Lombard Street: A Description of the Money Market

nt Stoc

hrew out many pregnant hints on the difficulty of such undertakings-hints which even after so many years will well repay perusal. But joint stock banking has been an exception to this rule. F

ong run needs no capital; the premiums which are received ought to exceed the claims which accrue. In both cases, the capital is wanted to assure the public and to induce it to trust the concern. 2ndly. Those companies have answered which have an exclusive privilege which they have used with judgment, or which possibly was so very profitable as to

only securities which a banker, using money that he may be asked at short notice to repay, ought to touch, are those which are easily saleable and easily intelligible. If there is a difficulty or a doubt, the security should be declined. No business can of course be quite reduced to fixed rules. There must be occasional cases which no pre-conceived theory can define. But banking comes as

not be more than is necessary to secure that influence. Although, therefore, a banker deals only with the most sure securities, and with those which yield the

Scotland, and Ireland, being all in those countries of which we have sufficient information-the Bank of England excepted. There are no doubt others, but the

ompanies

er cent 15

d 20 per cent

per cent 3

per cent 36

er cent 3

---

40,3

s over 15 per cent, and 62 1/2 per cent of the capital pays more than 10 per

mall. Many banks-to some extent most banks-probably had in their books painful reminiscences of 1866. The fever of excitement which passed over the nation was strongest in the classes to whom banks lent most, and consequently the

ccumulated about 13,000,000 L., or nearly 1/3 rd of their capital, principally out of undivided profits. The d

ables banks to pay much, which without it would not have paid much. The amount of the profit is clearly proportional to the value of the "privileged opportunity." All the banks which pay above 20 per cent, save one, are banks more than 25 years old; all those which pay betwe

some have much for which they pay nothing. Those who give much to their customers have of course less left for their shareholders. Thus

al Di

cotland 1

en Company

ian 125

ale 900

nk of Scotlan

of Scotland

Scotland

of Scotland

Glasgow

ank 2,0

-

75,

e profits of the London and Westminster, or

ue than to the use of deposits. The first relations with the State were more like those of a finance company than of a bank, as we now think of banking. If the Bank had not made loans to the Government, which we should now think dubious, the Bank would not have existed, for the Government would never have permitted it. Not only is the capital of the Bank of England relatively greater, but the means of making profit in the Bank

chful of every transaction, much more than mercantile or trading business. It also requires immediate prompt decisions upon circumstances when they arise, in many cases a decision that does not admit of delay for consultation; it also requires a discretion to be exercised with reference to the special circumstances of each case. Joint stock banks being of course obliged to act through a

formed his judgment of the discretion, the sense, and the solvency of those to whom he lent. And when London was by comparison a small city, and when by comparison everyone stuck to his proper business, this practice might have been safe. But now that London is eno

o dangerous that he subjected it to grave and exceptional difficulty. Under the Act of 1845, which he proposed, no such companies could be founded except with shares of 100 L. with 50 L.; paid up on each; which effectually checked the progress of such banks, for few new ones were established for many years, or till that act had been repealed. But in this, as in many other cases, perhaps Sir R. Peel will be found to have been clear-sighted rather than far-sighted. He was afraid of certain joint

. They found a number of private bankers grouped round the Bank of England, and they added themselves to the group. Not only did they keep their reserve from the beginning at the Bank of England, but they did not keep so much reserve as they would have kept if there had been no Bank of England. For a long time this was hardly noticed. For many years questions of the 'currency,' particularly questions as to the Act of 1844, engrossed the attention of all who were occupied with these subjects. Even those who were most anxi

he credit of the country will present itself. The joint stock banks of London, judging by their published accounts, have deposits to the amount of 30,000,000 L. Their capital is

The joint stock banks now keep a main part of their reserve on deposit with the bill-brokers, or in good and convertible interest-bearing securities. From these they obtain a large income, and that

nd to remain there during the day, but who have very much time on their hands. A merchant employing solely or principally his own capital has often a great deal of leisure. He is obliged to be on the market, and to hear what is doing. Every day he has some business to transact, but his transactions can be but few. His capital can bear only a limited number of purchases; if he bought as much as would fill his time from day to day he would soon be ruined, for he could not pay for it. Accordingly, many excellent men of business a

anking, for it requires some special study even to comprehend the elements of a law which is full of technical words, and which can only be explained by narrating its history. But the banking of great cities is little concerned with loans on landed property. And all the rest of the knowledge requisite for a banker can easily be obtained by anyone who has the sort of mind which takes to it. No doubt there is a vast routine of work to be learned, and the manager of a large bank must have a great facility in t

is; it will be fortunate, and it must be well guided, if it should be found to be equal to so much. The discussion even of simple practical points by such a number of persons is a somewhat tedious affair. Many of them will wish to speak on every decision of moment, and some of them-some of the best of them perhaps-will only speak with difficulty and slowly. Very generally, several points will be started at

ant moments of their time, and the spare energies of their minds. They cannot give the Bank more; the rest is required for the safe conduct of their own affairs, and if they diverted it from these affairs they would be ruined. A few of them may have little other business, or they may have other partners in the business, on whose industry they can rely, and whose ju

wn to possess a fair amount of capital and be seen to be transacting a fair quantity of business. But the labour of such persons, I do not say their spare powers, but their principal energies, fetches a high price. Business is really a profession often requiring for its practice quite as much knowledge, and quite as much skill, as law and medicine; and requiring also the possession of money. A thorough man of business, employing a fair capital in

control of untold millions, sometimes we must expect to see it: the magnitude of the temptation will occasionally prevail over the feebleness of human nature. But error is far more formidable than fraud: the mistakes of a sanguine manager are, far more to be dreaded than the theft of a dishonest manager. Easy misconception is far more common than long-sighted deceit. And the losses to which an adventurous and plausible manager, in complete good faith, would readily commit a bank, are beyond comparison greater than any

ication with the manager that it will be impossible for him to engage in hazardous enterprises of dangerous magnitude without their knowing it and having an opportunity of forbidding it. In almost all cases they would forbid it; all committees are cautious, and a committee of careful men of business, picked from a large city, will usually err on the side of caution if it err at all. The daily attention

e depositor ought to be able to ascertain who really are the persons that dispose of his money; and still more a large shareholder ought not to rest till he knows who it is that makes engagements on his behalf, and who it is that may ruin him if they choose. The committee ought to be

be exactly those which would be much disapproved by directors present on the Wednesday. It is essential to the decisions of most business, and not least of the banking business, that they should be made constantly by the same persons; the chain of transactions must pass through the same minds. A

the greater London joint stock banks failed, there would be an instant suspicion of the whole system. One terra incognita being seen to be faulty, every other terra incognita would be suspected. If the real government of these banks had for years been known, and if the subsisting banks had been known not to be ruled by the bad mode of government which had ruined the bank that had fallen, then the ruin of that bank would not be hurtful. The other banks would be seen to be exempt from the cause which had destroyed it. But at present the ruin of one of these great b

as lessened the proportion of that reserve to those liabilities; we have seen that the greatest strain on the banking reserve is a 'panic.' Now, no cause is more capable of producing a panic, perhaps none is so capable, as the failure of a first-rate joint stock bank in London. Suc