A few words should be said concerning the form of cheques with which the English banks provide their customers as currency. Legally a cheque is a bill of exchange drawn on a bank and payable on demand. That is to say, it is an order signed by a customer of the bank directing it to pay a certain sum to another party or to himself. The form, however, can be varied in various methods, increasing or diminishing the ease with which the cheque can be turned into cash. The cheque can be made payable to A B or bearer, and in this form can be taken to the bank drawn on and immediately turned into cash. When drawn to A B or order, a cheque has to be indorsed, or signed on the back, by A B before the bank drawn on will pay it. A still further restriction is the English system of crossing cheques, that is to say, of drawing two lines across the face of the cheque, by which mark it is shown that the cheque is not to be paid in cash across the counter by the bank drawn on, but must be paid into a bank by the payee, and so only becomes credited to him in his own banking account through the operations of the clearing house. It is evident that this protection greatly increases the safety of the cheque, since if it fell into the wrong hands its chance of being made fraudulent use of is greatly diminished. As the lines drawn across the face of the check by the bankers' customers are often faint and irregular, it has been found in practice that they lend themselves to the ingenuity of the fraudulent, who are easily enabled to erase them and so obtain possession of money that is not meant for them. Some of the banks therefore print these crossing lines on all of the cheques that they issue to their customers to be filled in, and when the customer wishes to obtain cash from his bank on one of these cheques he is consequently obliged to write upon it "Please pay cash," and sign this note upon it. The extensive use of crossed cheques thus tends to make the cheque still further an instrument which merely transfers banking credits from the books of one bank to another, since every crossed cheque implies that it can not be turned into cash directly, but can only transfer credit with one bank to credit with another. Another restriction with which custom has protected the English cheque is the system of writing "Not negotiable" on the face of it. These words do not mean that the cheque is really not negotiable, but their legal effect is that the holder of the cheque can not establish a better right to it than the party from whom he received it. If therefore the party from whom he received it had no right to it, his claim against the paying bank is nil. With these safeguards, and with the enormous convenience of being drawn to any amount to fit the exact requirements of each transaction, the cheque, although not legal tender, has been enabled to supersede the bank note in English currency.
The chief function of the joint stock banks having thus been shown to be the provision of currency for the English community, it may further be noted that a remarkable development of their activity has been the rapidity with which they have covered England with branch establishments. It was estimated in 1858 that the total number of bank offices in the whole of the United Kingdom was just over 2,000; at the present moment the aggregate branch offices of four of the English joint stock banks which are richest in respect of branch establishments have exceeded this total. One bank in England has over 600 offices, one has over 550, two have over 400, three have more than 200, twelve have more than 100. This multiplication of branch offices has been carried out partly by the absorption by the joint-stock banks of the smaller institutions in the country, whether private or joint stock, and partly by the rapidity with which they have opened branches in the great provincial centres and their suburbs, and to a moderate extent in the small country towns. The result of it is to give the English monetary system the power of easily supplying the needs of the various parts of the community as the requirements of others ebb and flow. At the same time this rapid development increases the competition between the various English banks, which we have already shown to be carried to an almost excessive degree, and by the wide local distribution of their liabilities enhances the possibility of strain on them in times of difficulty.
Some of the banks include under the heading "cash at call and short notice" advances which they make to the Stock Exchange for the fortnightly periods that elapse between its settlements. The funds that they so use obviously have an important effect upon the marketability and price of securities in London. On the first day of every settlement it is usual to see rates quoted as those at which the banks are lending to their stock exchange clients for the financing of speculative commitments. In the arrangement of these rates a certain amount of combination and co-operation among the banks, or some of them, has grown up as a matter of custom, but since for this class of accommodation the bankers are subject to competition on the part of the agencies of the foreign banks and the big finance houses it is often found difficult to maintain even this amount of harmonious working among the bankers.
It has been shown that the rate at which the banks make advances to the discount houses has an important effect upon the market rate of discount in London, but the banks exercise a still more important and direct effect upon this discount by being themselves large buyers of bills. It is impossible to gauge exactly the extent to which they hold bills among their assets, since many of them in their balance sheets include their discounts along with their loans and advances. Among the many suggestions that reformers have put forward in the matter of English banking, one is that this item of the banks' holding of bills should be separately stated. But though this obscurity in the statements of the English banks makes it impossible to know the precise extent to which they hold bills, there is no doubt their purchases of them are on the whole the most important influence upon the market rate of discount in London. Nearly all the discount houses, whose functions will be described later, buy bills, largely with the intention of reselling them to customers, among whom the joint-stock banks are the largest and most important and most regular buyers, and it is contended by the discount houses that the market rate of discount, for which they themselves are generally supposed to be responsible, is really and in fact regulated by the price at which the big joint-stock banks are prepared to buy. This being so, since the market rate of discount is perhaps the most important influence on the foreign exchanges and so on the inward and outward movements of gold, it will be seen that this function of the bankers is one of the greatest possible importance from the point of view of London's free market in gold.
Besides thus regulating the price at which bills of exchange can be discounted in London, the banks have in recent years taken an increasingly large and important part in the creation of bills of exchange by placing their acceptances at the disposal of their customers. The increasing extent to which the bankers have in recent years intruded into this class of business is a grievance that is resented rather keenly by the merchant firms, or accepting houses, as they are often called. It is contended by the latter that the business of acceptance is a special function for which special training is required, and that the joint-stock banks rarely have available the special abilities that make for its proper conduct. On the other hand, the high standing of the joint-stock banks and their big reserve resource in the shape of their uncalled capital makes their acceptances an exceptionally fine credit instrument, and it seems natural enough that they should, to a certain extent and within moderate limits, place these facilities at the service of their customers.
Finally it may be added that the English joint-stock banks are now showing a disposition to engage to some extent in the business of dealing in foreign exchange which has hitherto been left to the finance houses and foreign firms established in London. The London and County and the London City and Midland banks have now established regular foreign exchange departments. This development is generally welcomed as a sign of a desire on the part of the banks to widen their horizon and to come into closer touch with the affairs of the financial world at large, but, as in the case of the banks' increasing interest in acceptance, there are some critics who consider that it is better for the bankers to stick to their obvious and highly important function of providing the community with credit and currency, and taking care of the money of their customers.
The Private Banks
Any differences that exist between the private and joint-stock banks of England lie in their ownership rather than in their functions. Their functions are the same, but the manner in which they carry them out is perhaps influenced to a slight extent by the fact, which really distinguishes them, that the private banks are owned by a few partners who generally conduct the business for themselves or exert more or less influence on it, while the joint-stock banks are managed by salaried directors and officials on behalf of a large body of shareholders formed into a public company, the shares in which can as a rule be bought and sold on the London Stock Exchange.
Since private enterprise naturally precedes joint-stock institutions, it goes without saying that the private banks of England were the pioneers of the banking business. There are still in existence private firms which were founded before the Bank of England. A goldsmith called Child was doing business of a banking character soon after 1660, and Child's Bank still exists. Hoare's Bank was instituted in about 1680, fourteen years before the Bank of England received its charter. Modern developments have almost driven them out of the field, and among the leading banks in the city of London only two are left which can still be called private in the old sense of the word. There are one or two other institutions which are on the borderland: and at the west end of the town several old firms, including Child's and Hoare's, have retained their old constitutions.