BANKS AND THEIR
CUSTOMERS
BANKS
AND
THEIR CUSTOMERS
A PRACTICAL GUIDE FOR ALL WHO KEEP
BANKING ACCOUNTS FROM THE CUSTOMERS’
POINT OF VIEW
BY
HENRY WARREN
_AN ENTIRELY NEW AND ENLARGED EDITION
(THE EIGHTH)_
WITH INTRODUCTION BY A LONDON BANKER
[Illustration]
LONDON
ROBERT SUTTON
43, THE EXCHANGE, SOUTHWARK STREET, S.E.
1908
Banks and their Customers
(_SEVENTH EDITION_)
By HENRY WARREN
=The Pall Mall Gazette= says:--
“Caustic and interesting.”
=The Financial News= says:--
“Contains a vast amount of useful information intelligently
discussed. To educate the public on a technical subject calls for
more than ordinary knowledge. It needs what Mr. Warren undoubtedly
possesses, and that is a sound, practical understanding, and a
thorough common-sense way of setting forth his knowledge in simple
form. This our author succeeds admirably in doing.”
=The Scotsman= says:--
“Cannot be too strongly recommended.”
=The Draper’s Record= says:--
“Masterly.”
=The Birmingham Daily Gazette= says:--
“Invaluable.”
=Investor’s Review= says:--
“Much useful and accurate information about the habits of bankers
in dealing with their customers. Especially we commend the chapter
‘How to Check Bankers’ Charges,’ which are often curiously
arbitrary and capricious.”
=The City Press= says:--
“A caustic and forcible pen.”
=The Bookman= says:--
“The worth of the expert is proved. Mr. Warren on banking subjects
enjoys our confidence and many editions.”
=And The Glasgow Herald= says:--
“Mr. Warren’s caustic criticisms of bankers and their peculiarities
have been widely appreciated.”
INTRODUCTION
BY A LONDON BANKER
I confess that when a publisher asked me to write an introduction to
Mr. Warren’s little book I experienced some surprise; because, in
the past, he handled bankers rather roughly. Perhaps the audacity
of the request appealed to me. At any rate, I consented to read the
proof-sheets, and, finally, perhaps a trifle reluctantly, to stand
sponsor for the work in a qualified sense. I do not agree with all he
says, by any means.
Here is the eighth edition of a well-written, interesting guide for the
customer, who has obviously found it useful. The book would not have
obtained a market unless it were wanted. This must be granted. And I
think that it was wanted even from the point of view of a banker.
The author in a short chapter tells us how and why the joint-stock bank
came to dwell among us. Then he plunges into his subject--the Guide
for the Customer. The chapter on the cheque and its various crossings
is admirable. I only wish that the clients of my own bank would read
every word of it, and save the time of our cashiers.
He who keeps his account in credit is told much that he ought to know;
the depositor is shown how to check his interest; the borrower how to
negotiate a loan or advance; and everybody is told the manner in which
he may easily check the charges debited in his pass-book. Speaking
for my own bank, I do not care who makes use of this clearly-put
information. Let our clients obtain the book by all means. We shall
then be spared the trouble of answering a host of stupid questions
during the busiest parts of the year.
Touching upon “unclaimed balances,” I am of the opinion that the public
can be very well trusted to look after its own interests; and after
glancing through my own ledgers I think that these unclaimed sums would
not amount, in the aggregate, to a really large figure. Most of these
dormant balances are insignificant.
As to the pay of bank-men, I do not feel justified in expressing an
opinion, beyond asserting that the wants of a bank-clerk are small. My
advice to the customer is--“read the book.”
“CITY MANAGER.”
CONTENTS
CHAP. PAGE
PREFACE v
I BANKING EVOLUTION 1
II ON THE CHOICE OF A BANKER 13
III THE CHEQUE AND ITS VARIOUS CROSSINGS 19
IV CREDIT-ACCOUNT CUSTOMERS 38
V DEPOSIT-RECEIPT CUSTOMERS 45
VI THE BANK RATE IN RELATION TO BANKERS’ CHARGES 61
VII LOANS AND ADVANCES IN LONDON 68
VIII OVERDRAFTS IN THE COUNTRY 75
IX HOW TO CHECK BANKERS’ CHARGES 89
X BILLS, COUPONS, FOREIGN DRAFTS, ETC. 102
XI UNCLAIMED BALANCES 110
XII BANK SHARES 117
XIII THE PAY OF BANK-CLERKS 128
BANKS AND THEIR CUSTOMERS
CHAPTER I
BANKING EVOLUTION
We owe a great deal to the financial instinct of the Jew, who, having
no country of his own, has developed an acquisitive mania for the
goods of those people among whom he dwells, thanks to a progressive
civilization of which he was the pioneer, in comparative safety; and,
by an irony of fate, we are also indebted to him for a religion, which
his more subtle mind rejects; yet, stranger still, it is a civilization
based on commerce that keeps the whole world moderately sane, and tends
to at least hold in check the latent savagery of the blind enthusiast
who would still, but for her intervention, indulge in a bloody crusade
against all who hold opposite opinions. A true civilization spells
toleration; and though a creditor can scarcely hope to be popular with
his debtors, he is at least entitled to the protection of the law of
the land in which he lives.
The Jews, who are supposed to have come over to England about the time
of the Conquest, gradually possessed themselves of the greater part
of the coin of the country; and the early English kings constantly
resorted to them for loans. As it was thought unchristian to charge
usury or interest, the business of a money-lender was consequently held
in abhorrence, with the result that the Jews monopolized the trade, and
acquired immense fortunes by their dealings. Their wealth naturally
excited the intense cupidity of their Christian neighbours, who, making
a pretext of their so-called abominations, raided from time to time
the Jewish quarters of the various towns, in the hopes of annexing the
fabulous treasure in Jewry.
Under the ban of the Church, and detested by the people, the popular
feeling against the usurers became so embittered that Edward I,
under whose protection they lived, after having in vain attempted to
persuade the Jews to accept Christianity, was compelled to banish
them from England; and from 1290 to the time of the Commonwealth (a
period of about 360 years) the prohibition remained in force. But
the money-lender is a necessary evil; and after the departure of the
Jews certain Italian merchants, known as Lombards, who had previously
settled in England, immediately filled their place; and Lombard Street
became as notorious for usury as had been the Jewry.
The Jew may be described as a money-lender, and the Lombard as a
merchant-banker, though neither was a banker as the word is now
understood. Both, however, lent money at high rates of interest. A
banker, in the English sense of the word, is a middleman who borrows
from one set of persons at a rate in order to lend to another set at a
greater rate, the difference between the two rates being his margin of
profit; and banking in this sense was not practised in England until
quite the end of the first Charles’s reign, when certain goldsmiths,
who were originally dealers in plate and in bullion, became private
bankers. The first run upon them was made in 1667, when a Dutch
fleet sailed up the Medway; and, later, in 1672 Charles II closed
the Exchequer, refusing to pay the bankers either their principal or
interest, with the result that failures were numerous.
We are now approaching a new banking era; and in 1694 the Bank of
England, which was the first joint-stock bank established in the three
kingdoms, was incorporated. The private bankers, instantly recognizing
in her a formidable rival, were actively hostile; but all to no
purpose; and in a very little while they grouped themselves round the
Old Lady, who reduced their rates and kept them in order. Hoares and
Childs were in being before the Bank; but the goldsmiths, long before
the new movement was a brilliant success, had few direct descendants in
London; and the majority of those private bankers who opposed the Act
of 1833 belonged to another generation. At its inception the Bank did
not enjoy a monopoly; but upon the renewal of its charter in 1708 it
was granted the monopoly of joint-stock banking in England, while the
partners in a private bank could not exceed six in number. This number
was increased to ten in 1857.
Country banking developed slowly in England; and it was not until
towards the close of the eighteenth century that private firms began
to multiply in the provinces; but the Bank of England’s iniquitous
monopoly kept them small and weak, and between 1792 and 1820 over
one thousand private bankers came to grief, while the crisis of 1825
further thinned their ranks and almost emptied the vaults of the Bank
of England, when it dawned upon the Government that the state of the
money-market was distinctly rotten, and that it would remain so until
the Bank’s monopoly disappeared. The result was the usual committee and
the usual compromise.
The Act of 1826 allowed joint-stock banks of unlimited liability to
be formed in England and to carry on business at a greater distance
than sixty-five miles from London; but such institutions could not
open an office in London. Neither could they issue notes at a place
within sixty-five miles thereof, nor draw any bills on London for a
less amount than £50. In 1833, however, they were allowed to make
their bills and notes for less than £50 payable on demand at their
London agents. The demand for these establishments was not at first
considerable; and very few were formed until after five or six years
of the passing of this Act; but in 1830 the railway movement began in
earnest, and from 1833 to 1836 joint-stock banks were established
throughout the country in considerable numbers. This sudden boom in
banking companies could only have one result; and failures became so
numerous that Sir Robert Peel, in 1844, passed his Joint-Stock Banking
Act, which, being found worse than the disease itself, was repealed in
1857.
London, we have seen, contained only one banking corporation and
numerous private bankers, who, forming a monopoly, were practically
rich men’s banks; for they would only accept an account provided the
balance was not reduced below a certain sum, while from 1813 to 1833
some twenty of them suspended payment; so stability was not one of
their distinguishing characteristics. It soon became apparent that the
Bank of England and the private bankers were quite unable to minister
to the growing trade of the capital; and in 1833 joint-stock banks were
allowed to be formed in London, but upon the distinct understanding
that they were to be banks of deposit and not banks of issue. In other
words, they could not issue their own notes, so were compelled to use
those of the Bank of England. The first London joint-stock bank was the
London and Westminster, whose prospectus was issued in 1833; but the
shares were subscribed slowly, and the bank did not open its doors to
the public until the March of the year following. Then came the London
Joint-Stock Bank in 1836, and the Union Bank in 1839.
It is usual, in this little island, to hark back to the good old days,
and then, with a sigh, to regret that the old order of things no longer
exists; yet it must be confessed that the London private bankers were
of no service whatsoever to the small man of business, whom they simply
ignored. The joint-stock banks however, ministered to the wants of
the small trader; and, by diving into the heart of the masses, proved
that a large number of small balances are even more desirable than a
small number of large accounts, whilst in the end they practically
drove the private banker, handicapped as he was by the law of the land,
out of the market, or, at least, reduced him to impotency. But the
London joint-stock banks, in those early days, were not without their
grievances; and both the private bankers and the Bank of England seized
upon every pretext in order to harass them. Being merely common law
partnerships, they did not come under the 1826 Act; and until the Act
of 1844 they were not relieved from certain restrictions which need not
be discussed here.
But the year of banking reform was, of course, 1844, when, fortunately
for the trade of the country, the Bank of England was stripped of all
its privileges except that relating to the issuing of notes. The Bank
Charter Act of 1844 gave the Bank of England the monopoly of issuing
notes in London and within sixty-five miles of it. No new bank of issue
was to be formed, while a provincial bank, upon opening in London,
forfeited its issue. The cheque, however, soon became more powerful
than the note; and the larger provincial banking companies gladly made
the sacrifice in order to establish themselves in the capital. The
next step forward was when the joint-stock banks broke up the cabal of
private bankers and were admitted to the Clearing House in 1854; though
it is a little remarkable that, having posed as martyrs and vigorously
denounced their oppressors, they should now take upon themselves to
exclude certain companies which have as good a right as they to enter
the sacred portals of the House; but the mote in one’s neighbour’s eye
is always so much more apparent than the beam in one’s own.
By the Act of 1858 a joint-stock bank was allowed to limit the
liability of its shareholders; but the Act, was not made compulsory;
and though all the companies formed subsequently registered under this
Act the members of those in existence prior thereto were liable for the
debts of the company in which they held shares to their last shilling.
Then came the failures of the West of England Bank and the City of
Glasgow Bank in 1878; and shareholders in banks of unlimited liability,
with the fate of the members of these two institutions before their
eyes, began to weigh their responsibilities, with the result that many
sold out at panic prices in haste and regretted at leisure. The more
prudent, though they held their shares, began an agitation for reform,
which gave birth to the Act of 1879. We need not discuss this Act;
though it may just be said that every joint-stock bank in the three
kingdoms which is not limited by its charter is now a bank of limited
liability under the Companies Acts.
At this juncture, perhaps, a few words may be said with reference
to the Bank of England, which, with a contempt for evidence that is
truly British, the public is convinced cannot suspend payment; yet the
Bank’s career has been decidedly checkered; and even after the passing
of the Act of 1844 the Old Lady was only saved by the intervention of
the Government in 1847, 1857 and 1866, while during the Baring crisis
of 1890 she was compelled to borrow from the Bank of France; so,
evidently, her system is not by any means a perfect one; but one does
not expect perfection in finance. The perfect financial machine and the
perfect man are alike impossibilities. As to the latter, did he exist,
he would seem positively inhuman.
It need not be said that this sketch of the English banking movement is
necessarily imperfect, if only because of the small space into which
it is condensed; but the average reader certainly would not trouble
to digest two hundred pages on the subject of banking evolution; so
possibly it may prove acceptable in this form.
We have seen that the London private banker was a rich man’s banker;
but it was otherwise with the country private banker, who was often of
great assistance to the small trader, at whom the joint-stock banks
will not now look unless he approaches them with his pockets stuffed
with securities when anxious to overdraw his account. The maxim of
the companies is: “Let the customers take all risks.” And if this rule
is broken, then the case is an exceptional one. We need not discuss
here whether or not this policy be essential to modern banking; but
it is quite evident that the small man of business has lost a good
friend in the old-fashioned country banker, whose place has not been
taken by that person of peculiar views and training--the bank-manager
or clerk-in-charge, whose urbanity must be more than painful to those
would-be borrowers without security who ask for bread and are politely
offered--a stone.
What we have to discover is why the country banker has been practically
forced out of the market by the joint-stock system; and the reason is
not difficult to explain. In the first place we know that, since 1857,
the partners in a private bank have been limited to ten; consequently,
however anxious a banker may have been to extend his system of branches
and develop his business, the difficulty of insufficient capital
presented itself; whereas his rivals, who can appeal to thousands of
small investors, could, once having established their credit, easily
obtain as much capital as they required. The private banker, therefore,
ministered to the wants of a certain town, district, or county; but
the joint-stock banks spread their tentacles throughout the length and
breadth of England; and, like an octopus, eventually strangled him in
a manner which will be explained.
In London and throughout the provinces there were numerous small firms
of private bankers--small, that is to say, when contrasted with their
joint-stock competitors. The banks in a manufacturing district or in a
busy city would, especially during periods of active trade and rising
prices, be called upon to advance large sums to their customers; but if
a banker collected his deposits from a few branches within the district
whence the demand arose, he would soon find himself unable to meet the
requirements of his customers. But the joint-stock banks, which have
branches in many counties, can pour their deposits into those centres
where demand is active; and it is obvious that a small private banker
cannot hope to compete successfully against the superior organization
of the companies. With the private banker it soon became a question of
restricting advances; and his customers, finding that they could not
obtain all the accommodation they required, naturally applied to his
rivals, who, if tangible securities were forthcoming, met their demands
with ease.
The London and provincial banking companies, which farm both the
agricultural and the manufacturing districts, by pouring their surplus
capital into the London money-market, speedily obtained all the best
business; and those private bankers who did not either amalgamate with,
or adopt the system of, their successful rivals found themselves
hopelessly out-distanced. Hence the triumph of joint-stock banking and
the advent of the director and his humble, most obedient servant, the
clerk-in-charge, who “manages” a country branch, but whose power, in
reality, is of the smallest, all the applications for advances above
a certain sum having to be submitted to the chief office, while he
himself is powerless to act until he receives his instructions from
headquarters.
This form of competition would be felt less in an agricultural
county where the deposits a banker collects are greatly in excess of
the demand made upon him for advances; but even there the private
banker’s luck has deserted him; for the agricultural depression
thinned the ranks of his best customers, and, of course, left him a
legacy of bad debts. We should, therefore, expect to see the private
bankers disappear from the great towns first, and, finally, from the
agricultural centres. The law of the land has kept them small; and the
tentacles of the joint-stock companies have almost exterminated a class
of men who enjoyed the friendship and confidence of their clients to an
extent that a clerk-in-charge upon a salary of from £200 to £500 a year
can never even approach.
Though we live in an age of great machines, which, for reasons that
will be explained later, can declare huge dividends, every now and
again we hear of the inception of a new banking company. The new
arrival, perhaps, waxes more than eloquent upon the large dividends
paid by the existing companies, and then dwells enthusiastically upon
the immense profits it hopes to earn; but can a small company ever
establish its credit in face of the network of branches which now cover
the land? The person who applies for its shares must certainly be of a
most sanguine disposition.
It is the powers that be that always excite the keenest interest,
doubtless because of the possibility that a knowledge of their habits
and ways may prove of pecuniary benefit to the student; and this object
has been kept well in view throughout the following chapters.