In France there has not been the pressure for capital for industrial purposes which there has been in Germany, and the joint-stock banks or credit societies, as they are called, have con fined themselves closely to the financing of current trade. In other countries of Europe the practice varies, and everywhere there is almost complete freedom from legal restraints.
Investment and Mortgage Banks.— The Credit Mobilier, founded in France in 1852, was the original of a type of investment banks. It sold its own debentures or collateral bonds against holdings in its own possession of various securities which it was a master spirit m promoting. It had a successful career for a time,. but after about 15 years was forced into liquidation as the result of heavy losses. The type of the Credit Mobilier, the name of which signifies a mobilizing of credit, has been followed to some extent in many countries, but its mistakes have been a warning against the policy of using such an organization to pro mote new enterprises. The English investment companies issue their own debentures based upon securities which they have purchased, but their purchases are confined to the issues of established enterprises.
The mortgage banks of Europe are organ ized upon the above principle. The Credit Foncier, which has almost a monoply of the land mortgage business of France, is a semi public institution, the capital being supplied by private shareholders, although originally the government gave it a subsidy. The governor and two sub-governors are appointed by the government. It is allowed to receive a limited amount of deposits and these are invested in commercial bills, but its principal business is lending upon, mortgage, accepting either urban or rural estate as security. Against these mortgages in its own possession it issues bonds. These are issued in series without date for pay ment, but are called yearly as the amortization payments allow. They are called by a lottery and prizes are given with the drawings, the first prize being as much as 150,000 francs. This lottery feature is a factor in the distri bution of the bonds, and accounts for the low rate of interest, usually 3 per cent, which they bear.
In Germany there are about 40 mortgage banks which pursue a similar business but the bulk of their loans are upon urban property. These banks are required by law to deposit their mortgages with a state comptroller, who then gives permission for the issuance of bonds against them. These banks operate upon an exceedingly small margin, the difference be tween the rate received upon mortgages and the rate paid upon bonds being only about one fourth of 1 per cent.
Besides these joint-stock mortgage banks, there are the Landschaften, or mutual credit associations, which receive mortgages from their members and, holding them as security, issue their own bonds to the borrower which he may negotiate upon the investment market. This system was established by Frederick the Great in 1769, and originally designed for the benefit of the large estate-holders only, but it has been developed to include a branch for small properties, and also provide subsidiary companies which write insurance and grant temporary credits to members.
Mutual Banks and Co-operative Societies. - These are known in all the countries of Europe, but are most highly developed in Ger many, where they are the common source of banking accommodations for small tradesmen and farmers. The Schulze-Delitzsch societies, so called for the founder and the town in which the first one was established, constitute the leading system. They receive deposits and pay interest upon them, and make short loans upon the promissory notes of members. They extend personal credit only•to members but they may receive deposits from others and employ their surplus funds outside the membership. At their inception they were purely mutual societies with unlimited liability for the members, the theory of their organization being similar to that of the mutual insurance societies, or orders, now prevalent in many countries. The unlimited liability of all members helped them to get deposits, but was a deterrent to member ship for those who did not want to borrow. Later, societies were organized which issued shares and in which the liability of shareholders was limited in various degrees. It might be double the par value of the stock, or greater, as determined by each society for itself. The so cieties are independent in their management, but have an association and a central clearing agency. The Schulze-Delitzsch societies do practically a commercial banking business. The Raiffeisen societies are upon much the same plan, and lend money upon several years' time, but the membership is chiefly among farmers. There is a central bank in Berlin for these societies, to which the state of Prussia has sub scribed a capital of 50,000,000 marks. It is strictly a state institution. There are similar societies in other states of Germany. The total membership within the empire is nearly 2, 000,000; paid-in capital and surplus funds, ap proximately 350,000,000 marks; deposits, about 2,335,000,000 marks. The Schulze-Delitzsch and Raiffeisen systems have an extensive de velopment in Austria.