5: Commercial Banking in Other Countries
The general functions of banking (saving and lending) are the same the world over, but there are structural differences in the way that banking operates in different countries.
Common Features
Central banks generally function as the financial agents of government, discounting high-grade commercial and bankers bills, administering the cash reserves of the state, and furnishing the greater part of notes in circulation.
Commercial banks provide spending and savings accounts for individuals and businesses, deal in some classes of investments, conduct domestic and foreign exchange, discount commercial bills and issue commercial paper, and the like. The largest banks in a nation are located in its primary trade city and provide support for smaller banks in various parts of the nation.
In some nations more than others, bankers' notes and bills are used more or less in daily transactions, typically among merchants, and banks will often vouchsafe and guarantee the creditworthiness of their customers.
England
The Bank of England is the central bank, which is privately owned and managed by directors who are elected by its stockholders. The BE issues the majority of notes and securities in the nation and manages the assets and debt of the English government. In addition to the government, BE serves other large banks and certain sizable corporations, and very rarely does business with private persons.
The English banks are classified as metropolitan, metropolitan-provincial, and provincial, largely corresponding to the markets they serve. These banks primarily serve customers in banking, industry, and commerce and their capital often consists of loans from other banks rather than the accounts of depositors. The private banks are those which primarily serve individuals.
It's noted that England is the headquarters of many colonial banks, which continue to operate banks overseas. The collection of the headquarters of many colonial banks in London make it a world center for foreign exchange.
It's noted that there is no British law that requires banks keep any certain amount of cash in reserves, and many tend to keep as little as possible, relying on loans from the BE if they should fall short of cash. For this reason, most banks in England have accounts with the BE, and virtually all money in the nation "speedily finds its way into the vaults of the Bank of England," and just as speedily back out of them and into other hands.
Much is said about the long tradition of banking in England, and the experience has enabled bank managers to be very accurate in their predictions and very efficient in cash management operations.
France
The Bank of France, established in 1800 by Napoleon, is the central bank and the oldest financial institution in the nation. The bank is managed by a board of regents appointed by 30,000 stockholders (though it's noted that about a third of them hold only one share apiece) along with others who are governmentally appointed. Unlike the BE, the BF provides commercial banking services, having branches throughout the country that serve businesses and citizens alike.
At the time the book was written, there were only four other large banks in the nation, most of which specialized in commercial lending, issuing commercial paper, and discounting bills.
It is mentioned that the French have a greater preference for money (as opposed to checks and other documents) than the member of other nations, and maintaining a private reserve of hard money in household vaults is a common practice. It's also noted that the primary currency of France is coins, and all paper money represents a value payable in coin for its redemption. It is not unusual for notes to be collected and destroyed when they are redeemed for coin.
Germany
The Imperial Bank, headquartered in Berlin, functions as the central bank of Germany. IT was established in 1875 by an act that "profoundly affected the entire banking system of the country" and that has had to be amended several times in the few decades of its existence. The bank is governed by three bodies, one appointed by the Emperor (for life), another appointed by the government, and a third elected by the shareholders. The shareholders' committee has virtually no formal power.
The IB manages the funds and debt of the government, administers the coin reserves of the country, conducts the domestic exchanges, and serves as a "bankers' bank" for other financial institutions. It is permitted to do business with the generally public, but generally does not because certain limitations are in place to intentionally make it uncompetitive with private banks.
As in France, official currency in Germany is coin and any note represents and is redeemable for coin. Only the IB and four commercial banks, however, are authorized to issue paper money - and again, there are greater restrictions upon the IB than upon the commercial banks,.
Besides the IB there are said to be eight large banks in Germany an d a considerable number of small local banks. Th large banks control about 80% of the total capital in Germany and its colonies.
Canada
There is no central bank in Canada.
The number of banks in Canada is in constant fluctuation, given that its laws enable a bank to be formed at any times if it complies with certain conditions (a given amount of capital). Aside of meeting the minimum requirements to be chartered, there is very little regulation of banking , and no regulation that requires the banks to submit to public examination. While banks are required to report to the Minister of Finance, he has no right to examine the banks' books or to interrogate the banks employees.
Any bank may issue notes, but is subject to taxation for doing so. In addition to the tax, each bank must maintain on account with the Ministry of Finance 5% of the value of its issue, to provide for the redemption of bills by the ministry when the bank is unable to do so from its own reserves. There are also very few restrictions on lending activities.
It's noted that it is common practice for Canadians to give all of their business to a single banking institution, and that banks seek to serve their own customers and show little interest in winning customers from other banks, though they do compete for new business. Any customer who wishes to change banks "is looked upon with suspicion" and his new bank is very reluctant to accept his business. It is believed that this system of exclusivity and lifelong relationships grants bankers an intimate relationship with their customers and a superior ability to assess creditworthiness and risk.