In specific relation to his customer the banker occupies the position of debtor to creditor, holding money which the cus tomer may demand at any time in whole or in part by means of a check payable at sight on presentation during banking hours. For the refusal to cash a check from the erroneous supposition that he has no funds of his customer's in his hands, or for misleading statements re specting the position in which the bank stands, the banker is legally responsible. Moreover, the law regards him as bound to know his customer's signature, and the loss falls upon him in event of his cashing a forged check. In their rela tions to the community, the chief services rendered by banks are the following: By receiving deposits of money, and massing in sums efficient for extensive enterprises the smaller savings of individuals, they are the means of keeping fully and con stantly employed a large portion of the capital of the community which, but for their agency, would be unproductive; they are the means by which the surplus capital of one part of a country is trans ferred to another, where it may be ad vantageously employed in stimulating in dustry; they enable vast and numerous money transactions to be carried on with out the intervention of coin or notes at all, thus obviating trouble, risk, and ex pense. The mechanism bywhich the last of these benefits is secured is to be found in perfection in the clearing-house system.
History.—In the 12th century almost the whole trade of Europe was in the hands of the Italian cities, and it was in these that the need of bankers was first felt. The earliest possible bank, that of Venice, established in 1171, and existing down to the dissolution of the republic in 1797, was, for some time, a bank of deposit only, the government be ing responsible for the deposits, and the whole capital being in effect a public loan. The important Bank of Amster dam, taken by Adam Smith as a type of the older banks, was established in 1609, and owed its origin to the fluctua tion and uncertainty induced by the clipped and worn currency. The object of the institution (established under guarantee of the city) was to give a cer tain and unquestionable value to a bill on Amsterdam; and for this purpose the various coins were received in deposit at the bank at their real value in standard coin, less a small charge for recoinage and expense of management. For the amount deposited a credit was opened on the books of the bank, by the transfer .of which payments could be made, this so-called bank money being of uniform value as representing money at the mint standard. Banks of similar character were established at Nuremberg and other towns, the most important being the Bank of Hamburg, founded in 1619. In
England there was no corresponding in stitution, the London merchants being in the habit of lodging their money at the Mint in the Tower, until Charles I. ap propriated the whole of it (£200,000) in 1640. Thenceforth they lodged it with the goldsmiths, who began to do banking business in a small way, encouraging de posits by allowing interest (4d. a day) for their use, lending money for short periods, discounting bills, etc. The bank note was first invented and issued in 1690 by the Bank of Sweden, founded by Palmstruck in 1688.
Bank of England.—The Bank of Eng land, the most important banking estab lishment in the world, was projected by William Paterson. It was the first pub lic bank in the United Kingdom, and was chartered in 1694 by an act which, among other things, secured certain recompenses to such persons as should advance the sum of £1,500,000 toward carrying on the war against France. Subscribers to the loan became, under the act, stock holders, to the amount of their respective subscriptions, in the capital stock of a corporation, denominated the Governor and Company of the Bank of England. The company thus formed advanced to the government £1,200,000 at an interest of 8 per cent.—the government making an additional bonus or allowance to the bank of £4,000 annually for the manage ment of this loan (which, in fact, con stituted the capital of the bank), and for settling the interest and making trans fers, etc., among the various stockholders. This bank, like that of Venice, was thus originally an engine of the government, and not a mere commercial establishment. Its capital had been added to from time to time, the original capital of £1,200,000 having increased to £14,553,000, in 1816, since which no further augmentation has taken place. There exists besides, how ever, a variable "rest" of over £3,000,000. The issue department of the bank was established as distinct from the general banking department, the sole business in trusted to the former being the issue of notes. The bank is now permitted to issue notes against securities to the amount of £18,450,000, but for every note that the issue department may issue be yond this total an equivalent amount of coin or bullion must be paid into the coffers of the bank. The Bank of Eng land notes are, therefore, really equiva lent to, and at any time convertible into, gold. At the end of 1919 the total of notes issued was £108,748,000. Notes once issued by the bank and returned to it are not reissued but are destroyed— a system adopted in order to facilitate the keeping of an account of the numbers of the notes in circulation, and so pre vent forgery.