In the course of this book we have briefly surveyed the rise and development of the banking system of England. We have studied the establishment and growth of the Bank of England, the gradual elimination of the private banker, and the wonderful development of joint-stock banking, and we have noted the causes which led to London becoming the financial centre of the world, and also the various factors which constitute our Money Market.

From a weak beginning we have seen our system of finance develop into a mighty machine; but we have seen that, although it is mighty, it is a machine of very delicate construction, and that it needs the most careful attention on the part of those connected with its working. A breakdown in one of its parts may mean wreck for the whole concern, and bring with it, not only unparalleled individual distress, but actual danger of an acute form to the whole nation.

The weakest spot of our system arises from the custom of the cash reserves of the bankers being kept with the Bank of England, that is, the one-reserve system. The total deposits held by the banks of the kingdom may be roughly estimated at one thousand million pounds, and practically the whole of this vast sum is repayable in cash on demand. But banks conduct their business on the law of averages, assuming that the demands for cash will be met by the deposit of cash—that what is paid out to one set of customers will be paid in by another set; and, while keeping sufficient till money to tide over the variations of demand and supply from day to day, they maintain no other reserve of cash, beyond the balance at the Bank of England,—or with a London agent, through whom such balances are in effect passed on to the Bank of England. Thus the Bank of England is the reservoir from which all banks expect to be able to draw cash in time of need.

When we turn to the Bank Return, what cash do we find is retained to meet such a heavy contingent liability? In the figures of the “Return” given in chapter vii., the “Reserve” stands at about twenty-five million pounds only; and with regard to this Reserve, it must be remembered that the Bank is peculiarly open to foreign demands in addition to home demands. Such a reserve is slender, to say the least of it, and the strengthening of the “Reserve” to a figure more in keeping with our increased liabilities is, or should be, constantly before the authorities who have the control of our banks. This matter will have to be faced some day, and the longer action is delayed the more difficult will it become to grapple with it.

Various schemes for increasing our reserve have been put forward from time to time: one suggestion was that banks should retain a safety reserve of gold in their own keeping; another that a bankers’ bank should be established, to hold the reserves of other banks in place of the Bank of England; a third, that each bank should maintain a larger balance with the Bank of England, on the understanding that that institution should increase its reserve in respect of such increased balances. These schemes have each their advocates and opponents, but with each the result to the banks would be a loss of profit, for each would involve more money lying idle. This loss of profit is at the root of the whole difficulty.

This brings us to consider the question of competition among bankers, which at present is very keen, and which quite conceivably may lead to dangerous results unless kept within reasonable bounds.

The tendency of the time is towards the absorption of the smaller and weaker banks of the country by the large joint-stock banks. In itself, this is not an undesirable feature, in that it places the banking system, as a whole, on a sounder footing. Another feature is the establishment of branch offices throughout the length and breadth of the land. This gives facilities for capital to flow readily from one part of the country where it may be in excess, to another where it is in demand.

The joint-stock banks, however, are keen competitors among themselves, new branches being established wherever the possibility of securing new business exists, or where existing connections are threatened by the incursions of some other bank.

This multiplication of banking offices is of decided convenience to customers; it saves them the trouble of sending long distances to pay in, or to draw wages, etc.

In the race for business, however, rates are cut down to attract custom, and risks are perhaps undertaken which would not be entertained if competition were not so keen. These risks may not be large individually, but collectively they may amount to a large sum. They possibly tend to lock up resources in one class of security, which, as we have seen, is a source of danger. This is especially the case in new and growing districts, where much accommodation is asked for on the security of house property, and for the purpose of developing new estates. There is, in fact, a growing tendency at the present day to transfer to banks business which formerly went to building societies; and if this system is encouraged, it is likely to result in a large portion of a bank’s advances becoming of a fixed nature and unavailable in case of need.

Mr. F. E. Steele, in a lecture recently delivered to the students of the London Chamber of Commerce, called attention to another danger resulting from undue competition. He said:—

“There is another phase of competition which should be touched upon. This phase I do not remember to have seen specifically dealt with in treatises on banking. I refer to the growing tendency on the part of banks to ear-mark, for the benefit of particular depositors, securities which should form a free asset; a security to the general body of its depositors. You will find now in some balance sheets, either in the investment column or as a footnote, that a certain portion of the bank’s investments are held for public bodies, such as county councils, borough councils, corporations, etc. In order to secure the accounts of these bodies the banker hypothecates to them certain securities, such as Consols, which would otherwise be held for the benefit of its depositors in general. This tendency to tie up assets which should be free should be narrowly watched by the public, and carefully controlled by bankers. That it should be resorted to in some cases seems inevitable. It is done by some of the best and soundest banks. But it is a course which should be resorted to as little as possible.”

In conclusion, we will turn from the question of the Money Market itself to the army of individuals who spend their lives in the service of the various institutions forming the Money Market. By far the largest number of these individuals are connected with our various joint-stock and private banks. It is commonly thought that the life of a bank clerk is an easy one. Jerome K. Jerome, in his amusing book Three Men in a Boat, in referring to the occupation of his friend George, says, “He sleeps in a bank from nine till four, when they wake him up and put him outside.” Common ideas, however, are frequently not quite correct, and though certain members of the fraternity, who happen to be situated in country and suburban districts, do not suffer from overwork, yet as regards those connected with London and the large centres of industry, their life is an arduous one,—often tedious in its sameness,—the hours of work are not short, and the remuneration, although adequate, is not generally on the scale that some time ago was popularly believed to be the happy lot of the bank clerk. Still, one’s life is what he makes it, and the idea embodied in Napoleon’s saying—that every soldier carried in his knapsack a marshal’s bÂton—is equally true of the banking profession.

Every junior on entering the service of a bank has before him the prospect of ultimately rising to occupy a position of importance and respect, even to the position of general manager of his bank, if he so equips and conducts himself as to be fit for and worthy of such promotion.

The facilities and inducements to self-improvement placed before bank clerks of the present day are much greater than in bygone times. Many classes are held and lectures given dealing with banking subjects. Examinations are held, and many banks recognise and reward the success of their clerks at these tests of knowledge. Technical knowledge, however, is not everything; common sense, good judgment, tact, and a cool head are also necessary in order to become a successful banker or financier, but these qualities are of much more value when combined with sound and good technical knowledge.

Greatness is not thrust upon any bank clerk, but it is in the power of all, if they will, to achieve it, to a greater or less degree.