CONTINENTAL BANKING.
France.—With the exception of the Banque de France (q.v.) modern French banks virtually date from the years following the revolution of 1848. Thus the Comptoir National D'Escompte de Paris was founded in 1848, the Credit Lyonnais in 1863, and the Societe Generale in 1864. These and many other well-estab lished institutions are deposit banks in the ordinary sense of the word, but cheques are in far less use to-day in France than in England, and the bulk of business transactions are settled by bills of exchange which are ultimately paid at the acceptor's house in currency. It is probably true to say that banking ac counts are owned by far fewer people in France than in England, and a current examination of a French bank's balance-sheet shows that "bills discounted" outweighs "advances." Many French banks are far more closely connected with in dustry than is considered prudent in England. There are a whole number of "banques d'affaires," whose prime purpose is to finance industrial undertakings, even at the sacrifice of that liquidity which should be a banker's chief aim.
Notwithstanding the Franco-Prussian war and the following crisis of 1873, French banking seems to have suffered less shocks in the 19th century than did English banking. The inflation during and after the World War appears not to have involved the banks in any serious difficulty, though it must have occasioned many moments of anxiety.
Germany.—Like French banking, German banking dates from the years succeeding the revolution of 1848. Thus of the foul great "D" banks, so called from the initial letters of their names, the Deutsche Bank was founded in 187o, the Discontogesellschaft in 185r, the Dresdner Bank in 1872, and the Darmstadter and Na tional Bank in 1853. The establishment of these banks was im mediately prior to the union of Germany in 1870 and the era of German commercial prosperity and expansion. This probably accounts for the intimate relations between German banking and industry.
British and American banking practice is to grant loans to in dustry for temporary purposes, but to refrain from long-term financing or actual participation. Not that banking and trade are entirely divorced, for every British bank has several prominent industrialists upon its board. Yet liquidity is the guiding principle of banking in England.
The German principle is different. Before the World War, Ger man banks habitually had a proportion of their funds invested permanently in definite industrial concerns, and the chief duty of many bank directors was to exercise control, on the part of the bank, over virtually "subsidiary" manufacturing companies, and to seek out fresh channels in which the bank could employ its funds. This participation in industry had its good and its bad side. It brought a ready flow of capital into industry, but the banks sacrificed a good deal of their liquidity and so ran a greater risk of becoming insolvent.
Nevertheless, the practice worked, and even the war and the collapse of the mark did not destroy the leading German banks. This is not the place to give a detailed history of the inflation period, but one or two incidental results may properly be men tioned.
The inflation meant an enormous increase in the "paper" assets and liabilities of the banks, but a marked decrease in their "real" assets, measured in gold values. Dr. Schacht in his book The Stabilization of the Mark gives the following table, which inci dentally shews the relative pre-war importance of ordinary banks, savings banks and co-operative banks, each of which played their definite part in the economic life of the country.
The fact that the German banks were active participants in industry possibly saved them severe loss, for part of their assets were represented by factories and commodities which preserved them "real" value at a time when Government and other se curities fell in value to vanishing point. The above table bears out this suggestion.
The inflation also caused an enormous increase in the rapidity .of circulation of a currency which nobody dared to keep. This meant far more work for the banks, and a consequent increase in staffs. So long as they were measured in paper marks, profits easily kept pace with expenses, but when stabilization came, and the nation was faced with "real" values, the banks like everyone else found that the country had been stripped of liquid cash and working capital. Staffs had to be cut down, expenses reduced, and most important of all, credits obtained from abroad to enable the banks to provide industry with liquid funds. Dr. Schacht's book gives an illuminating picture of the situation that then ob tained.
The ratio between the old paper mark and the new gold mark was fixed at the astronomical figure of one billion to one. The banks recast their swollen balance-sheets in this proportion, and carried out all the superhuman readjustments of capital, expenses and so on, which the emergency demanded. Their extent is shewn in the following table, representing the Deutsche Bank, which is in itself sufficiently eloquent : As regards recovery since 1924, fair progress has been made, and thanks to temporary credits and long term loans from abroad, the stringency of credit is becoming abated. To quote but two examples, the banks' bill holding rose from 229 millions in 1924 to 406 in 1926, and loans from 473 millions to 1,o98. As regards the further progress of German banking, this must be left to the future.