Interview with Sir Felix Schuster, Governor of the Union of London and Smith's Bank Limited
[156]Q. Your bank is organised under the General Companies Acts as are all joint stock banks in England?
A. Yes.
Q. You are not under government supervision or examination?
A. No.
Q. The authorised par of your stock is £100, and £15 10s. have been paid on each?
A. Yes.
Q. Are your shares held by individuals and corporations?
A. By individuals, not by corporations. There are upwards of 8,600 different shareholders.
Q. In the transfer of shares, do you require the name of the transferee to be submitted and approved before the transfer is made?
A. Yes.
Q. That of course is in order to insure the responsibility of your stockholder?
A. This is in order to insure the responsibility of our stockholder, and to prevent one holder from securing too large a holding. Furthermore we give no single proprietor more than 20 votes, however large his holding may be. Every 10 shares carry one vote, so the holder of 200 shares has a maximum number of votes.
Q. Is that the usual custom with the joint-stock banks of England?
A. I am afraid I cannot answer offhand. I suppose it is so in some cases, but the practice varies.
Q. In London there is usually a difference between the rates charged on loans and bills in favor of bills, is there not?
A. Yes.
Q. Would you say that that difference is perhaps from one-half to 1 per cent. in favor of the bill?
A. It depends so very much on the circumstances of the moment that it is very difficult to generalise. At the present moment I would say a three months' bill is worth 1-7/8, and a three months' loan would be worth perhaps 3-1/2.
Q. Were most of your branches organised by you or were most of them other institutions purchased by you?
A. Some of them were other institutions; some of them were organised by us; most of them were those old banking firms which were carried on as private businesses and have since become branches of our bank.
Q. The tendency is for the consolidation of banking in Great Britain, is it not?
A. Yes.
Q. Very strongly in that direction?
A. Very strongly in that direction, yes.
Q. As a matter of fact, a large part of the commercial banking in England is done by about a dozen institutions, is it not?
A. In Liverpool and Manchester there are very important local banks. However, it is no doubt the fact that four or five banks do about half the banking business.
Q. In the main you believe that the banking situation is stronger and better and the country is better served through the system of branches than through the independent banks?
A. I am quite convinced of that, if only for one reason, that I do believe the indiscriminate granting of credits to the individual is injurious to himself, the private bankers being too much in the habit of regarding old family associations and not so careful as the joint-stock company would be, and he has accustomed people to trade on the credit that they get from the banker. I do not think that is banking business. The bank ought never to supply the trader with working capital. I think it is bad for the trader.
Q. Is it not quite essential to the success of a financial institution doing a commercial business to become a member of the Clearing House if it is to meet with a large degree of success?
A. No. After all, there are only seventeen banks, I believe, now in the Clearing House, but there are a great many other institutions who are not members of the Clearing House and who do not suffer from that fact. Scotch banks with branches here who do a large banking business are not members of the Clearing House. There are all the colonial banks with head offices or branches in London and other large institutions; those are not members of the Clearing House. There are Barings and Rothschilds; they are not members of the Clearing House.
Q. Would you say the Bank of England is in any way a competitor of the other banks in England?
A. Yes. That is a source of very grave complaint by the other banks.
Q. The Bank of England do not pay interest on any accounts?
A. No; but in some cases they act as intermediaries for lending money. It is a very subtle distinction.
Q. While the bank rate is fixed and is to-day, say 2-1/2 per cent., is it not a fact that the Bank of England does some business for its customers and also purchases bills for their account at a lower rate?
A. That is so, and that is one of the matters of complaint. By fixing the rate at 2-1/2 per cent., or 3 per cent., or 4 per cent., they can regulate the rate we fix for our own customers. We regulate our deposit rate in accordance with the bank rate. We also regulate the rate we charge for our loans in accordance with the bank rate, and we are bound by it to a certain extent, and they themselves feel at liberty to depart from it.
Q. What does the bank rate mean; what does it govern in fact?
A. It means the general charge to the trade of the country, because although we say that bills in the market are discounted at a lower rate than bank rate, yet there is a vast number of trade bills which are purely governed by the bank rate.
Q. We found both in Germany and in France the question of the amount of reserves, either in specie or in bank, was regarded as of little importance by the bankers. They depend on the Reichsbank and the Bank of France for rediscount in times of need.
A. Both in France and in Germany banks are much more dependent on the central institution than we are here. They lean on their central institution to a very great extent; for instance, the rediscounting of bills and borrowing from the central institution is, I believe, quite a usual occurrence. Here it is an occurrence which would only take place in the last resort. As far as I am aware this bank has never as long as it has been in existence had one penny from the Bank of England, whether by way of advance or by way of a discounted bill. We do not rediscount our bills in the market either; so every transaction we enter into we have to see through to the very end.