Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

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.