Another development is the registration of the British Overseas Bank, Limited, with a nominal capital of £5,000,000. The principal object of this institution is to carry on general banking business in all parts of the world. Four banks—two English, one Scotch, and one having connections with South America—are financially interested in the Overseas Bank.

Banking operations on a considerable scale appear to have been conducted by the ancients, and recent excavations have proved that in the seventh century B.C. banking was practised at Bagdad by a firm of Egibi & Sons. Modern banking, however, must be regarded as having had an independent origin in the reviving civilization of the Middle Ages. In the twelfth century almost the whole trade of Europe was in the hands of the Italian cities, and it was in these that the need of bankers was first felt. The earliest public bank, that of Venice, established in 1171 and existing down to the dissolution of the Republic in 1797, was for some time a bank of deposit only, the Government being responsible for the deposits, and the whole capital being in effect a public loan. In the early periods of the operations of this bank deposits could not be withdrawn, but the depositor had a credit at the bank to the amount deposited, this credit being transferable to another person in place of money payment. Subsequently deposits were allowed to be withdrawn, the original system proving inconvenient outside the Venetian boundaries. It is, however, less from the Bank of Venice than from the Florentine bankers of the thirteenth and fourteenth centuries that modern banking specially dates, the magnitude of their operations being indicated by the fact that between 1430 and 1433, 76 bankers of Florence issued on loan nearly 5,000,000 gold florins. The Bank of St. George at Genoa also furnished a striking chapter in financial history. The important Bank of Amsterdam, taken by Adam Smith as a type of the older banks, was established in 1509, and owed its origin to the fluctuation and uncertainty induced by the clipped and worn currency. The object of the institution (established under guarantee of the city) was to give a certain and unquestionable value to a bill on Amsterdam; and for this purpose the various coins were received in deposit at the bank at their real value in standard coin, less a small charge for recoinage and expense of management. For the amount deposited a credit was opened on the books of the bank, by the transfer of which payments could be made, this so-called bank money being of uniform value as representing money at the mint standard. It bore, therefore, an agio or premium above the worn-coin currency, and it was legally compulsory to make all payments of 600 guilders and upwards in bank money. The deposits were supposed to remain in the coffers of the bank, but they were secretly traded with in the eighteenth century till the collapse of the bank in 1790. Banks of a similar character were established at Nuremberg and other towns, the most important being the Bank of Hamburg, founded in 1619. In England there was no corresponding institution, the London merchants being in the habit of lodging their money at the Mint in the Tower, until Charles I appropriated the whole of it (£200,000) in 1640. Thenceforth they lodged it with the goldsmiths, who began to do banking business in a small way, encouraging deposits by allowing interest for their use, lending money for short periods, discounting bills, &c. The bank-note was first invented and issued in 1690 by the Bank of Stockholm, founded by Palmstruck in 1688, and one of the most successful of banking establishments. About the same time the banks of England and Scotland began to take shape, opening up a new era in the financing of commerce and industry.

Bank of England.—The Bank of England, the most important banking establishment in the world, was projected by William Paterson, who was afterwards the promoter of the disastrous Darien scheme. It was the first public bank in the United Kingdom, and was chartered in 1694 by an Act which, among other things, secured certain recompenses to such persons as should advance the sum of £1,500,000 towards carrying on the war against France. Subscribers to the loan became, under the Act, stockholders, to the amount of their respective subscriptions,

in the capital stock of a corporation, denominated the Governor and Company of the Bank of England. The company thus formed advanced to the Government £1,200,000 at an interest of 8 per cent—the Government making an additional bonus or allowance to the bank of £4000 annually for the management of this loan (which, in fact, constituted the capital of the bank), and for settling the interest and making transfers, &c., among the various stockholders. This bank, like that of Venice, was thus originally an engine of the Government, and not a mere commercial establishment. Its capital has been added to from time to time, the original capital of £1,200,000 having increased to £14,553,000 in 1816, since which no further augmentation has taken place. There exists besides, however, a variable 'rest' of over £3,000,000. The charter of the bank was originally granted for eleven years certain, or till a year's notice after 1st Aug., 1705. It was subsequently renewed for various periods in 1697, 1708, 1713, 1742, 1764, 1781, 1800, 1833, and 1844, certain conditions which the bank had to fulfil being specified at each renewal. On this last occasion it was continued till twelve months' notice from 1855. At the same time the issue department of the bank was established as distinct from the general banking department, the sole business entrusted to the former being the issue of notes. By this arrangement the bank was authorized to issue notes to the value of £14,000,000 upon securities specially set apart, the most important of the securities being the sum of £11,015,100 due to the bank by the Government, together with so much of the coin and bullion then held by the bank as was not required by the banking department. The bank has since been permitted to increase its issue on securities to £18,450,000, but for every note that the issue department may issue beyond the total sum of £18,450,000 an equivalent amount of coin or bullion must be paid into the coffers of the bank. For its special privileges the bank has to pay to the Government an annual sum of £180,000, and the profit derived from the issue of notes beyond £14,000,000. The Bank of England notes are practically equivalent to gold. They are (like all English bank-notes) of the value of £5 and upwards, and are legal tender throughout England. Notes once issued by the bank and returned to it are not reissued but are destroyed—a system adopted in order to facilitate the keeping of an account of the numbers of the notes in circulation, and so prevent forgery. On 7th Aug., 1914, Government notes for £1, and ten shillings, were issued convertible into gold at the Bank of England.

In compliance also with the Bank Charter Act of 1844 the bank is compelled to publish a weekly account, of which the following is a specimen:—

Dr. Issue Department. Week ending 11th August, 1920 Cr.
Notes issued £139,980,460 Government debt £11,015,100
Other securities 7,434,900
Gold coin and bullion 121,530,460
Silver bullion ——
£139,980,460 £139,980,460
Dr. Banking Department Cr.
Capital £14,553,000 Government securities £68,250,449
Rest 3,458,795 Other securities 73,805,565
Public deposits 15,999,059 Notes 14,452,665
Other deposits 124,018,988 Gold and silver coin 1,537,092
Seven-day and other bills 15,929
£158,045,771 £158,045,771

The total of the notes given out by the issue department is called the 'issue circulation', the portion of it in the hands of the public being the 'active circulation', and that still in the banking department being the 'note reserve'. This 'note reserve' represents really the amount of bullion in the issue department available for the use of the banking department. Of the other items in the account it may be noted that the proprietors' 'rest' is a varying surplus increased always by accumulated profits up to 5th April and 10th Oct., when the bank dividends are paid to the shareholders; and that the public deposits, which include sums lodged on account of the customs, inland revenue, &c., increase through revenue receipts until the dividend terms in January, April, July, and October. The other or private deposits comprise those of bankers, merchants, and other persons. An increase in these private deposits indicates an increase of monetary ease, while a decrease informs us that bankers, merchants, and traders have calls upon them for money. A better indication of the demand for money is furnished, however, by the advances on commercial securities, and it is by this and the condition of the reserve that the bank rate of discount is regulated. When the reserve is high and the advances moderate the discount rate is low, and it is raised according as the reserve falls and advances are more in request, especially during an adverse foreign exchange and drain of gold. Gold is thus restrained from going abroad, and its influx into

the country is encouraged. In addition to the profit which the bank may make by ordinary banking business, by the Bank Act of 1892 and the Revenue Act of 1906, it receives an allowance for the management of the national debt, at the rate of £325 per million on 500 millions, and £100 per million on all debt above that sum. The annual sum is not to be less than £160,000. It also derives a profit from foreign gold coin and bullion brought to it, for which it pays £3, 17s. 9d., or 1½d. per ounce less than the real value.

The management of the bank is in the hands of a governor, deputy-governor, and twenty-four directors, elected by stock-holders who have held £500 of stock for six months previous to the election. A director is required to hold £2000, a deputy-governor £3000, and a governor £4000 of the stock. The court or board of directors meets every Thursday, when the weekly account is presented. The Bank of England has branches in Liverpool, Manchester, Newcastle, Birmingham, Leeds, Hull, Bristol, Plymouth, and Portsmouth.

The other English banks consist of numerous joint-stock and private banks in London and the provinces, many of the provincial establishments of both kinds having the right to issue notes. Private banks in London with not more than six partners have never been prevented from issuing notes, but they could not profitably compete with the Bank of England. The maximum issues of the provincial banks are limited to a certain amount, against which they are not compelled to hold gold in reserve, and they have no power to issue against specie in excess of the fixed circulation. Their actual issues are considerably below this amount. No union can take place between a joint-stock bank and a private bank, or between two joint-stock banks of issue, without one of them losing its issue. Their total authorized circulation is about £2,958,900, but the actual circulation of these banks is now only about £1,200,000, being distributed among about eighteen private and about twenty joint-stock banks. The notes of these banks are payable in Bank of England paper. The greater number of joint-stock banks are of limited liability, though their liability in respect of their notes is unlimited. Some of them have a large number of branches. All the joint-stock banks allow interest on money deposited with them. The total paid-up capital and reserves of the English joint-stock banks is about £100,000,000.