An English Provincial Bank.

Liabilities to the public upon current, deposit and other accounts are given in the balance-sheet as £4,200,000. The bank’s liquid assets are thus described:—

Ratio per cent.
of liquid assets
to public liabilities
of £4,200,000.
£ £
Cash in hand, at call and at
short notice582,750 13·8
Consols and other securities172,170 4·1
£754,920 £17·9

This bank’s position might be described in one very short word. In the first place, it has neglected to state the amount of its cash in hand and with bankers at call separately, but has mixed it up with its loans at short notice. The only deduction to be made is that the bank possesses so little legal tender that it deems it prudent not to give the figures in its balance-sheet, but to inform the public that it holds £13·8 of cash in hand, at call and at short notice to each £100 of its public indebtedness. The second entry is equally vague. We are quaintly informed that this unique institution, which owes some millions on demand, is in possession of a certain amount of Consols, but the exact sum, and the price at which they are taken, have been left to our imagination, so the bank may be the proud possessor of either £100 or £1,000 of Consols; and goodness only knows what is meant by “other securities.” The second column of our form, however, shows us that this company held £4·1 of “Consols and other securities” to each £100 it owed to its customers. Then, with a touch of true comedy, the auditors tell us that the balance-sheet, in their opinion, exhibits a true and correct view of the state of the bank’s affairs. One’s very soul goes out to those auditors, and a longing seizes hold of one to pat them on the back and shout bravo! No doubt the statement is true and correct, but how strangely incomplete.

Of course there is a serious side to this question. The bank, we can see from the total in our ratio column, held only £17·9 of cash and certain securities in reserve against each £100 it owed to the public. Obviously it is trading on the reputation of its better-prepared rivals, who, should a determined run be made upon it, might feel disposed to save it; but during a crisis, when each company has to take care of itself, such a bank, were its depositors to become nervous, would be compelled to close its doors in a very few hours. Now, would any sane person buy the shares of this bank at a price which returns him about 4½ per cent. on his capital, and incur a liability in excess of the amount of his holding? One would say emphatically not; but it is a remarkable fact that people are to be found who will take this risk with a light heart. Surely they cannot understand the nature of the security they are buying.

A bank which is caught short of cash during a crisis must apply for assistance to the Bank of England, and the Bank, which at so critical a time is the only market for securities in existence, would, before making it an advance, demand to see its securities. This bank, we know, possesses a list of “Consols and other securities” which it values at £172,170; but if the Bank advanced £100,000 against them, which is highly improbable, how could it pay off even £500,000 of its deposits? It seems to me that it must go under. The usual fate of these weak provincial banks is amalgamation with the better managed and more powerful companies, but the danger is that a storm may sweep them out of existence before they drift into one or another of these havens of rest. Fortunately, the state of the bank in question is exceptional rather than representative, but it is unwise to jump to the conclusion that the shares of every English bank are a desirable investment.

Our second illustration deals with the balance-sheet of one of the large joint-stock banks whose liabilities on current, deposit and other accounts amounts to £26,652,300. The liquid assets held in reserve against this sum are:—

Ratio per cent.
of liquid assets
to public liabilities
of £26,652,300.
£ £
Cash in hand and at Bank of
England4,009,622 15·0
Money at call and short notice6,876,195 25·8
£4,000,000 2½ Consols at 90;
£500,000 Local Loans
Stock at £1004,100,000 15·4
£14,985,817 £56·2

Ambiguity is not the dominant note in this balance-sheet. We can see at a glance that the bank is well prepared to pay off a large proportion of its indebtedness on demand, for it holds £15 in cash against every £100 it owes. Money at call and notice (short loans to the bill-brokers and stockbrokers), which is much less liquid than cash, is stated separately, and its list of investments consists entirely of British Government securities. Moreover, we are told at what price they have been taken. The balance-sheet, though not perfect, is clear and informing; but a company that holds £4,000,000 of Consols at 90 would not be so foolish as to hide its financial light under a bushel; so when a bank modestly refers to “Consols and other securities” we may be quite sure that its holding of Consols is either remarkably small or else that its directors are exceedingly stupid. It is more probable, however, that they are astute gentlemen who reason that the luminosity of a farthing dip might call forth smiles of wonder and amazement were it allowed to shed its radiance and waste its fragrance outside the bushel.

The bank we are discussing, then, held £56·2 of cash, call money and gilt-edged securities in reserve against each £100 of its liabilities to the public; and such a bank, it need not be said, is splendidly prepared to protect the balances of its depositors and the interests of its members. As a matter of fact, the real interests of both are identical; for if a bank neglects to keep an adequate reserve of cash and securities it exposes its customers to the risk of loss and inconvenience through its stoppage during a run or a panic; as, should the bank suspend payment, the customers must either suspend too, or find another banker, while its shareholders might lose all their capital and also be called upon to make good any deficit. Obviously, then, the bank which holds £56 in liquid assets to each £100 it owes is the one with which to do business. The shares of this bank return about 4½ per cent. at the present market price; and seeing that the company has minimized the risks of its members its shares will be chosen in preference to those of the institution which has accumulated a somewhat doubtful reserve of liquid assets which works out at a ratio per cent. to its liabilities of only £17·9.

We next come to a banking company’s profits, which are a source of great annoyance and wonderment to certain people, who cannot understand how dividends of from 10 to 20 per cent. can be earned in the worst of times when everybody else is feeling the depression in trade acutely. The mystery is not very profound, for a banker’s business, of course, is only profitable so long as he can trade with the money of his depositors, and, as his own capital is usually small when compared with his deposits, it follows that a very small percentage on his working resources will return a high rate of interest upon his capital. Upon a certain amount of his deposits he allows a rate which is regulated by the Bank rate; and he charges a rate upon his loans and advances, the said rate being also more or less influenced by the Bank rate, the difference between the two rates representing his margin of gross profit. He regulates this margin by changing his deposit rate at each alteration of the Bank rate, but he also obtains money upon which he does not pay interest, and as that sum earns considerably more when the Bank rate is at 4 than when it is at 2½, it follows that his “free” money is largely responsible for the fluctuations of his dividends.

But a banker cannot trade with all his deposits. He has to keep a certain sum lying idle in his safes and tills, and with his London agents or the Bank of England. He further requires a good list of securities which can be either converted or pledged with the Bank of England should occasion arise, and such a list will not return him much more than 3 per cent. upon the sum devoted to that purpose. Then he employs a portion of his funds in the short-loan market, so he has only about 60 or 70 per cent. of his deposits to advance in the shape of loans, overdrafts and discounts to customers. In other words, a well-managed bank has to devote a large proportion of its resources to insuring its business.

Take the bank in our second illustration. Its paid-up capital amounts to £2,800,000, and its reserve fund to £1,600,000, so the shareholders’ funds come to £4,400,000. Deposits and other accounts are £26,652,300, making its total working resources £31,052,300. Now the net profit earned during the half-year was £207,869, so the bank cleared ·669 of a pound upon each £100 with which it was trading; and seeing that the trader expects to make 10 per cent. on his turn-over, it is pretty evident that bankers’ profits shrink into insignificance when compared with his. But the bank’s paid-up capital is only £2,800,000; and as £14,000 will pay 1 per cent. per annum for the half-year on that, this profit of £207,869 enables the bank to declare a dividend at the rate of 14 per cent. per annum, and to carry a large amount forward to the profit-and-loss account of the next half-year; yet it can hardly be said that its earnings on £31,000,000 are enormous; still, they look it when metamorphosed into a rate of 14 per cent. But this is only another illustration of how easily the crowd can be deceived by statistics.

It would be absurd to attempt in a short chapter to discuss the price of bank shares; but as the banking companies, unless they enjoy an exceptionally sheltered position, earn less during those periods of depression which from time to time overtake the trade of the country, it follows that their dividends, like their deposit rates, rise and fall with the Bank of England rate. Bank shares, therefore, can be bought cheaply when trade is bad and loanable capital cheap. As the so-called gilt-edged securities, during normal times, should then be dear, it often pays to sell out of the latter, invest in bank shares, and wait for the turning of the tide.

CHAPTER XIII
THE PAY OF BANK-CLERKS

It cannot be said that bank-directors, when considering the question of remuneration, err on the side of generosity; but nobody would dream of accusing them of that crime, and if the bank-clerk is not paid lavishly, his salary, as a rule, is appreciably above the wages paid for clerical labour in the open market. Nor can it be affirmed that the country private banker was one whit more generous than a board of directors. Indeed, the evidence points in quite an opposite direction, for the clerks of those firms which have been absorbed by the companies generally profited by the change; so it must be allowed that the joint-stock system has raised the standard of comfort of the bank-clerk. Certain of the London private bankers were more liberal, and others, again, had the commercial instinct strongly developed, but we shall see the salary scales of the joint-stock banks are not calculated to excite envy in the mind of the multitude, unless we except the unemployed and the hungry.

The following scale is that of a large London and provincial banking company:—

General managers£1,500to£2,000
Managers in a city500to1,500
Managers in towns of from 40,000 to 60,000 inhabitants350to500
Managers in small country towns250to350
Inspectors (with one guinea a day for travelling expenses)300to500
Accountants or chief-clerks160to210
Cashiers160to210
Clerks80to160
Apprentices30to50

At the head-office in London, where there is a special scale, the city-manager would receive from £1,000 to £1,500 a year, and the chiefs of departments from £300 to £1,000, according to the importance of the department, while the salaries of the ledger-clerks would be raised £10 each year until the maximum, £300, had been reached. The maximum for clerks is £180. At the metropolitan and suburban branches however, the salaries are the same as those set out in the foregoing list, and the managers would receive from £300 to £800 or so a year in proportion to the business done at the branch. Very few of the joint-stock banks would pay a higher scale of wages than this, and the great majority of them, especially the purely provincial companies, would pay considerably less, while the Scotch banks are niggardly in the extreme—a little national characteristic. It is on record that a clerk in a certain Scottish banking company, whose head-office is at Aberdeen, was receiving £30 a year at the end of five years’ service. In a fit of unaccountable generosity his salary was then raised to £50 per annum, but the recipient remarks that he showed his gratitude by promptly moving to London.

Adverting to our list, we can see that a youngster entering this bank at the age of, say, seventeen, gets £30 a year, out of which he has to pay certain subscriptions. At the age of twenty his salary would be increased to £80, and £10 at the end of each year’s service would be added until the maximum for clerks, £160, were reached. He would then be twenty-eight, and there he would have to wait for the bank to make him either a cashier or an accountant before he could proceed to the next step. A few men remain clerks all their lives, but the percentage would be a very small one, and in every probability the clerk might count upon being promoted at the age of thirty-three or thirty-four. With good luck, or should he chance to have a friend at “court,” he might gain this step at thirty.

Assuming that he were made a cashier at thirty-one, he would start with a salary of £170, and, rising £10 a year, would reach the maximum of this class, £210, when he was thirty-five years of age. The percentage of men who remain in this class all their lives is appreciable, and the average man probably would not get a small branch before he was forty-five or forty-eight. Of course, if he successfully accomplished some such feat as marrying the plain daughter of a general manager, or should he be distantly related to a director or a Lord Mayor, he might get a branch at forty. But the prizes are for the very few, and those men who do really well, after having managed a small branch to the satisfaction of the board, are sent to a larger office upon a salary of £400 a year rising to about £600. At this rate a clerk would be from forty-eight to fifty-two or three before his salary was £400 a year, and it must be remembered that these are the fortunate ones; so it is evident that the majority of clerks in a bank simply eke out an existence.

On the other hand, they are better paid than the average merchant and solicitor’s clerk, while their employment is constant, and, as a rule, they are entitled to a pension, should they survive the monotony of their surroundings, after having attained the age of sixty. Seeing that these young men are drawn from the same class as the merchant’s clerk, and that the demand for their berths is greatly in excess of the supply, it appears at first sight that £160 a year is a fair wage for a person whose principal accomplishments are a bold round hand and the ability to add up long columns of figures with accuracy and despatch. However, it seems improbable that a father, after having carefully considered the chances, will choose a banking career for a son who can pass examinations successfully.

Then, again, the average youngster has more chances in business; for while a few hundred pounds will establish him as a trader, as many thousands will not enable him to become a banker. The banks, so to speak, take their men right off the market, and give them a special training, which fits them for banking alone, but which, as a rule, totally unfits them for any other business; consequently, when a bank-clerk suddenly find himself flung back on the market, he at first usually feels as helpless as a bird which suddenly turned out of the cage in which it was bred, is compelled to sustain life after the manner of its kind. As the bank-clerk generally enters a bank for life, he has a right to expect that the shareholders and directors will at least recognize this fact, and, therefore, pay him a salary based, not only upon the market price of clerical labour, but also upon the assumption that he will pass his days in the service of a company in which he will always be a servant. In other words, as the directors practically hire these men for life, it is their duty to make their circumstances fairly easy, but this is an obligation which the majority of them quite fail to recognize.

The smaller banks have a much lower scale than that given in these pages; and certain of those companies which are pushing out small suburban tentacles in every direction pay the managers of these offices from £80 to £120 a year, and the clerks in proportion. Moreover, some boards have passed resolutions to the effect that no clerk in their service shall marry until his salary be such-and-such a sum; and it seems intolerable that a body of men, who are merely traders, be the resolution good or bad, should be allowed to interfere with the liberty of the subject in this arbitrary fashion. Mr. Punch’s advice is doubtless excellent; but who are these men, in their astounding consequence, to override the law of the land? The whole nation should indignantly protest against their impudence, for a mere trading company, whose only object is gain, is unfit to govern the sons of men. Possibly, if these banks were to publish their salary scales their sham philanthropy would be instantly apparent.

Perhaps a few illustrations of the relations between the banks and their clerks may prove interesting. I have in my mind the case of a man who sat by my side at a large branch bank in the North. From being a chief-clerk or accountant in the service, he had been reduced to £160 a year, and sent to the branch in question. The cost of living being expensive in a large city, he was compelled to send his children to the Board schools. In fact, he was so hard up that he wrote to the general managers telling them that he could not live on the salary, and asking them to increase it. He was told that, if he were not satisfied, he could take a year’s salary (I think it was) and go. The bank, however, ultimately succeeded in getting rid of him more cheaply. The man, who was a tailor’s tout and an insurance agent in his spare moments, did all in his power to add to his income; but at last he fell so low that he actually descended to taking money from the men’s coats. Then followed detection and dismissal.

Now, who was the more to blame, the clerk or the bank? The clerk had informed the directors that he could not live upon his salary, and the directors made him an impossible offer, for the man, who must have been getting on for fifty, had been in the service from a boy, and was therefore not worth thirty shillings a week outside. Knowing this, the offer of the directors was frankly brutal, and losing hope the clerk became a petty thief. My ethics may be somewhat shaky, but were I on my trial for a harp and a halo I would rather stand in the thief’s place than in that of those directors.

Another man in the same office, although single, could not acquire the art of living upon £160 a year, and after some few years of unsuccessful striving and vain endeavour, he was dismissed for drink and debt. He then became a traveller in the wine trade, and terminated his not uninteresting career by getting drunk on his samples. A third man, who was a married cashier, took two sovereigns from his till, intending to return them upon the following day, but his till-money was counted the very next morning by the accountant, who was probably suspicious, and the man had to go. Out of a staff of twenty-eight men, five, I think, were cashiered within five years; it seems to me that were a kinder spirit manifested by those in authority much of this misery and suffering might be spared.

For instance, in one service it is usual to send old men and others who, for some reason or another, have been reduced, to a large branch, where, after a few months have elapsed, they are given a small sum of money and quietly pushed into the street. This procedure is adopted because a man at a small branch is acquainted with the accounts of all the customers thereat, and might, should he be dismissed while there, hold forth in every public-house in the town; but the expedient is unspeakably mean, and surely a bank which counts its deposits by millions can afford to temper justice with mercy. The directors know the fate that awaits these men, more especially when they are past forty, and it is simply cruel to weed them out in this brutal fashion. To my mind it is little short of murder.

The system, of course, is bad. The banks place one man in authority and to that man they pay a good salary. He, in his turn, has to hold down the rest, with the result that we have already seen. At the branch in question the manager, who was an old man, received £1,500 a year, and the accountant, who was a man of about forty-two, got £300. The disparity between these two sums is most marked, for the accountant was quite as able a man as his chief, and if he were only worth £300 a year, then the manager was not worth more than £500 at the outside. Were a bank to pay each man a fair salary, and to reduce the manager’s rate of pay, it would increase its expenses considerably, but at the same time it would add to the efficiency of its staff, for most of the men are dissatisfied, and the work, as a rule, is not done willingly, while the directors are looked upon as task-masters. Nor is this at all surprising, for of sympathy they display but little, and their humanity is unquestionably not superior to that of the Zulu. I have weighed my words carefully, and am writing without the slightest heat, my only aim being to state my facts plainly, and I think that, if the facts are unchallenged, the deductions are as indisputable as they are discreditable to the directors and shareholders of certain of the joint-stock banks.

Butler & Tanner, The Selwood Printing Works, Frome, and London.

Transcriber's Note

A few minor typographical errors have been silently corrected.

Some ditto marks in lists and tables have been replaced with copies of the original text.