The statutes governing the Bank of France fix a maximum limit upon its issues, but this has always been high enough to give practical freedom to the management, which within the limit named is without restraint. The framers of the law governing the Reichsbank intro duced a novel feature, which has been since adopted in many countries, including the United States. This is a provision levying a tax upon issues in excess of a named amount, which is assumed to be sufficient for normal requirements. This is accompanied, however, by another provision, requiring that at all times a minimum reserve of 331A per cent against outstanding notes shall be maintained. The German tax upon excess issues is 5 per cent; in the United States, in applying the plan to the Federal Reserve banks, the tax is a pro gressive one, increasing as the percentage of reserve diminishes.
In all of the countries where the central banks are owned by private shareholders, the profits are divided with the Treasury or there are other compensations to the Treasury for the charter privileges.
Comsnercial Banks and Discount Houses. —In all countries the bulk of the banlcing busi ness with the public is transacted by what are commonly called “joint-stoce banks, although the distinction between these banks and the central banks is not in the fact that they are joint-stock corporations but in their more private character. In England there must be included in any study of the commercial credit system, the discount houses or bill brokers, and the accepting houses which are auxilianes of the banking system. These are specialists in credit, and intermediaries between the bor rowers and the banks, although the discount houses accept deposits and pay interest on them. They borrow largely from the banks, and their_ chief function is to specialize in the seve-ral lines of trade. By doing this, and en dorsing the paper they handle, they raise this paper to a higher grade of credit, which will command a lower rate of interest. In this difference between the rate which this paper would have to bear without their endorsement and the rate at which they place it with the banks, they find their compensation. The ac cepting houses perform a similar function in a different manner. It has long been the cus tom for the seller of goods to draw a draft on the buyer, payable at some date agreed upon in the future, which the buyer °accepts)) as soon as it is presented by writing the word ((accepted)) across its face and signing his name thereunder. The .draft when assigned by the drawer becomes two-name commercial paper, and is usually sold on the market. Evidently much depends upon the character of the names, and if the buyer is not well known he can afford to pay a commission to a house of high standing which will accept for him. This custom developed gradually, first within a trade where the houses knew each other, until it became a regular business. Back of these dis count houses and accepting houses are the joint-stock banks, which are usually in the market for high-class paper, and back of all is the Bank of England, which is under obliga tion to always buy paper at some rate. When the war broke out, and paralysis fell upon credit, so important was it deemed that the fluidity of bills should be maintained, that the government stepped into the situation and guaranteed the Bank of England against loss in the purchase of pre-war bills.
The joint-stock banks of Great Britain carry the current accounts of naerchants and manufacturers, although the Bank of England also does to some extent a general banking business. These banks lend to their customers aud buy bills in the open market. They also lend Ivor! collateral, and in recent years the practice has developed among them of accept ing bills for houses with whose affairs they are familiar. This shows how the functions of the banics, the discount houses and acceptance houses overlap and dovetail, and how sharp is the competition in the credit field.
The joint-stock banks of Great Britain are organized under the General Companies Act. There are no requirements as to reserves or regulating the character of the business. The
practices of the banks have been established by the lessons of experience and the teachings and writings of men recognized as authorities. It has become an accepted doctrine that bank investments must be of a temporary and liquid character, and that banks shall not take a proprietary interest in any business.
On the_Continent, as in England, the johit stock banks other than the central banks 'are organized under the general incorporation acts, and are quite free as to the character of busi ness they may do. There are no requirements as to reserves and, in most countnes, no gov ernmental inspection or supervision. The joint stock banIcs of Germany have developed their business on broader lines than perhaps any other corporate banking institutions, and with practically the freedom of private banldng houses. This has been due largely to the rapid development of German industry and over-seas trade since 1880, and the demands which have fallen upon the banks in connection with it. The need for capital to finance growing and profitable industries has been before their eyes, and they have gone further than British banlcs are accustomed to go in supplying capital which could not be readily withdrawn. In doing this they have considered it advisable, instead of restricting their interests to loans, to take at times proprietary interests, evidenced by stock and to be represented in the directorate of such companies. They have organized companies to take over private business, and reorganized companies to increase their capital, offenng the bonds and shares to the public over their counters, through their branches and upon the stocic exchanges. The stock exchanges are for the most part controlled by the banks, and most of the transactions are through the banks. The head of the leading German joint-stock bank stated to the Amencan Monetary Commission in 1908 that that bank had 50 members of the Berlin Stock Exchange to attend to its busi ness. All of this is different from banIcing in England, and, as to relations, with the stock exchange, from banking in the United States, but it is not so different as possibly at first sight appears from common banking practice in Amenca, so far as capital advances are con cerned. It is conunon, laiowledge that the banks of this country, particularly in the smaller towns, have had a large part of their assets in the form of loans which represent fixed in vestments. The country has been growing rapidly, every branch of industry has required more capital and the only source of supply has been the local credit institutions. As a result few American banks outside of the large cities would stand the theoretical test as to liquid conditions any better probably than the German joint-stock banks, and many of them not so well. The American banks, however, have been prevented by law from taking proprietary interests. The German policy cannot be com mended as a scientific policy, but, although there have been disasters from it, on the whole it probably has met the conditions existing in Germany, and promoted the development of industries more effectually than a more rigid system of banking would have done. The Ger man banks which have come through the ex perience have been managed with great ability, have prudently built up large capitals, and in years immediately they were in a condition as to liquid assets that was scarcely open to criticism. In an article writ ten for the National Monetary Commission in 1908, Herr Mueller, a director of the Dresden Bank, and who served upon the Imperial Com mission to consider a revision of the law regulating the Reichsbank, stated that in most of great German banks the principle was ad hered to of not allowing the total amount of tied-up assets, such as bank sites and other fixed investments and interests, to exceed the bank's own paid-up capital, plus the capital accumulations which in the United States are called surplus and undivided profits. The great capital of these banks permits them even then to have large fixed investments.