A BANK, in its simplest form, is an institution where money may be deposited for safe keeping; but banks are usually established to lend as well as to receive money; and the profits of a banker are commonly derived from the excess of the interest he receives from those indebted to him over the interest he allows, so far as he allows any. to those who have deposited money with him. Early denunciations of usury (Exod. xxii. 25) show the antiquity of the practice - of lending money at interest; but this must have long preceded the origin of the business of both borrowing and lending money. When this first appeared it was not, at least in modern Europe, a distinct profession, but was undertaken by goldsmiths and dealers in precious metals. In the progress of the separation of employments, which is a characteristic of an advancing society, banking became a business of its own, which has again been subdivided into many branches independently pursued. It was, for example, formerly generally allowed to be part of the business of a banker to borrow money by issuing promissory notes payable to bearer, which passed from hand to hand as money, within the sphere of the operations of the banks, and banks thus borrowing money were called Banks of Issue; but it has been contended of late years that the function of issuing notes passing by delivery as money should be reserved for the state, or for some institution controlled and directed by the state; and we shall have hereafter to notice the controversy that has arisen on this point, and the steps that have been taken in consequence of it. An explanation of the different species of banks will also properly be deferred till· a later stage, but it will be convenient here to give a general sketch of the nature of the business of an ordinary banker. We have said he receives and lends money; he may receive money either on a deposit or on a current or drawing account. When money is received on deposit it is commonly repayable to the depositor alone, to whom a deposit note or receipt is given; but it may also be paid to any one to whom the depositor gives an order on the bank either endorsed on the deposit note or receipt or accompanying it. If the banker undertakes to pay interest on deposits, the rate varies according to the length of the notice the depositor agrees to give before withdrawing the money, the ability of the banker to deal with it being, of course, dependent upon the time he may rely upon keeping it. When money is received on a current or drawing account, the customer of the banker draws it out, as he requires, by means of orders, to which the specific name cheques is given; and, partly for convenience and partly by way of security against fraud, bankers are in the habit of giving their customers books of forms of cheques consecutively numbered. Cheques are generally payable to the person in whose favour they are drawn (the payee) or bearer, though they are sometimes payable to the payee or order, in which case endorsement by the payee is necessary before the money can be received. By the usage of bankers in the United Kingdom a “crossed” cheque, that is, a cheque across the face of which two parallel lines, with the name of a banker or the words “ & Co.” inserted between them, have been drawn, has been long held payable by the banker on whom it is drawn to the payee alone or to another banker; and this usage received the force of law by statutes of the present reign (19 and 20 Vict. e. 25, and 21 and 22 Vict. c. 79).

Bankers lend money by opening credits in their books, against which their favoured customers may draw to the extent of the credits opened; by discounting bills; by the purchase of securities; or by advancing money on securities, &c., &c. It will have been gathered that they also undertake the business of collecting the money for cheques, for bills, and for other securities as they mature, which they may have received from their customers. The labour of collection is much facilitated in England by the fact that bills of exchange are almost invariably made payable in London, and that every country banker has a correspondent among the London bankers who collects for him and pays for him; and the London bankers again maintain an establishment called the Clearing-house (see p. 328), where their clerks meet to effect their interchanges.

Banking appears to have reached a high state of development among the ancients. The bankers of Greece (τpaπeζιτaι) and Rome (argentarii, mensarii, nummularii) exercised nearly the same functions as those of the present day, except that they do not appear to have issued notes. They received money on deposit, to be repaid on demands made by cheques or orders, or at some stipulated period, sometimes paying interest for it, and sometimes not. Their profits arose from their lending the balance at their disposal at higher rates of interest than they allowed the depositors. They were also extensively employed in valuing and exchanging foreign moneys for those of Athens, Corinth, Rome, &c., and in negotiating bills of exchange. In general they were highly esteemed, and great confidence was placed in their integrity. The rate of interest charged by the bankers was sometimes very high, but that was not a consequence, as has been alleged, of their rapacity, but of the defective state of the law, which, as it gave every facility to debtors disposed to evade payment of their debts, obliged the bankers to guarantee themselves by charging a proportionally high rate of interest. Banking reappeared in Italy ’upon the revival of civilization. The bank of Venice is reputed the first in date in the history of modern Europe; but it did not become a bank, as we understand the term, till long after its foundation. Historians inform us that the republic being hard pressed for money, was obliged, upon three different occasions, in 1156, 1480, and 1510, to levy forced contributions upon the citizens, giving them in return perpetual annuities at certain rates per cent. The annuities due under the forced loan of 1156 were, however, finally extinguished in the 16th century; and the offices for the payment of the annuities due under the other two loans having been consolidated, eventually became the Bank of Venice. This might be effected as follows :—The interest on the loan to Government being paid punctually, every claim registered in the books of the office would be considered as a productive capital; and these claims, or the right of receiving the annuity accruing thereon, must soon have been transferred, by demise or cession, from one person to another. This practice would naturally suggest to holders of stock the simple and easy method of discharging their mutual debts by transfers on the office books, and as soon as they became sensible of the advantages to be derived from this method of accounting, bank-money was invented. It will, however, be seen that the establishment thus described was at first no more than the transfer office of a National Debt, transfers of which were accepted at par in discharge of private debts, and it is indeed said that the funded debt transferred sometimes commanded an agio or premium above the current money of the republic. This establishment was ruined, after passing through many changes, by the invasion of the French in 1797.

The origin of modern banking may be traced to the money-dealers of Florence, who were in high repute as receivers on deposit and lenders of money in the 14th century; and banking was indeed practised at Florence in the 13th if not in the 12th century. Mr Macleod writes (Banking, vol. i 289)— “The names of the Bardi, Acciajuoli, Peπιzzi, Pitti, and Medici were famous throughout Europe. In 1345 the Bardi and the Peruzzi, the two greatest mercantile houses in Italy, failed. Edward III. owed the Bardi 900,000 gold florins, which his war with France prevented him paying; and the king of Sicily owed them 100,000 gold florins. The deposits of citizens and strangers with the Bardi were 550,000 gold florins. The Peruzzi were owed 600,000 gold florins by Edward III., and 100,000 by the king of Sicily, and the deposits they owed their customers were 350,000 gold florins. The fall of these two great pillars of credit involved that of multitudes of other smaller establishments, and, says Villani (Istor. Florent., xii. 55), the community of Florence had never been thrown into such ruin and disorder before. And thereupon he breaks out against the folly of his fellow-citizens entrusting their ιħoney to the care of others for the love of gain. The city, however, recovered from this terrible disaster, and we find that between 1430 and 1433 seventy-six bankers at Florence lent 4,865,000 gold florins. At one time Florence is said to have had eighty bankers, but not any public bank.”

The business of banking was not introduced into England till the 17th century, when it began to be undertaken by goldsmiths in London, who appear to have borrowed it from Holland. It was attacked as innovations commonly are. Mr Gilbart, in his History and Principles of Banking, quotes, from a pamphlet published in 1676, entitled The Mystery of the New-Fashioned Goldsmiths or Bankers Discovered, a passage that may be reproduced,— “Much about the same time—the time of the civil commotion— the goldsmiths (or new-fashioned bankers) began to receive the rents of gentlemen’s estates remitted to town, and to allow them, and others who put cash into their hands, some interest for it if it remained but a single month in their hands, or even a lesser time. This was a great allurement for people to put money into their hands, which would bear interest till the day they wanted it; and they could also draw it out by one hundred pounds or fifty pounds, &c., at a time as they wanted it, with infinitely less trouble than if they had lent it out on either real or personal security. The consequence was that it quickly brought a great quantity of cash into their hands, so that the chief or greatest of them was now enabled to supply - Cromwell with money in advance, on the revenues, as his occasion required, upon great advantages to themselves.”

Sir Josiah Child also attacked “that innovated practice of bankers in London” in his New Discourse of Trade, though he subsequently became himself a banker; and his house, Messrs Child <t Co., of Temple Bar, and the house of Messrs Hoare, in Fleet Street, still survive as the only private banks now in existence in London which were established previous to the Bank of England.

Foundation and Early History of the Bank of England.

The Bank of England, which has long been the principal bank of deposit and circulation in Great Britain, and indeed in Europe, was founded in 1694. Its principal projector, Mr William Paterson, an intelligent Scotch gentleman, was afterwards engaged in the ill-fated Darien enterprise. Government being at the time much distressed for want of money, partly from the defects and abuses in the system of taxation, and partly from the difficulty of borrowing because of the supposed instability of the Revolutionary establishment, the bank grew out of a loan of £1,200,000 for the public service. The subscribers, besides receiving 8 per cent, on the sum advanced as interest, and £4000 a year as the expense of management, in all £100,000 a year, were incorporated into a society denominated the Governor and Company of the Bank of England. The charter is dated the 27th of July 1694. It declares, amongst other things, that they shall “be capable, in law, to purchase, enjoy, and retain to them and their successors, any moneys, lands, rents, tenements, and possessions whatsoever; and to purchase and acquire all sorts of goods and chattels whatsoever, wherein they are not restrained by Act of Parliament; and also to grant, demise, and dispose of the same.

“That the management and government of the corporation be committed to the governor and twenty-four directors, who shall be elected between the 25th of March and the 25 th day of April each year, from among the members of the company duly qualified.

“That no dividend shall at any time be made by the said governor and company, save only out of the interest, profit, or produce arising by or out of the said capital, stock, or fund, or by such dealing as is allowed by Act of Parliament.

“They must be natural-born subjects of England, or naturalized subjects; they shall have in their own name, and for their own use, severally, viz., the governor at least £4000, the deputy-governor £3000, and each director £2000, of the capital stock of the said corporation.

“That thirteen or more of the said governors and directors (of which the governor or deputy-governor must be always one) shall constitute a court of directors, for the management of the affairs of the company, and for the appointment of all agents and servants which may be necessary, paying them such salaries as they may consider reasonable.

“Every elector must have, in his own name and for his own use, £500 or more capital stock, and can only give one vote. He must, if required by any member present, take the oath of stock, or the declaration of stock in case he may be one of the people called Quakers.

“Four general courts shall be held in every year, in the months of September, December, April, and July. A general court may be summoned at any time, upon the requisition of nine proprietors duly qualified as electors. The majority of electors in general courts have the power to make and constitute bye-laws and ordinances for the government of the corporation, provided that such bye-laws and ordinances be not repugnant to the laws of the kingdom, and be confirmed and approved according to the statutes in such case made and provided.”

The corporation is prohibited from engaging in any sort of commercial undertaking other than dealing in bills of exchange, and in gold and silver. It is authorised to advance money upon the security of goods or merchandise pledged to it, and to sell by public auction such goods as are not redeemed within a specified time.

It was also enacted, in the same year in which the bank was established, by statute 6 William and Mary, c. 20, that the bank “shall not deal in any goods, wares, or merchandise (except bullion), or purchase any lands or revenues belonging to the Crown, or advance or lend to their majesties, their heirs or successors, any sum or sums of money, by way of loan or anticipation on any part or parts, branch or branches, fund or funds of the revenue, now granted or belonging, or hereafter to be granted, to their majesties, their heirs and successors, other than such fund or funds, part or parts, branch or branches of the said revenue only on which a credit of loan is or shall be granted by Parliament.” And in 1697 it was enacted, that the “common capital or principal stock, and also the real fund, of the governor and company, or any profit or produce to be made thereof, or arising thereby, shall be exempted from any rates, taxes, assessments, or impositions whatsoever during the continuance of the bank; that all the profit, benefit, and advantage from time to time arising out of the management of the said corporation, shall be applied to the uses of all the members of the said association of the governor and company of the Bank of England, rateably and in proportion to each member’s part, share, and interest in the common capital and principal stock of the said governor and company hereby established.”

In 1696, during the great recoinage, the bank was involved in great difficulties, and was even compelled to suspend payment of itβ notes, which were at a heavy discount. Owing, however, to the judicious conduct of the directors, and the assistance of the Government, the bank got over the crisis. But it was at the same time judged expedient, in order to place it in a situation the better to withstand any adverse circumstances that might afterwards occur,to increase the capitalfrom£l,200,000to £2,201,171. In 1708 the directors undertook to pay off and cancel one million and a half of exchequer bills they had circulating two years before, at 4∣ per cent., with the interest upon them, amounting in all to £1,775,028, which increased the permanent debt due by the public to the bank, including £400,000 then advanced in consideration of the renewal of the charter, to £3,375,028, for which they were allowed 6 per cent. The bank capital was then also doubled, or increased to £4,402,342. But the year 1708 is chiefly memorable in the history of the bank, for the Act previously alluded to, which declared, that during the continuance of the corporation of the Bank of England, “it should not be lawful for any body politic, erected or to be erected, other than the said governor and company of the Bank of England, or of any other persons whatsoever, united or to be united in covenants or partnership, exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable on demand, or in any less time than six months from the borrowing thereof.” This proviso is said to have been elicited by the Mine Adventurers Company having commenced banking business and begun to issue notes. It will be seen on examination that the proviso did not prohibit the formation of associations for general banking business; it simply forbade the issue of notes by associations of more than six partners; but the issue of notes w as regarded as so essential to the business of banking, that it came to be believed that joint-stock banking associations were absolutely prohibited in England, and no such association was founded until after the legislation of 1826 (see p. 322) expressly permitting them to be established. The charter of the Bank of England, when first granted, was to continue for eleven years certain, or till a year’s notice after the 1st of August 1705. The charter was further prolonged in 1697. In 1708, the bank, having advanced £400,000 for the public service, without interest, the exclusive privileges of the corporation were prolonged till 1733. And in consequence of various advances made at different times, the exclusive privileges of the bank were continued by successive renewals till the 1st of August 1855, with the proviso that they might be cancelled on a year’s notice to that effect being given after the said 1st of August 1855.

We subjoin an account of the successive renewals of the charter, of the conditions under which these renewals were made, and of the variations in the amount and interest of the permanent debt due by Government to the bank, exclusive of the dead weight. [table]

[table] [table]

The capital of the bank on which dividends are paid has never exactly coincided with, though it has seldom differed very materially from, the permanent advance by the bank to the public. We have already seen that it amounted in 1708 to £4,402,342. Between that year and 1727 it had increased to near £9,000,000. In 1746 it amounted to £10,780,000. From this period it underwent no change till 1782, when it was increased 8 per cent., amounting to £11,642,400. It continued stationary at this sum down to 1816, when it was raised to £14,553,000, by an addition of 25 per cent, from the profits of the bank, under the provisions of the Act 56 Geo. III. c. 96. The Act for the renewal of the charter 3 and 4 Will. IV. c. 98, directed that the sum of £3,671,700, being the fourth part of the debt due by the public to the bank, should be paid to the latter, giving the bank the option of deducting it from its capital. But that has not been done; and after sundry changes, the capital of the bank amounts, as formerly, to £14,553,000.

The Bank of England has been frequently affected by panics amongst the holders of her notes. In 1745 the alarm occasioned by the advance of the Highlanders, under the Pretender, as far as Derby, led to a run upon the bank; and in order to gain time to effect measures for averting the run, the directors adopted the device of paying in shillings and sixpences .' But they derived a more effectual relief from the retreat of the Highlanders, and from a resolution agreed...