Darlehnskassen and Other Financial Novelties in Germany
[319]Germany, at the outbreak of the war, removed the limit of notes issuable by the Reichsbank without tax; created about 1,800 Darlehnskassen (loan banks), located throughout the Empire, wherever the Reichsbank maintained a branch; they were started without capital, in lieu of which they issued Darlehnskassen Scheine (Imperial Loan Bank notes) in denominations of one mark and upwards, the aggregate amount being limited to 1,500,000,000 marks; these banks made loans against stocks, shares, produce, any personal property of a non-perishable character, as collateral, and issued certificates, having the quality of bank notes, to the borrowers; the loans ran for three and sometimes six months; the minimum loan was 100 marks; a very wide margin of safety was required, making the loans good beyond question; these certificates were receivable for public dues and by the Reichsbank; the smaller denominations circulated as money, the Reichsbank received the larger, giving its notes in exchange; these certificates were not legal tender, but were given the quality of gold and "may be considered by the Reichsbank as gold cover, which means that against 100 marks of these Scheine in its vault the Reichsbank is allowed to issue 300 marks of its own notes." (I. De Bruyn.)[320]...
Sir Edward H. Holden, president of the London City and Midland Bank, in a speech to his board of directors, January 29, 1915, said:
Germany proceeded to establish War Loan Banks, War Credit Banks and War Aid Banks under the patronage of corporations, municipalities and private financiers, and to make use of the Mortgage Banks already established....
The Mortgage Banks are under the control of Chambers of Commerce and municipalities, and they make advances on the mortgage of properties by an issue of notes....
Germany made greater use (than of the Darlehnskassen) of the Mortgage Banks, the notes of which are identical in power and use with the notes of the Darlehnskassen. Another part of their scheme was to relieve the pressure on insurance companies (life), by forming an insurance bank, which advanced 40 per cent. on the value of policies. These advances were paid on notes which were exchanged for Reichsbank notes in the same way as the notes of the Darlehnskassen and Mortgage Banks.
Germany, with characteristic system and detail, provided different kinds of banks to deal with different phases of the situation. War credit banks were designed to aid Germans whose credits became unavailable, owing to the exigencies of the war, as for instance those who had sold and shipped goods abroad (the enemy's country), whose accounts would be temporarily uncollectible, and those who might be otherwise embarrassed in their foreign trade because of the interruption of business caused by the war. War credit banks were more general in their dealings than war loan banks. In Germany, business is largely done upon credit, and especially so by small concerns and individuals, who possess no extended bank credit nor available collateral, and hence are not in position to make use of the Reichsbank or other commercial banks, or the Darlehnskassen.
A German banker says: "It was deemed advisable to create an institution of an intermediary character which would bear the greater share of the risks involved. The so-called war credit banks are designed to serve this purpose. They were established throughout the country, have their own capital, and the obligations undertaken by them are guaranteed, and losses, if any, refunded by the respective municipalities and commercial associations. The war credit bank of Greater Berlin, for instance, was established with a capital of 18 millions of marks, of which 25 per cent. are fully paid in. In addition thereto, there is a liability of 11.5 million marks by official bodies of commercial organizations."
Still another kind of war credit bank was created on the co-operative plan to assist the middle and lower classes.
Through the instrumentality of these institutions, a large amount of credit instruments, possessing a currency function, was brought into existence in Germany....