That London can work on such a small basis of gold is due in the first place to the fact that the English system of a single centralized re serve is a more economical one than the sys tem prevailing in countries where centralization is less developed; secondly, to the smooth work ing and thorough organization of her banking system, and thirdly, to the excellent reputation of English credit among other nations, which enables her to attract gold from abroad with the least possible delay. But there is a growing feeling that there should he more gold held in reserve . in the country; not that bankers are thought to be working below the safety hut because the necessity for incessant vigilance results in unstable rates of interest with a con sequent derangement of the money market and an undue accentuation of the speculative ele ment in business generally. This feeling has been especially prominent since other countries have adopted a gold standard, and many schemes for an improvement of these conditions have been brought forward. The settlement of the question is rendered more difficult by the dual nature of the Bank of England reserve, which is at the same time a currency reserve and a banking reserve. It is felt that the re sponsibility of keeping the former belongs partly to the State; that of the latter to the banking community; and the adjustment of the responsibility has not proved easy.
Banking in Scotland and Ireland.— Both in Scotland and Ireland banking has ,dtveloped on slightly different lines from those of Eng lish banks. In Scotland especially the ab sence of any joint-stock monopoly like that of the Bank of England resulted in the early evolu tion of a type of powerful bank which crowded out the private banker. Consequently to-day there are only eight banks in Scotland, all with a large number of branches, and the establish ment of a new bank is practically impossible. The Scotch people were early in recognizing the advantages of a good banking system, and the use of credits" had an important effect upon the industrial development of the country. In Ireland, banking has had a stormier history, but similar results have been reached, and there are now only nine banks of any importance in the country. Both Scot land and Ireland differ from' England in en joying a circulation of fl bank notes, which have survived all attempts at extinction.
The note issues of the two countries are governed by Bank Acts passed in 1845, which bear a close resemblance to each other. All the banks in Scotland and six of the Irish .banks are banks of issue, and each is allowed to issue an amount equal to the average circulation during the year ending 1 May 1845, together with an amount equal to the amount of gold and silver coin held at the head office or prin cipal places of issue, the silver coin not to ex ceed one-fifth of the whole. The Treasury was given power, during the European War, to permit issues in excess of these limits The necessity for keeping coin against excess issues of notes brings the Scotch and Irish banks into close relation with the Bank of England. Neither the Scotch nor Irish banks clear their checks through the London Clearing House, but through the clearing houses of Edinburgh, Glasgow and Dublin, hence the connection be tween these banks and the Bank of England is not necessarily so direct as in the case of English banks. But there are certain recurrent
seasons of the year when an increase of the note issues always occurs in Scotland and Ire land, and this necessitates an increase in the stock of coin. As there is no central reserve of gold in Scotland and Ireland, this coin can only be obtained from the Bank of England, and therefore, at these seasons of the year, notably during what is called the autumn drain, the Bank of England reserve is always subject to a demand for coin from these coun tries, especially from Scotland.
Methods.— British banking meth ods are distinguished by prudence and caution. The immense amount of their deposits repay able on demand forbids English banks to em bark upon the general financial business which forms the principal function of some Con tinental bankers. English banks do not operate on the Stock Exchange except for purely in vestment purposes, and then only in what are termed °gilt edged" securities. Neither do banks directly interest themselves in the con trol or management of commercial or indus trial undertakings. Furthermore, the manage- • ment of the large banks is singularly free from political interference of all kinds. On the other hand, English bankers have allowed to slip from their control many branches of busi ness which belong legitimately to a banker. Much of the bill-discounting business is in the. hands of the bill broker, who is an expert mid dleman between the banker and his customer. Until the last few years the business of foreign exchange was left almost entirely in the hands of specialists, or of the br .nches of foreign banks established in London. Most of the large joint stock banks have, however, now opened foreign departments and are endeavouring to bring under their own control this branch of banking.
Attempts have been made to induce the Eng lish banks to undertake a more ((adventurous" type of banking, more akin to that prevalent over'the whole of the European continent, but English bankers consider it unsound banking, in view Of their large liabilities to pay on de mand, to share the direct trading risks of their customers. It has lately been suggested that a new type of bank should be founded to under take financial risks in support of trade which the existing type of bank decline, and that the characteristics of such new type should be that it should possess a large paid-up capital and that the acceptance of deposits repayable on demand should be restricted or forbidden. An institu tion of this type has been established under the title of the British-Italian Corporation with the object of promoting closer trading relations between Great Britain and Italy, and a com mittee of the Board of Trade, with Lord Far ingdon 'as its chairman, has recommended the establishment of a British trade bank with a capital of f10,000,000 which, without coming under government control, should receive as much official recognition as possible.