enforceable by legislation—that a given percentage of the deposit liabilities of each bank should be habitually kept unemployed and in actual cash, that is, in gold or Bank of England notes? This would apply not only to the great London and Provincial banks, but to all the banks. The great banks at the centre of finance might consider that it was desirable that they should individually keep a larger proportion of loose cash, because of the exceptional nature of some of their deposits, than would be needful in the case of purely country banks. Indeed a study of the balance sheets of some of the banks suggests that this view is taken. But this desirable state of affairs can only be brought about by common voluntary action of the banks, or by legislation.
Let me distinctly say that I am not advocating the holding of a fixed minimum proportion of deposit untouchable under any circumstances. If that plan had been followed, the Bank of England during some past crises in our financial history would have had to retain its cash reserve when it reached the legal minimum and thus have invited panic. I ask for the habitual retention of a given percentage of deposits in cash, that is, gold and bank-notes. On a former page we called the deposits of the English, Scottish, and Irish banks-exclusive of the Bank of England—780 millions. If I am approximately right in the estimate of 52 millions, then the banks on an average hold 7 per cent. of their liabilities in the form of Bank of England notes, coin and cash at the Bank of England. That is practical dependence on the Bank of England. 1 per cent. makes a difference of 8 millions. I have previously suggested 15 per cent. as the percentage of cash to deposit liabilities to be habitually kept unemployed—this would include till money, and that, beyond the till money, the cash kept on hand should be held in Bank of England notes. That course would give us a total of 117 millions.
Some banks already keep about 15 per cent. of cash unemployed, but that brings into clearer relief the deficiencies of some others.
Is it not desirable that all bank statements shall specify separately (i) cash on hand and at Bank of England, (ii) money at call and short notice? The periodical issue of returns in this form would bring some pressure to bear. I hope that it is probable that the Committee of London Bankers now sitting or about to sit will do something towards strengthening bankers' reserves. I am, indeed, not aware of the constitution of that Committee or of the proposals likely to be made by it, but it will, I presume, at all events for some purposes, include a representative of the Bank of England, and in that case the unrivalled tradition and experience of the Bank of England in dealing with crises and panics will be at the disposal of the members. The Bank of England always has been the agent of the Government, and an interchange of experiences and a harmonising of views would help to bring about practical results. Until bankers and the Bank of England get absolutely in touch and exchange confidences, it is hardly possible to settle to their mutual satisfaction whether or no the Bank of England gets too great an advantage from the possession of the clearing account, and the consequent holding of the clearing bankers' balances. I don't suggest that such a question will be raised—I don't know—but if it were raised and the clearing bankers withdrew their balances, they would have to set up a costly machinery of their own for the safe keeping of their ten or eleven millions which is now safeguarded by the Capital of the Bank of England, and they would, one would suppose, mutually insure the store of gold—if it were gold --or keep Bank of England notes to a given proportionate amount in common, and take care of them. The clearing balances must in any case be met. There is a certain amount of competition by the Bank of England now, tempered by the mutual relation that exists between her and the banking community, but that change, which has been suggested, would bring the Bank of England, perhaps, all over the country, as a competitor, on modern lines with an enormous capital, whose notes