FOOTNOTES:

FOOTNOTES:[158]Adapted from Hartley Withers,The English Banking System. Publication of The National Monetary Commission, Senate Document No. 492, 61st Congress,2nd Session, pp. 41-50.[159](September, 1915).[160]Adapted fromInterviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland and Italy, Publications of the National Monetary Commission, Senate Document No. 405. 61st Congress,2nd Session, pp. 142-155.[161]Ibid., pp. 127-139.[162]Ibid., pp. 172-185.[163]The cash credit system, sometimes pointed to as a unique feature of Scotch banking, is by no means unknown in England.—Editor.[164]Ibid., pp. 157-170.

[158]Adapted from Hartley Withers,The English Banking System. Publication of The National Monetary Commission, Senate Document No. 492, 61st Congress,2nd Session, pp. 41-50.

[159](September, 1915).

[160]Adapted fromInterviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland and Italy, Publications of the National Monetary Commission, Senate Document No. 405. 61st Congress,2nd Session, pp. 142-155.

[161]Ibid., pp. 127-139.

[162]Ibid., pp. 172-185.

[163]The cash credit system, sometimes pointed to as a unique feature of Scotch banking, is by no means unknown in England.—Editor.

[164]Ibid., pp. 157-170.

[165]The Bank of France was established in the year 1800, and was at first an entirely private concern, with a capital of $6,000,000. Among the first subscribers were Napoleon Bonaparte, Hortense Beauharnais, and bearers of names which are still prominent in the French banking world, such as Mallet, Hottinguer, Seillers, etc.

At that time, the privilege of issuing notes was not confined to a single bank. But in 1806 the Bank of France was placed under state control, and, by and by, the other issuing banks disappeared, by amalgamation or otherwise, and the Bank of France became, and has ever remained since, the only issuing bank in Continental France.

The present capital is $36,500,000, all paid, divided in $200 shares.... [Francs are given in terms of dollars.]

These shares are held by the public, the average being about 5-1/2 shares for each shareholder. One-third of the shares are held by persons possessing only one share. They are dealt in freely in the market, their quotation being at present about 465 per cent.

The profits go to the shareholders, as in every other company. In 1912 the bank earned a net profit of $8,200,000. The last yearly dividend was paid at the rate of 20.83 per cent....

The governor of the Bank of France and the two sub-governors are appointed by the State. They are assisted by fifteen regents, nominated by the meeting of the shareholders. The same meeting appoints three censors whom you would call auditors.

The board, composed of the governors and regents, decides all questions concerning the rate of discount on loans, the issue of notes, etc.

Three of the regents, assisted by twelve shareholders chosen from amongst the prominent members of the commercial and industrial profession, compose the "discount committee," which meets at least three times a week and decides upon the acceptance or refusal of the bills presented for discount....

The notes are ... legal tender, but, of course, may be exchanged, at sight, against cash—I don't say against gold, as I will explain presently.

The denominations circulating at present are $10, $20, $100, and $200. One dollar and $4 notes were issued at critical times, but have been withdrawn since. In case of need, they would be resorted to again, and in this respect I should like to mention the fact, demonstrated by experience, that even where the circulation is already sufficient, a supplementary issue of small notes—unless, of course, the amount be too unreasonable—is much less likely to depreciate the currency than an issue of larger ones. In a certain sense, we may consider that a country which refrains from issuing small notes in normal times, possessesipso factoa valuable reserve in case of emergency....

I need not recall the remarkable rôle played by the Bank of France, under the leadership of its very distinguished governor, M. Pallain, during critical periods such as 1907, when that institution succeeded in keeping the French discount rate on an exceptionally moderate level, while giving valuable and effective aid, at the same time, to the London market.

How is this successful policy of the Bank of France materially possible? Precisely because it has the option to pay in silver as well as in gold. When the situation is such that withdrawals of yellow metal are to be feared, the bank quotes a premium on gold. At present, for instance, the quotation is about one-tenth of one per cent. premium, that is to say, you will only get $999 in gold against $1,000 in notes. If you want to get $1,000 cash, you can get them, but in silver.

As a consequence, there is no necessity to raise the discount rate in order to protect the gold reserve, and French commercehas the privilege of benefiting, as a rule, by the lowest rate of discount in the world. Thus the average bank rate, in 1912, was 3.37 per cent. in France, as against 3.77 per cent. in England, and 4.95 per cent. in Germany.

If we consider a period of fifteen years, from 1898 to 1912, the average rates are:

per cent.France3.8Holland3.52England3.62Belgium3.65Switzerland4.14Austria4.22Germany4.50

[166]The undeniable characteristic of our present currency system is that it presents a transition between the money system and the clearing system, the ultimate form of which we are unable accurately to define. This period of transition, which began when the idea of genuine credit was conceived, will last for centuries before we can rid ourselves of money as a medium. The system of purely fiduciary currency, which is in process of becoming firmly established, is not yet sufficiently stable to prevent us from being thrust rudely back into the old ways whenever we exceed the limits of our resources.

Crises afford a striking proof of this fact. The initial period, the precursor of the crisis, is nothing but an abnormal extension of credit and of speculation. At such times the need of leaning upon the solid foundation of metallic currency is felt with a new intensity; and when, with a blindness resulting from overconfidence, this need has been neglected, when, from a disregard of the functions of money, a crisis is brought about by the violent rupture of the equilibrium of credit, gold at once resumes its rights, is sought for on all sides, and, according to the seriousness of the offence, exacts complete amends, with the honors of a premium as high as it may choose to make.

It clearly appears, therefore, that this quest for simplification in the means of credit, which each nation ardently pursues in the interest of its own industrial and commercial development, demands the greatest circumspection. In developing credit, metallic currency must not be too much overlooked. We must not lose sight of the fact that "credit, in order to be solid and permanent, must have a solid and permanent foundation."

The first care of the architect who is about to erect a great building is to secure for it a broad and firm foundation. Likewise, in the vast and continuous upbuilding of a nation's credit, the metallic base requires the most attentive and enlightened consideration. To provide for it, the entire resources of the State are not too great. It is difficult to understand how, in certain countries, an undertaking of such universal interest should be left to private enterprise. How can the latter be powerful enough to accumulate holdings in currency which may have to remain idle for long periods, and which can unflinchingly resist all assaults and all storms?

In France a system which has already passed the hundred-year mark and has been particularly fortunate as to results, intrusts the Bank of France with the duty of building up and preserving the metal holdings, and this great organisation shows itself fully worthy of the confidence which the Government has always reposed in it. During its long career the bank has never ceased to control credit with rare foresight and a remarkably steady hand.

From 1870 up to the present time the cash holdings of the Bank of France have not ceased to grow. But the bank, of its own volition, could not have made such an accumulation. The exchanges are usually in our favor, owing to our position as lenders to foreign countries and to the extent of our exports, and this for many years past has resulted in the continual flowing of the precious metal into the vaults of the Bank of France.

In thirty-five years the amount of our metallic reserves has increased almost threefold. And it is worthy of note that while the amount of circulation increases together with that of discounts, loans, and current accounts, the fact is neverthelessestablished that the bank note tends to be more and more exclusively represented by cash holdings. The silver holdings are continually diminishing, while the total holdings have increased. Indeed, the Bank of France avails itself of every opportunity to relieve its coffers of this depreciated currency. Since 1898 a considerable portion of the holdings have been absorbed by the recoinage of a certain number of 5-franc pieces into subsidiary coins.

We purpose now to investigate the organs of French credit, and to assign to each of these organs its function, in order then to ascertain what operations the Bank of France can perform and within what limitations. We have therefore to examine (1) the function of local banks and of financial institutions; (2) in what manner the Bank of France promotes the free distribution of credit; (3) in what measure the bank must control credit.

The natural organs for the distribution of credit are the banks, but not all are able to spread it or popularise it in the same degree. Thus the "Haute Banque" (the great banking interests of Paris), solely engaged in operations of higher speculation or in international financial relations, does not interest us. The function of distribution is reserved for the local banks and the financial institutions, while the function of the Bank of France is to preside over this distribution.

Local banks, pre-eminent less than one hundred years ago, have gradually seen their field of activity growing smaller, and a large number of them have been amalgamated with great institutions, possessed of much greater resources, with branches over the entire country, and, it must be said, free from the routine which caused the downfall of many provincial houses. With their decline we greatly regret to see the disappearance of personal credit, which it is more and more difficult to make available. Theintuitus personae(the judgmentof character), which may serve as a basis for credit granted to a neighbor by a neighbor, can not be considered by a corporation official who has almost no means of estimating the solvency of individuals except from the material and tangible side.

The local banks, as far as they have survived, have adopted methods which do not bring them into competition with their powerful rivals. They have been obliged to grant long-term credits or content themselves with being intermediaries for the Bank of France in granting credits to parties known to them, generally farmers or small landed proprietors, with a view to rediscounting the paper. On this point again there is cause to regret, if not their disappearance, at least their effacement. The institutions for agricultural credit, in spite of all the attention they have received, have not yet been able to replace the local banks in the distribution of personal credit applied to agriculture.

The great financial institutions, of which the four most important are the Crédit Lyonnais, the Comptoir National d'Escompte de Paris, the Société Générale, and the Crédit Industriel et Commercial, have a much more important part in the distribution of credit. Thanks to their numerous agencies, to their attractive conduct of business, with the service of a courteous and attentive staff, they have gradually taught the people new habits in investment and confidence in credit, to such a degree that he who but yesterday hoarded in a stocking prefers to-day, if not to speculate on the Bourse, at least to make deposits in the savings banks. The great financial institutions have done much to give even the lowest classes confidence in credit, and to introduce a system of clearing.

In closer contact with the public than the Bank of France, which is restricted by having to protect the reserve of which we have spoken, these institutions are able more readily and effectually to reach and to mould the public. But that is not their only service nor the only reason for their existence. There are transactions which they alone undertake, which they alone can undertake, and which must be performed because they are in the line of progress. These operations are sources of profit in the same way as are discounts and loans for theBank of France. Such are demand deposits, stock-market orders, and the flotation of securities. These operations cannot be undertaken by the local banks. Occupied for the most part with long-term dealings, they have no use for deposits payable on demand. If they should have such deposits, their total would never reach a sufficient proportion safely to permit the investing of an important amount.

On the other hand, the Bank of France does not and, even if it wished, cannot compete with the financial institutions in undertaking such operations. Neither the acceptance of interest-paying deposits nor the flotation of securities can come within the province of a bank of issue. The flotation of securities necessitates a certain contingent responsibility, and the institutions which place securities on the market sometimes engage their credit for very large sums, which are sufficiently guaranteed by their capital, but the credit which is intended to safeguard the stability of the bank note cannot be pledged for that purpose.

It happens that the Bank of France sometimes transmits subscriptions, but this is a gratuitous and entirely voluntary service. In no case can the bank take for its own account bundles of securities in order to dispose of them to the public. The purchase and sale of securities, which is so profitable a business in all financial institutions, could never, it is clear, be a successful undertaking in the Bank of France. The staff of the bank has no special information as to the various securities dealt in on the Bourse, and cannot, therefore, give valuable advice. Its rôle would apparently be confined to handing out the financial journals and passively awaiting orders. If it should act otherwise, the staff would engage the moral responsibility of the Bank of France; but the bank, evidently reluctant to undertake such operations, prefers to leave that field to its auxiliaries, the financial institutions.

However, at the present time, the Bank of France tends to compete with these institutions for the purpose of maintaining sound conditions of credit which inclines more and more to speculation. Thus it is extending its department for the purchase and sale of securities in order to safeguard apoorly informed public against the excesses of speculation which dazzle with the hope of an always illusive gain.

Thus the Bank of France must leave entire freedom of action to the financial institutions and must not encroach, theoretically at least, on their functions, which, as has been shown, differ materially from its own. The bank even owes them its protection, since they are valuable auxiliaries in pursuing its aim of extending credit as liberally as our metallic base permits. In the interest of the public the cash holdings are daily at their disposal. The help and protection of which we speak are not mere passive professions. Unfortunately, there have already been numerous cases where the bank has had to interfere in order to bring effective assistance to private banks. The bank has, of course, acted thus for the welfare of the entire community, but also for the satisfaction of protecting its auxiliaries with all its power in the fulfilment of a difficult task.

Let us recall the failure of the Société des Dépôts et Comptes Courants, in the beginning of 1891.

"The Bank of France, after exacting such security as the concern could still offer and, furthermore, the guaranty of several large banking institutions, for the purpose of limiting possible losses, authorised discounts to the amount of 49,228,206.87 francs. Thanks to this assistance, all deposits were paid off, and the dreaded effects of a panic were once more averted."[167]However, in spite of the precautions that had been taken, the liquidation was slow.

Whenever the financial institutions have found themselves in need of effective pecuniary assistance, the Bank of France has regarded it a duty to help them, and in normal times, by assisting them with its resources, it facilitates liberal credits.

It may happen that the great financial institutions expand too rapidly or unwisely this or that branch of credit. Mindful, above all, of their own interest, which is but natural, they have no especial regard for the public welfare, their only aim being to make their capital bear fruit and to pay large dividends to their shareholders.

The Bank of France aspires to a nobler ideal, and many of its policies are primarily for the public good. The development of credit is an extremely delicate matter; there are many instances where the application of this agency has led to great catastrophes. It is undoubtedly impossible to exercise a strict supervision over the financial institutions; any such measure would soon appear vexatious and would be, moreover, contrary to our spirit of liberty and independence. But we can quite justly ask whether these concerns are fully sheltered against disasters; whether nothing can happen to them of a nature to shake their credit; and in such a contingency what should be the attitude of the Bank of France.

The preceding instance, and others that might be referred to, inform us sufficiently as to the possibility of failures. The house of Baring Bros., the Union Générale, and others enjoyed an immense credit, thought to be unshakable, and the events of a day flatly contradicted that opinion.

In the course of the discussion concerning the last renewal of the charter of the Bank of France, much was said as to the possibility of allowing a certain interest to depositors in the bank.... M. Burdeau[168]has shown that it is impossible for the Bank of France to become a bank of deposit. The issue of bank notes and the receipt of interest-bearing deposits are absolutely incompatible services. Their union in a single hand "would replace the present organization by an entirely new one, which, in case of a crisis, would offer much less vitality and power of resistance." For us it is sufficient to know that the payment to depositors of 1 per cent. on deposits subject to check would attract to the bank nearly all inactive funds, and that a sum in the neighbourhood of 1,000,000,000 francs would leave the private banks. This would be their death-blow—a result which we are unwilling to contemplate.

By their very nature the financial institutions are liable to weakness, and for the public good there must be some means of supporting them. For this reason the Bank of France, which presides over the distribution of credit, can permit the expansion of its auxiliaries only up to the point where its help would suffice to prevent the collapse of the market. Such a measure appears imperative in a country where the protecting wisdom of the Bank of France has always been relied upon. Fortunate land, fortunate institution, which excites the envy of foreigners, especially of England, where the least failure may result in disastrous consequences.

Thus the banks of deposit have contributed to progress by gathering and giving life to sums previously lying scattered and idle. They are valuable auxiliaries in the distribution of credit. For this reason they deserve help and protection. The bank, the mission of which is of a wider and loftier scope,[169]has shown on many occasions that its helpfulness is not a pretence; daily, in fact, it assists them by rediscounting their bills. The prosperity of the financial institutions has continually increased. It is associated with the confidence and growing security of our times.[170]But the bank must be ready to meet even improbable contingencies in order to be in a position to recapture the market with a sure hand as soon as danger threatens it.

Under these circumstances, what can the bank do? In the first place, it can utilise its powerful reserve which has been accumulated for this purpose. It can, in the next place, curbthe action of the banks by competing with them when they appear to enter upon a dangerous course, and by showing them what steps to take.[171]

On the other hand, there is a whole series of operations which private banks do not undertake, or do not tend to develop as they deserve. Directed by self-interest toward the more profitable transactions, they somewhat neglect the others. The Bank of France finds no one engaged in these less remunerative operations, and is, moreover, the better able to undertake them itself, because they are not incompatible with the duties of a bank of issue.

Foremost, perhaps, among these operations is the popularising of credit by means of an ever increasing number of small loans, frequently accepting as pledge securities such as State rentes, bonds of the Crédit Foncier, of cities, railroads, and industrials. An enormous transfer business is also carried on for both banks and the public at very low cost. Moreover, the bank clears large sums, annually relieving the clearing house of this burden.

The small business man, much more than the small rentier, reaps continually greater benefit from the advantages offered to the public by the Bank of France. We shall here simply call to mind the dates of some innovations favorable to the democratisation of credit.

January 15, 1824.—Creation of transfer drafts.

April 29, 1824.—Creation of transferable certificates of deposit.

January 13, 1830.—Reduction of interest on loans against bars and coin from 4 per cent. to 1 per cent.

1834.—Loans against rentes and public securities.

1837.—Daily discounting of paper except on holidays.

Law of June 30, 1840, article 2.—Option of replacing the third signature, exacted for discount, by deposit of any French public securities.

Decree of March 26, 1848.—Similar option of replacing by warehouse receipts.

Law of November 17, 1897.—Admission of bills for discount carrying the signature of an agricultural syndicate. The minimum for bills discounted is reduced to 5 francs.

There is here a whole series of measures, which, with the assurance of a cordial welcome, should induce the small business man to trade with the bank.

The bank accepts large quantities of small paper with small signatures, and it finds itself, accordingly, in normal times deprived of first-rate paper, of that which is as good as gold in international commerce. Gilt-edged paper always finds its market at lower rates than in the bank, and M. d'Eichthal, a regent of the bank, wrote as far back as fifty years ago: "Whatever may be the discount rate, among the bills discounted there will be found but few with the signatures of the Rothschilds, the Hottinguers, and other houses of the same rank. Those are delicacies which always command a premium."[172]...

The bank has always resolutely undertaken to carry through a whole series of operations which could not show great profit; above all, it has unremittingly aimed to be of service to the greatest number. The number of bills discounted grows continuously, while the total amounts, smaller during the most prosperous periods, invariably increase in periods of tight money. The average amount and term of bills is 600 francs for twenty days. This result would be considerably modified, if we were to take into account the bills handed in for collection only, the average value of which hardly exceeds 200 to 250 francs.

With its growth in extent the bank has not only developed its services to meet new business needs, by providing an increased staff, and larger, more attractive, and better conducted offices, but it has also endeavored to reach a more and more widely extended territory. Indeed, the mere fact that thebank has entered a place, if only to make collections there, gives a favorable turn to credit conditions; credit becomes cheaper, in that the basis for money rates becomes the official discount rate, because the financial institutions have then a more economical method of replenishing their cash. The smallest provincial town where the bank has entered is, therefore, in regard to low money rates, as favored as Paris.

Exchange between cities, particularly when joined with a special commission, reaches sometimes a considerable sum. As soon as the bank opens its branch, exchange is no longer possible. Therefore, whenever the charter of the bank has been renewed, the legislator, in response to the wishes of the public, has wisely required new territorial expansion of the bank. If the bank has not always taken the initiative in this mode of expansion, it is because it has been restrained by several motives. In the first place, the opening of new offices entails considerable expense. It is necessary to count upon several years of deficit, during which the running expenses, including salaries of staff, are just as high as if the profits were large. We could name several cities which for years have shown constant deficits. It can therefore be understood that the Bank of France, which is already established in the 200 towns most important from a commercial standpoint, and which, by means of its collecting department, touches 265 towns of less importance, extends its service only with caution to new localities, since each new branch must necessarily produce a larger and more persistent deficit. Thus territorial expansion is for the bank an ever-increasing burden; it is equivalent to an additional tax imposed by the legislature at every renewal of the charter. The bank submits to this with good grace for the benefit of the public.

In the second place, there is a limit to that expansion. Where the bank has no branches, the financial institutions may take root and develop among a population which appreciates their services. Their profits come largely, it appears, from small towns, where competition is less keen. We have already said enough concerning the service of these institutions in the development of French credit to show the danger of inflicting upon them fresh injury. On whatever side the bank desiresto expand it finds this limit. If the bank encroaches a little on all sides, the result may be very appreciable.

The territorial expansion is further perceptibly increased by what is known in the bank as the exterior accounts. This system, of quite recent origin, allows any person not residing in the town where the branch is established to enjoy the same privileges as residents. Business may be transacted by mail with the aid of certain accounting forms, which often differ from those used for ordinary accounts. Each transaction is the subject of a special report, addressed to the customer by the branch. Not only is the transaction itself reported, but useful information as to the position of the account is also given, thus permitting the customer to follow the movement of the account until the half-yearly statement is sent.

This department is highly esteemed by the suburban public, and renders many services to landed proprietors and to farmers, especially in the cattle-raising trade.

Thus the direct expansion, which, as has been seen, meets with serious obstacles, is assisted by this indirect expansion.[173]

Evidently we are far from realising the attractive dream of a France no longer deprived in part of banking facilities, but with all bills taken at par because the bank would reach everywhere. But for the sake of this end, no doubt desirable in itself, is it worth while to go to extremes for a scarcely perceptible advantage, to disturb an institution in other respects strong and useful, and thus perhaps to risk disorganising the general credit system of France? On the contrary, we should be content with and even congratulate ourselves upon a progress which leads us, slowly perhaps, but surely, toward the realisation of credit on low terms everywhere and for all.

"There is no such thing as agricultural credit; there is only credit," said M. Dupin in 1845.[174]Matters have not changedsince. It is certain, for instance, that Scotland, which for a long time was the classical land of pauperism, owes its prosperity to the banks, which, by developing credit in favor of agriculture, have entirely transformed the soil and the country. Indeed, more than any other, the Scotch farmer needed credit, and more than any other he has benefited by it. It may be said that personal credit is peculiar to agriculture. Thus it suffered as a result of the evolution already mentioned, which, by causing the disappearance of local banks or by giving them a new direction, struck a fatal blow to personal credit.

We know that "agricultural credit" includes loans from seed-time to harvest. The first labor done, the first loan made to the land can only be repaid much later. The average time necessary for agricultural loans is five or six months at least. Now, for other reasons the by-laws of the bank prohibit the discounting of paper having more than ninety days to run. By a special favor which would not be accorded in business, where each loan has a different object, the bank allows the renewals necessary for agricultural loans, which almost exclusively take the form of bills payable to order. The bill returned to the maker on the day of maturity is renewed the following day. The date of maturity alone is changed.

A very important agricultural industry, which we have already mentioned, is that of cattle-raising. The cattlemen are, for the most part, customers of the bank wherever it has a branch. This customer of a somewhat special kind appears, by the very nature of his trade, to be indicated as a suitable client for the bank and not for the financial institutions. The bank permits the cattlemen to indorse each other's paper, and thus can accommodate them without intermediaries. There results a very useful co-operation. Moreover, by using the bank the cattlemen effect great savings, the full value of which they alone can estimate.

After the law of July 18, 1898, and the legislation that followed, it might have been expected that the use of agricultural warehouse receipts would be greatly extended. This legislation makes a serious exception to the common law for thebenefit of agriculture. It "constitutes the landowner, so to speak, a public warehouse. It is he who, without any other controlling appraisement, makes declaration as to quantity and commercial value to the clerk of the justice of the peace. In short, the agriculturist enjoys a confidence which so far has been denied to industry and commerce." Notwithstanding this favor, the agricultural warehouse receipts are little used,[175]and the bank, despite its willingness to take them freely, regrets to find them among its discounts in such very small number.

Our survey would not be complete should we fail to say a word concerning the agricultural credit associations, of which also much was expected and which have only in a very limited measure fulfilled the high hopes of their founders.[176]

For the support of agricultural credit the State draws from two sources the funds required to supply the organs of distribution, the local and regional associations. The first source is the loan of 40,000,000 francs made by the bank on November 17, 1897, when the charter was renewed. This amount, like the 140,000,000 francs already advanced in 1857 and 1878, bears no interest. The second source is the yearly payment made by the Bank of France on the profit-yielding circulation. This payment cannot be less than 2,000,000 francs yearly, and more often it is in the neighborhood of 5,000,000 francs.

All these sums, intended for agriculture, are distributed by the Government, and are used in endowing the associations of agricultural credit. The regional associations, which are the pivot of the present organisation, are self-governing societies, with a capital of their own. This capital, added to the advance made by the State, is invested in first-class securities,which are then deposited in the Bank of France, as discount guarantee to take the place of the third signature, if need be. The local offices send their paper to the regional office, which then takes it to the bank, as the needs of funds are felt.

Such is the part of the Bank of France in the distribution of agricultural credit. Effective intervention was obviously very difficult, yet the bank has contrived, even beyond its legal obligations, to give the benefit of its credit to agriculture, which so justly deserves the care it is receiving.

Q. Is the Bank of France ever attacked in the controversies between political parties?

A. No charge has ever been made that the bank favored or aided any political party. There is never any claim that politics enters in any degree into the management of the bank.

Q. Is the capital entirely private property?

A. Yes. All the shares are divided between 30,000 shareholders, of whom about 10,000 have not more than one share.

Q. How are your branches managed?

A. All branches are managed by a manager, assisted by a local board of directors, selected from among the best qualified commercial, industrial, and agricultural representatives in the region.

Q. Do the branches have business relations with the merchants, farmers, and all classes of people of the locality?

A. Yes, they are open to everybody.

Q. You have, I suppose, in the branches regular clients who have an account with you?

A. Yes, and a considerable number of them.

Q. Do your branches do the same kind of business as the branches of the Crédit Lyonnais?

A. The Bank of France and its numerous branches do allbanking business consistent with the laws properly regulating a bank of issue.

Q. A bill drawn in New York on France, on a bank, for instance, the Crédit Lyonnais, at Paris, and accepted by it, would it be admissible for discount?

A. Yes, if it bore, besides the signature of the French establishment accepting it, at least one other French signature; that of the person presenting it, for instance, having a current account at the Bank of France.

Q. A part of your portfolio comes from rediscounting for banks?

A. Certainly, and it is an important part.

Q. Could you give us an estimate of the proportion of bills which are discounted for banks and those discounted for other customers?

A. I should estimate that about 70 per cent. of the paper now held bears the signature of some bank as one of the indorsers; but it is manifest to us that the number of merchants and manufacturers who appreciate the facilities given by the bank for direct discounting and who profit by it increases perceptibly every day.

Q. Does the Bank of France make the same charge for the discount of bills and for loans upon collateral?

A. The bank usually charges somewhat more for loans upon collateral than for the discount of bills. The rates at present are 3 per cent. and 4 per cent., respectively.

Q. Could we obtain an estimate of the percentage of the deposits of the other banks at the Bank of France in comparison with the whole of such deposits?

A. In the credit establishments which you will visit you will be able to establish the fact that the liquid cash is, in comparison with their turnover, relatively very small. In France we consider that the strength of a bank consists more in the composition of its portfolio,i. e., in the value of its commercial bills, rather than in the importance of its cash reserve.

Q. Is the amount of all taxes paid by the bank to the State included in your report?

A. Yes. The public charges of the bank in 1907 were morethan 11,000,000 francs, whereas the profits distributed were 31,000,000 francs.

Q. Have you a system of transfers similar to that used by the Reichsbank?

A. Yes, this system, in France, dates as far back as a century or more.

Q. What is your method of transfer?

A. Transfers from place to place are made by simple notification to branches.

Q. Are the other banks accustomed to use the Bank of France in order to transfer their funds?

A. The greater part of the banks use no other method, even to increase the cash in one of their branches in a remote part of France.

Q. Is the Bank of France subject to examination by the Government?

A. There is no regular system of examination, but the Minister of Finance has the right to ask for information whenever he chooses.

Q. Is the Bank of France regarded as a bank for banks or as a bank for the people?

A. The Bank of France remained for a long time, indeed, the bank for banks, but since it has covered so much territory with its numerous branches; since the minimum amount of all its operations has been lowered; since it has opened deposit accounts to all, it is already and it tends to become more and more—as you ask—the bank of all the French public.

Q. Is there any contention in banking or economic circles that it is necessary to restore or extend the right of issue to banks, other than the Bank of France, to enable them to increase their own profits or to afford adequate facilities to borrowers or to meet legitimate business demands?

A. The unity of issue was achieved in France in 1848, and at no time since then has there been any question, in responsible circles, of a possible return to plurality of issue. The same tendency is leading, little by little, to an absolute monopoly in England, Germany, and even in Italy. I think that it would also be interesting for you to examine the recent example of Switzerland, which had its note-issue system founded,as in America, on the plurality of banks and which has now substituted for this system one single privileged bank. This transformation has received popular approval by referendum.

Q. Does the export of gold reduce the volume of notes?

A. Not necessarily. It may happen that among our assets a certain fraction of the gold is replaced by an equal amount of bills in our portfolio, and that without changing the total of notes in circulation.

Q. There is nothing in the law requiring your notes to be covered by a certain proportion of gold?

A. No regulation of this kind exists in our legislation.

Q. Do you rely upon raising the rates of discount to stimulate the importation and to prevent the exportation of gold?

A. It is a principle consecrated by experience that the supreme means of defence for an issue bank, to protect its metallic reserve, is to raise the rate of discount, and we never lose sight of this principle. However, the extent of our reserves allows us to contemplate without emotion important variations of our metallic stock, and we only exceptionally have recourse to a measure which is always painful for commerce and industry. The stability and the moderation of the rate of discount are considered as precious advantages, which the French market owes to the organisation and traditional conduct of the Bank of France.

Q. Would you like to express an opinion as to why the Bank of France is able to hold its gold with a bank rate of 4 per cent. when the rates elsewhere are higher?

A. The causes of this phenomenon are multiple. Theory teaches us that capital goes where it can obtain the highest remuneration, but in considering this remuneration account must be taken of risks; these are numerous and of different kinds; I mean, of course, commercial risks; risk of losing on exchange when the capital is brought back, etc. This at once explains why it is possible in France to maintain a rate of discount lower than elsewhere. French capitalists might fear, perhaps, that the higher interest obtainable outside might be offset or more than offset by the risks incurred. Account must be taken, secondly, of the situation always held by France as a creditor nation, and which by the constant income of capitalwhich it assures to us certainly contributes to counter-balance the current of exportation which might result from the lowering of the rate of discount.

Q. Does the Bank of France sometimes take steps to maintain the bank rate by the purchase of bills in the market or otherwise?

A. No, never.

Q. The tradition and the reputation of the Bank of France make it important that it should hold a larger reserve than any other bank in the world?

A. It is true that France keeps locked up in its bank a proportionately larger amount of specie than any other country, but this policy is not without important compensations. Suppose the French public, changing its mind, should reduce by one-half its monetary reserve of which the bank is the guardian. It would gain thereafter the interest on perhaps two milliards of francs released and which would have become productive—that is to say, a saving of from 80 to 100 millions of francs per year at the maximum—but if one reflects that it would lose the advantage of the reduced rates of discount which the extent and character of our reserves enable us to maintain and from which all French production profits; that it would lose, in addition, the sentiment of absolute security, of complete financial independence, which every crisis has strengthened, one would be less tempted to conclude—with certain critics—that the policy of maintaining heavy reserves, the natural expression of the country's instincts, is an unwise policy from an economic and practical standpoint.

Q. You have, I believe, no requirement of law by which the Bank of France is obliged to purchase gold at a certain fixed price?

A. The bank buys gold according to the tariff of the Mint, but it is not obliged to do so. Private individuals, instead of having their money coined for themselves, find it more advantageous to sell their ingots to the bank, which has them coined when needed.

Q. What is the date of the organisation of the Crédit Lyonnais?

A. July 6, 1863.

Q. Under what law was it organised?

A. We are under the general law, a general companies law.

Q. What is the minimum amount of capital required?

A. There is no minimum, but at least one-fourth of the capital is required by law to be actually paid in.

Q. How many shareholders have you?

A. Our capital is divided into 500,000 shares, but as many of these shares are issued to "bearer" we do not know how many shareholders we have.

Q. The cash in hand is merely carried for the necessities of business?

A. Yes. Any bank, if it has need for additional cash, may present for rediscount at the Bank of France the bills and other commercial paper which it has in its vaults.

Q. What per cent. of your deposits do you intend to carry in cash either in your own vaults or in other banks?

A. Eight to 10 per cent. on the average.

Q. Does the Bank of France ever loan below its published rate?

A. No. It never does.

Q. It is not, I believe, the policy of your bank to buy public securities in large amounts?

A. No. Our idea is to buy all the commercial paper that we can get. That is our business. At present it is almost impossible to get any commercial paper because business is so slack; therefore, we are obliged to go outside and buy treasury bills.

Q. To what kinds of banks do you lend on collateral?

A. Mostly foreign banks; for instance, banks in New Orleans during the cotton season. It is not to our interest to lend to French banks. We lend money to foreign banks and to French merchants, but never to foreign merchants or to French banks. We never lend on real estate. That is the business of the Crédit Foncier.

Q. Do you own all of the securities you sell, or do you take orders and buy and sell them on commission?

A. The greater part of our transactions are made on commission.

Q. In your statement of liabilities you show deposits about $132,000,000, and current accounts about $168,000,000. Will you kindly explain the difference between these two accounts?

A. Deposits are sums of money deposited, especially by private people. Accounts current represent the balances to the credit of business people.

Q. If I come here and open an account with you and make a deposit and say I want to transact business with you, borrowing money from time to time, and depositing and drawing daily, would you put that account in your "accounts current"?

A. If you were not a merchant, you would have a deposit account opened for your daily deposits and drawings. Your account could never show a debit balance and the amounts which you might borrow would have to be secured by deposit of securities and would be placed under the item "loans on securities." If you were a merchant, an account current would be opened for the requirements of your business, and this account could become debtor.

Q. Deposits and current accounts are payable on demand?

A. Yes; on demand. Deposits are made up of sums deposited by customers whose accounts are not active; they are more in the nature of reserve deposits, whereas current accounts represent deposits made by customers mostly in active business.

Q. Do you pay interest on practically all of your deposits and current accounts?

A. Yes.

Q. Do you find that the Bank of France competes with you in any way?

A. In no way.

Q. They receive accounts from individuals and small tradesmen in the branches, do they not?

A. Yes; but they do not grant uncovered credits. There is no competition between the Bank of France and the other banks, because they do not do the same kind of business. The Bank of France receives deposits, but does not allow interest upon them; it only discounts bills with three signatures; it is the bankers' bank; it acts as the regulator of the money market.

Q. Do its branches receive deposits?

A. Yes; they receive deposits, without allowing any interest. In times when money is cheap the rate of discount of the Bank of France is rarely below 3 per cent., and in the Crédit Lyonnais and other banks the rate may be sensibly below that of the Bank of France.

Q. Can you state the number of employés in the Crédit Lyonnais?

A. About 14,000. It varies according to the time of year.

Q. Are all of the important banks in the City of Paris members of the clearing house?

A. Yes; about 13 of the most important.

Q. How frequently are the clearings made?

A. Three times a day. As a matter of fact, our clearing house is not so important as yours in America.

Q. The clearing houses in the cities of France are in no sense a factor; they are merely the machinery through which the cheques are cleared, are they not?

A. To our knowledge there is but one clearing house; it is in Paris and is merely a mechanism for settling balances.

Q. Are you examined at any time and in any way by the Government?

A. No. The control of the Government is limited to the supervision for taxes, to which every company is subject.

Q. Your relations with the Bank of France are very intimate and cordial, are they not?

A. Yes.

Q. Is that true with all the banks in France?

A. The Bank of France is quite impartial; it gives no preference to any one; there is no favoritism.

Q. I understand none of the farmers or peasants will use cheques.

A. The use is extremely rare.

Q. How about your tradesmen all through the small towns, and the doctor and lawyer and professional man; would they draw the money out and pay their bills in cash?

A. Certainly; most of them.

Q. When you establish a branch in a small town, you generally find a local independent bank there. Can this local bank compete with you?

A. There are certain places where the private banks have kept on, but the tendency is for the private banker to disappear. We take small sums and have numerous branches. One great distinction is that the private bank is always in the hands of a family. A man who originally starts a private bank may be a good banker, financier, and business man, but it does not always follow that his son, who in all likelihood will inherit the business, will be capable of running it. Our joint-stock banks do not go from father to son, but are always under efficient management.

Q. What proportion of your own payments are made in gold?

A. A very small proportion. The people prefer notes.

Q. Do the French people hoard money as much as formerly?

A. No; it is becoming more the custom to put money in the banks. Thirty years ago they kept the money at home.

Q. One of the things that we have in mind is to inquire in regard to the character of the business done by your branches.

A. Yes. We are especially a discount bank and our customers are mostly commercial people engaged in commerce and industry, so that our principal business in our branch offices consists in discounting commercial paper, in making advances against securities, goods, or warehouse receipts, or sometimes giving blank credits to our customers for commercial requirements.

Q. Have you stock in other banks which you control?

A. We are interested in the Banque de l'Indo Chine, which is an issue bank in the French colonies, but we do not control it; we hold a certain amount of shares.

Q. Are there any other banks which you control?

A. No.

Q. You have not been in the habit of buying up other banks?

A. No. The system here is to establish agencies of our own; the Germans, on the contrary, control other banks in order to arrive at the same result, viz., to get as much influence as possible throughout the country. We try to come to the same result by establishing our own agencies.

Q. Is that true of the Crédit Lyonnais?

A. The Crédit Lyonnais and the Société Générale have the same system.

Q. Is it usual for large banks in Paris to confine their underwriting operations to bond syndicates?

A. Yes; banks receiving deposits, such as the Crédit Lyonnais and the Société Générale, do not usually participate in syndicate operations covering thesharesof industrial concerns; other banks, such as the Banque de Paris et des Pays-Bas, do so, but they are not deposit banks. They have more liberty to engage their own capital in any enterprise.

Q. You are not restricted by law in doing any business you please?

A. No; it is only the custom and rules of our society.

Q. If there were a large industrial corporation in France which wanted to develop its business and issue bonds upon it,and if they were customers of yours of unquestioned financial standing, would you take their bonds and sell them?

A. Yes.

Q. But not their stock?

A. If they were a well-known concern we would sell their shares too; we have done so.

Q. Is there co-operation between the large banks?

A. We meet very often and often have common interests in business.

Q. Do you, in a sense, divide the field? I suppose you have a certain field in which you do business and other banks do not; Turkey, for instance?

A. Turkey is reserved for the Banque Ottomane.

Q. Take the electrical business, for instance.

A. As far as we are concerned we are connected with the Thomson-Houston; and it is natural if the Thomson-Houston and their friends have any business to do, that they deal with us.

Q. There is nothing in the law which restricts you to any class of investment?

A. No.

Q. And nothing that requires you to keep any reserve; that is, any amount of cash as against your liabilities?

A. No.

Q. Is the Bank of France your principal reliance in case you need money? Do you think it necessary to carry any additional reserve?

A. Under our French system we consider the commercial paper we keep in the portfolio a cash reserve, as we can rediscount it at the Bank of France. We know the Bank of France will discount these bills and thus enable us to convert the bills instantly into cash; this is the basis of the French banking system.

Q. Outside of Paris it happens that you have branches at many of the same places as the Bank of France; is there competition between the branches of the Bank of France and your own branches?

A. No; the Bank of France does more rediscounting than discounting, and the Bank of France also has more conservativerules than the other banks. We may lend under the Bank of France rate, so our clients have an interest in keeping their accounts with us.

Q. You do not consider the Bank of France as an active competitor?

A. No; competition is greater with the Crédit Lyonnais and with the other private banks than with the Bank of France.

Q. You do considerable rediscounting of bills, I take it?

A. Yes.

Q. At a lower rate than the Bank of France?

A. Frequently.

Q. Is the development of branches a matter of recent times?

A. Yes; we began the system of establishing branches about twenty years ago.

Q. How many employés have you?

A. Including the country, something like 5,000.

Q. Have you a pension system for your employés?

A. Our clerks consent to a rebate of 5 per cent. on their salaries, and we duplicate this rebate by a voluntary contribution, in order to constitute a pension fund; it amounts now to about 7,000,000 francs.

Q. If a new bank were to be organised here, would it be admitted as a member of the clearing house?

A. Certainly.

Q. You have no new banks except the Union Parisienne?

A. There is also the Banque Française, managed by M. Rouvier, who formerly was Premier.

Q. We assume that your business is in many respects quite unlike that of the other joint-stock banks?

A. Yes; in some respects.

Q. What is the difference?

A. The Société Générale, Crédit Lyonnais, etc., receive deposits from the public; they invest these deposits and try to make the most of them, paying a small rate of interest on them; they also loan money on commercial paper which can be rediscounted at the Bank of France. Here we are more a business bank; we do not care for deposits from the public; we work with our own money, with the money which is the capital of the bank, and we are occasionally assisted by the capital of the directors, the people who sit around this table, who are all rich people and some of them bankers. As a rule we do not receive deposits from the public.

Q. But you do receive some deposits?

A. We receive the deposits of big companies which we have created or promoted or whose stocks we have issued—they are our customers—but we do not receive deposits of small accounts from the public.

Q. What is your capital?

A. 75,000,000 francs.

Q. You have current accounts—190,000,000 francs?

A. They are current accounts, from manufacturing concerns, railway companies, big organisations of any kind.

Q. You have a considerable foreign business?

A. We have connections all over the world, and very often we take an interest in business abroad.

Q. Do you operate more particularly in one part of the world than in another?

A. No; although we have only three branches—one in Brussels, one in Amsterdam, and one in Geneva.

Q. Do you endeavor to carry any special amount of cash at the Bank of France? Or are you indifferent as to the amount of balance you have there?

A. We always calculate what sum each day will be likely to be withdrawn; besides which we always have a large amount of commercial paper which we could rediscount at the Bank of France at once. Therefore we keep just enough cash in vault to meet any cheques which may be presented.

Q. Do you carry an account in New York?

A. We lend money to bankers there. Different kinds of loans, some are at sixty days or ninety days.

Q. You are not restricted in any way as to the character of the undertakings you may make?

A. No; we can do as we like.

Q. Do you specialise in practice or do you consider propositions of various kinds?

A. All sorts of propositions, railway building, harbors, tramways, electrical enterprises, etc.

Q. Do you sometimes take an interest in business such as placing Pennsylvania Railroad and Union Pacific bonds?

A. Yes.

Q. You frequently act as managers of syndicates which might include the other banks of France?

A. Very often we take the head of syndicates.

Q. You are the leading bank in that business in France?

A. They say so.

Q. Is there cordial co-operation between the banks of Paris and the Bank of France, generally speaking?

A. Yes; business as a rule is done, when it is a big business, with several of these big societies or banks, and perhaps with all of them together.

Q. Are there particular corporations in which you have a permanent interest?

A. Yes; so as to have some control in certain large companies.

Q. What do you think of the attitude of the Government toward the Bank of France? That is to say, are they exacting more and more from it?

A. I do not think that they exact too much from it. The shares of the Bank of France are always very high in price; it has not hurt at all the development of the bank.

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