THE FRENCH BANKING SYSTEM
THE BANK OF FRANCE
[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withdrawn since.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, possesses _ipso
facto_ a valuable reserve in case of emergency....
I need not recall the remarkable role 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 commerce has 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._
France 3.8
Holland 3.52
England 3.62
Belgium 3.65
Switzerland 4.14
Austria 4.22
Germany 4.50
CASH HOLDINGS OF THE BANK OF FRANCE
[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 nevertheless established 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.
PLACE OF THE BANK OF FRANCE IN THE DISTRIBUTION OF CREDIT
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.
LOCAL BANKS AND THE FINANCIAL INSTITUTIONS
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.
The _intuitus personae_ (the judgment of 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 Credit Lyonnais, the Comptoir National d'Escompte de Paris, the
Societe Generale, and the Credit 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 the Bank 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 role 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 a poorly informed public against the excesses of speculation
which dazzle with the hope of an always illusive gain.
IN WHAT MANNER THE BANK OF FRANCE PROMOTES THE FREE DISTRIBUTION OF
CREDIT IN FRANCE
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 Societe des Depots 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.
IN WHAT MEASURE THE BANK MUST CONTROL CREDIT
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 Generale, 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, curb the 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 Credit
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.
TERRITORIAL EXPANSION OF THE BANK OF FRANCE
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 the bank 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 desires to 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.
THE BANK OF FRANCE AND AGRICULTURAL CREDIT
"There is no such thing as agricultural credit; there is only credit,"
said M. Dupin in 1845.[174] Matters have not changed since. 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 the benefit 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.
THE BANK OF FRANCE
INTERVIEW WITH M. PALLAIN, GOVERNOR OF THE BANK OF FRANCE[177]
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
Credit Lyonnais?
A. The Bank of France and its numerous branches do all banking 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
Credit 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 more than
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 capital which 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.
THE CREDIT LYONNAIS
INTERVIEWS WITH BARON BRINCARD, ADMINISTRATEUR DELEGUE, AND OTHER
OFFICIALS OF THE CREDIT LYONNAIS[178]
Q. What is the date of the organisation of the Credit 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 Credit 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 Credit Lyonnais and other banks the rate
may be sensibly below that of the Bank of France.
Q. Can you state the number of employes in the Credit 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.
COMPTOIR D'ESCOMPTE
INTERVIEW WITH M. ULLMANN, DIRECTOR OF THE COMPTOIR D'ESCOMPTE[179]
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 Credit Lyonnais?
A. The Credit Lyonnais and the Societe Generale 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 Credit Lyonnais and the
Societe Generale, do not usually participate in syndicate operations
covering the _shares_ of 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 conservative rules 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 Credit 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 employes have you?
A. Including the country, something like 5,000.
Q. Have you a pension system for your employes?
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 Francaise, managed by M. Rouvier, who
formerly was Premier.
BANQUE DE PARIS ET DES PAYS-BAS
INTERVIEW WITH M. MORET, MANAGER OF THE BANQUE DE PARIS ET DES
PAYS-BAS[180]
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 Societe Generale, Credit 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.
CREDIT FONCIER DE FRANCE
INTERVIEW WITH M. TOUCHARD, SECRETARY[181]
Q. Is the Credit Foncier a public institution?
A. Yes, it is a mixed institution; it is at the same time a joint-stock
company and a society under the control of the Government by reason of
privileges which the Government has granted to it.
Q. Who are the shareholders?
A. Any one; the shares are dealt in on the Bourse. The firm capital is
at present 200,000,000 francs; the shares are issued at 500 francs.
Q. What dividend do you pay?
A. We now pay 6 per cent.; for several years it was only 5 per cent.
Q. Does the Government receive no income from it?
A. No; on the contrary, the Government began by giving us a subsidy of
10,000,000 francs; that was at the beginning, in 1852, in order to help
us make loans at a rate advantageous for that time. This subsidy was not
renewed, and the State does not intervene now, except occasionally to
exercise its control.
Q. Does the company appoint the officers?
A. The Government appoints the governor and the two sub-governors. There
must also be three treasurers-general among the 23 members of the
council of administration. These treasurers, as well as the other
administrators, are named by the general assembly of stockholders; but
before presenting their names to this assembly, it is customary to
obtain the approval of the Minister of Finance.
Q. Do you pay the same taxes as the other banks?
A. Yes. We are treated like any ordinary bank. We have the special
privilege of issuing bonds secured by mortgages. It is a very
complicated system in France; there are legal complications which would
render it impossible for any corporation to undertake the business
unless it had special privileges.
Q. Are you confined by law to business with mortgages?
A. We have two principal kinds of operations--mortgage loans and
communal loans. The total business of the two branches of operations
amounts at present to about 4,000,000,000 francs. Operations on so large
a scale involve a considerable transfer of funds, and make necessary a
treasury service requiring, of course, the use of banking methods. Our
statutes, therefore, recognise our right to carry on ordinary banking
operations, within certain rather sharply defined limits.
Q. How is your banking business limited?
A. We are allowed to receive deposits up to a maximum of 100,000,000
francs.
Q. Do you invest in securities other than mortgages?
A. We employ our deposit funds in discounting commercial bills on
condition that they have two signatures and can be presented to the Bank
of France; that is to say, they must not run over three months.
Q. You take mortgages on private estates?
A. Our mortgages may be on houses or on rural property.
Q. What is the precise relationship of the stockholders to the business
of the company? Have they really a voice in the administration?
A. The two hundred largest stockholders meet once a year to ratify
accounts, vote the dividend, and consider the questions docketed for the
day of the meeting.
Q. What is the usual length of time for mortgages on real estate?
A. Our statutes allow us to loan for seventy-five years on ordinary
rural or city property. In the case of summer resorts and certain other
property liable to depreciate rapidly, for the sake of prudence we do
not generally lend for more than thirty years; besides, the borrowers
always have the right to repay at any time, and they often avail
themselves of this right, so that the average length of our loans is
much less--hardly exceeding fifteen or twenty years.
Q. What is the cost for amortisation in the long mortgages on property
in the country?
A. The amortisation is spread over the whole duration of the loan, so
that the total of the interest paid and the capital reimbursed forms a
constant yearly annuity.
Q. Do you employ your amortisation funds to buy new mortgages?
A. Yes; we lend again.
Q. May you call your bonds at par? Are they payable at par at your
option?
A. In our recent issue we have put that clause in, viz., that we can
redeem our bonds at par. Generally we only redeem a certain portion of
them each year, which are drawn by lottery.
Q. What is the minimum size of your mortgages on private estates?
A. There is no minimum; but we do not care to make very small loans
because it costs too much to foreclose.
Q. What percentage of your total business is in the country and what in
the city?
A. About one-half in Paris, and our best business is in Paris. The urban
mortgages cause us less difficulty, and the tendency is for the
proportion of them to increase.
Q. Who are the subscribers to the bonds, and what are the usual sums
subscribed? Are they small or large?
A. They are bought by small people, and generally remain in the hands of
persons of small capital. This is one of the reasons why their
quotations show so little fluctuation.
Q. Do you lend on farms?
A. Yes. Up to one-half, except on forest land, vineyards, and the like,
on which we lend only one-third. We do not lend on mines. On factory
buildings we lend only on the value of the ground and of the building,
independently of its industrial value.
Q. What other institutions of this character are there in France?
A. There are no others; we no longer have a _legal_ monopoly, but we
very nearly have a _practical_ monopoly. There are private individuals
who make mortgage loans, but no large company makes this the principal
feature of its business.
Q. How long has it been the privilege of the Credit Foncier to add
lotteries to its loans?
A. It has done so from the beginning, although we are obliged to ask the
permission of the Minister, but it is on that account that we have been
able to place our bonds so low.
CAISSE DES DEPOTS ET CONSIGNATIONS
INTERVIEW WITH M. DELATOUR, GENERAL DIRECTOR OF THE CAISSE DES DEPOTS ET
CONSIGNATIONS[182]
Q. We should like to know the general character of the business
conducted by your institution.
A. The mission of the Caisse des Depots et Consignations is to receive,
hold, and repay all private funds intrusted to the State either
voluntarily or under compulsion.
Q. You say that you also do an insurance business. What do you mean by
that?
A. The insurance office, managed by the Caisse, issues policies of life
insurance, insurance payable after death or in case of accident, like
any private insurance company. As regards accidents to employes while at
work, it insures only against such accidents as cause death or permanent
total or partial incapacity for work.
Q. Is this a corporation?
A. The Caisse des Depots et Consignations is not a corporation. It is a
state organism, but, while charging the Caisse with the management of
all private funds, which may be turned over to it by the State under
different headings, the legislature bestows upon it full autonomy, in
order to avoid even a semblance of possible confusion in the handling of
private moneys with the handling of public moneys. Moreover, it has
placed the Caisse under the direct supervision and the guaranty of the
legislative powers.
Q. What is done with the profits realised from the business?
A. Profits earned by the Caisse on deposits of the savings banks are
turned over to the reserve and guaranty fund of savings banks.
Q. What restrictions govern the investment of your funds?
A. As long-term investments, we make loans to departments and
municipalities, sometimes to the State; we take government rentes,
treasury securities, guaranteed railroad bonds, etc. As short-term
investments, we take treasury bonds, bonds of the Monte de Piete of
Paris (municipal pawnshop), etc. Finally, we keep large sums in cash,
either in our own vaults or to our credit in the treasury and the Bank
of France, which, for that purpose, keep account currents on demand for
us.
Q. You do not, as a rule, invest in mortgages?
A. No; owing to the difficulty in disposing of such investments.
Q. You purchase no bills and do no commercial business whatever?
A. No; that role is played by the Bank of France. Sometimes we make
advances on securities, but only on treasury bonds.
Q. Your organisation is quite unique in the world, is it not?
A. There is nothing like it in England or America, but there are similar
institutions in Belgium and Italy, for instance. In France this
institution is highly appreciated by the lawmakers, who steadily
increase its functions, and the number of laws and regulations governing
the Caisse is ever growing.
Q. It is customary in France for savings banks to carry their reserve
with this establishment?
A. The savings banks are bound to turn over to us all they receive from
their depositors, except such sums as may be required to meet immediate
demands.
Q. Then, as a matter of fact, this is a central bank for the savings
banks of France?
A. Precisely.
CREDIT AGRICOLE
INTERVIEW WITH M. DECHARME, CHEF DU SERVICE DU CREDIT MUTUEL ET DE LA
COOPERATION AGRICOLE AT THE MINISTERE DE L'AGRICULTURE[183]
Q. What is the nature of the business of the Credit Agricole and when
was it instituted?
A. The first law was in 1899. The first bank was opened in 1900. The
Credit Agricole is based upon local organisations. France is divided
into 86 departments, in each of which we are to have a regional bank
(_caisse regionale_); and we hope eventually to have a local office
(_caisse locale_) in each commune of each department. Among these 36,000
communes there are many which are cities, which naturally would not have
agricultural banks. There are only 2 out of the 86 departments in France
which have not already established a regional bank.
Q. Who furnishes the capital?
A. The basis of the system is the local office of the Credit Agricole in
which each member--local farmers--has one or many shares of 20 francs,
but on which he has to pay only 5 francs down. On payment of these 5
francs he becomes a stockholder. When a local office has been
established it turns all of its capital over to the regional office.
Then comes the State which advances to the regional bank an amount four
times the capital which has been subscribed by the local banks. The
money given by the Government is not really given; it is lent without
charge, without interest.
Q. For what purposes can this capital be used?
A. The regional office does not lend directly to the farmers; it lends
to the local office, and the local office has a board of directors which
examines the demands of the various members.
Q. Under what conditions do they make loans to farmers, and are their
loans confined entirely to people engaged in agriculture?
A. The State loans to the regional office without interest; the regional
office loans to the local office at 3 per cent.: the local office loans
to the farmers at between 3-1/2 and 4 per cent.; in the northern region
at 3-1/2 per cent.; in the southern at 4 per cent.
Q. Under what conditions?
A. The farmer who wants to borrow from the local office draws a bill
upon himself, takes it to the local office, and the board of
administration there considers it. If they approve it, the president
signs it--and it has then two signatures--and then sends it to the
regional office; if the regional office has plenty of money they will
lend the money directly; if not, the president of the regional office
signs it--it has then three signatures and is bankable paper--and it is
taken to the Bank of France. During the crisis in the south of France
last year in the wine-growing region at Montpellier, the centre, the
regional office had one million capital; the Government then added 4;
that made 5, but they lent at that office all together 16 millions, and
the difference was obtained from the Bank of France in the way described
by using paper with three signatures. Before the founding of these
agricultural societies it would have been difficult for a farmer to
obtain the three signatures necessary to borrow from the Bank of France,
and what happened last year in the south of France could not have
occurred before the organisation of the Credit Agricole. It should be
added there has never been one cent lost by the Credit Agricole.
Q. Are all loans made to members?
A. Yes; exclusively to members.
Q. Who can become a member?
A. Farmers; agricultural workmen are excluded. We do not lend to people
for nourishment to support themselves. We lend them money to increase
the production of the land.
Q. Must a man have some share in the crops?
A. We lend money to buy a horse, a cow, or to buy fertilizer. We will
lend to a man who rents a farm, but does not own it, to buy machinery,
cattle, etc., but we will not lend to a man who wants to borrow the
money for his own consumption; we do not lend money for a man to buy a
coat, for instance. These local offices are in communities where
everybody knows everybody else, and they always ask what the man wants
to borrow for, and if he says he wants 400 francs to buy a cow, they
watch him, and if four or five days afterwards he has no cow, they know
it. As the liability is without limit, the other members of the locality
would be responsible. At the beginning the farmers were afraid of
unlimited liability, and on that account they had to make it limited,
but now, in all of the new offices, the responsibility is unlimited.
Q. What are your co-operative societies?
A. They are societies for the production, preservation, sale, or
transformation of agricultural products. There are co-operative
agricultural societies in the wine-growing regions which have their own
wine cellar; there are co-operative dairy societies for making butter
and cheese; there are also co-operative societies which use waterfalls
and electricity; co-operative mills to grind corn; co-operative railways
to bring beet roots to the sugar refinery; co-operative distilleries and
co-operative warehouses for corn. To these co-operative societies we
make loans for twenty-five years. The Government loans without charge to
the regional office and the regional office lends to these co-operative
societies for twenty-five years at 2 per cent.
Q. What is the security?
A. The guarantee is the consolidated liability of all of the members of
these co-operative societies and also a mortgage upon their real estate;
their responsibility is absolutely without limit.
Q. Do you compete at all with the branches of the other banks or with
the Bank of France?
A. No; we have an entirely different class of customers.
Q. Is there any other institution of this character in France, or do you
practically cover the field?
A. The members of these local offices are people who up to the time
these local offices were organised had never had any banking connection
at all. The only persons with whom the local offices compete are
individuals who used to loan to farmers at very high rates of interest.
FOOTNOTES:
[165] M. Robert Masson, Sous-Directeur du Credit Lyonnais, _The Bank of
France_, an address delivered at the annual banquet of the bankers of
the city of New York, January 19, 1914.
[166] Adapted from Maurice Patron, _The Bank of France in Its Relation
to National and International Credit_. Publications of the National
Monetary Commission, Senate Document No. 494, 61st Congress, _2d
Session_.
[167] "Compte rendu de l'assemblee generale des actionnaires de la
Banque de France," 1891.
[168] Burdeau, "Discours sur le renouvellement du privilege de la Banque
de France," June 29 and July 6, 1892, in the Officiel of June 30 and
July 7.
[169] The Bank of France, during periods of quiet and prosperity, aims
at a gradual effacement, at a more complete retreat toward a very high
but very restricted sphere of economic activity. But as soon as the
least trouble appears ... the Bank assumes again its place at the head
of our great financial institutions. (Brouilhet, "Le nouveau regime de
la Banque de France." Revue d'Economie Politique, 1899.)
[170] The discounts and loans of the financial institutions are growing
in importance, and are steadily increasing in proportion to those of the
Bank. This condition, revealed by statistics, is in itself not alarming,
but it once more justifies that intervention, so many motives for which
we have brought out.
[171] It seems that this protective mission especially applies to the
department for stock market orders, originally reserved for the
customers of the Bank, and later opened to everybody. Thus it prevents
the financial institutions from driving us toward excessive speculation.
This purpose explains, according to our notion, the growth and
broadening of the business of stock market orders at the Bank of France.
[172] P. Coq, "Les circulations en Banque," Paris, Guillaumin, 1865, p.
38.
[173] The indirect expansion might be increased by wider use of the
"crossed check." It will be long before we may expect good results from
this practice, since we are as yet too far from the time when this
check, almost unknown in France, will be currently used.
[174] Journal Officiel, 1845, p. 2471.
[175] The main reason lies in the numerous formalities which the law of
April 30, 1906, has simplified but not suppressed, in the many expenses
caused by the organisation, and also, it appears, in the inexperience of
some of the officials. The clerks of the justices of the peace,
intrusted with the delicate and novel functions of registrars of chattel
mortgages, are, as a rule, little fitted to perform them.
[176] The model of these institutions came to us from foreign countries;
but the foreign differ from ours materially, because of the diversity of
their origin. With our neighbors, the movement began slowly in the
lowest levels of the rural population. With us, on the contrary, the
system of agricultural associations began at the top. Thus, these
institutions penetrate only with difficulty into the rural districts,
where economic education has but just begun.
[177] Adapted from _Interviews 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. 189-218.
[178] Adapted from _Interviews 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. 219-248.
[179] Adapted from _Interviews 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. 249-267.
[180] Adapted from _Interviews 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. 268-276.
[181] Adapted from _Interviews 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. 277-291.
[182] Adapted from _Interviews 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. 296-308.
[183] Adapted from _Interviews 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. 309-322.