`BANK SHARES are not for the speculator in differences, nor are they for the small capitalist. The first class are met by an Act known as Leemans' Act, which requires the delivery of all bank shares sold on the Stock Exchange. The result is that a purchaser of such shares must take them up, and is unable to have them carried over from account to account, and to realise a profit in case of a rise without having actually paid for and taken delivery of them. So it is impossible to become a "bear" on such shares, unless the operator is in a position to deliver upon sale. • They are also of little value to the small capitalist as an investment, on account of the large liability generally attaching to them in respect of uncalled capital ; moreover, the directors of the bank whose shares are proposed to be trans ferred may exercise their right to refuse acceptance of the purchaser where he does not appear to be of appropriate financial position. Some persons who have a great faith in the bank at which they are customers, are often desirous of strengthening their connection therewith by becoming share holders. To these it should be pointed out that from the point of view of having a security readily available for borrowing purposes in case of need, such shares would be useless when tendered as a security to their own bank, for the reason that banks do not deal in, or lend money upon, their own shares. To the substantial capitalist, hank shares have deservedly a con siderable attraction. In face, however, of the increasing competition between the bank_ ,s it may be safely said that the already well-established banks have now reached the high water-mark in the matter of dividends ; but there still continues, and most probably will persist, a characteristic periodical fluctuation in the prices of their shares. This fluctuation results from the periodic changes in the state of trade. When trade is bad, the profits of a bank are proportionately small ; that is the time to purchase its shares, for the price is low. On the other hand, when trade is good, the profits increase
and the price of shares rises ; that is the time to sell. If we take the last ten years for a criterion, it will be found that the bank dividends steadily decreased from the first of those years to the fifth, and from the sixth as steadily increased to the tenth year, when the dividends all round were approximately the same as in the first year. If therefore the investor, instead of dealing on the strength of the short-period fluctuations, were to reserve his capital and attention for the cyclic fluctuation of the long period, his profits would probably be much larger; but, after all, life is short, and profits may be small if they are only quick.
But in the question of investment there always enters the necessary factor of the essential financial soundness of the bank in which the invest ment is proposed. It would be impossible here to go into details with regard to stability of every bank ; and to make a selection of one would appear invidious. It rests with us, therefore, as our only alternative, to direct attention to the balance-sheet of the bank in view. What are its liabilities, its investments and their nature, and its quickly available reserve ? This subject is considered in some detail in the article on BALANCE SHEET OF A BANK, to which the reader should refer. In the meanwhile it seems impossible to refrain from interjecting the opinion that most of the banks conduct their business on the smallest reserve possible, seemingly content to run all risk of an emergency, a run, or a crisis, and relying apparently upon the general assistance which might be given by the BAnk of England and the other banks, and upon the uncalled capital, which the investor would probably be sorry to have to part with under such circum stances. See also the various articles relating to banks and banking.