These institutions cater to all the financial needs of their constituents. They supply their needs for cash and for exchange; conduct checking accounts for them, although these are not used in France to the same extent as in the United States; discount their commercial paper and make loans to them on personal and other security; and receive on deposit their savings and provide them with investments. In performing these functions they make extensive use of the Bank of France and of the stock exchanges of the country. With the former they conduct checking and transfer accounts and rediscount their customers' bills, by these means procuring the coin, bank notes, and exchange needed; and from the latter they obtain the investment securities required for the satisfaction of both their own and their customers' needs.
Gold and silver coin and the notes of the Bank of France constitute the hand-to-hand money of the country. The latter form the elastic element, and their operation approximates perfection. When demand for money increases for any reason, more commercial bills are presented for discount to the banks, which, after indorsement, exchange them at the Bank of France for the notes with which they supply their customers' needs. The note issues of the Bank thus expand in direct and immediate response to the needs of the country for more currency. When such needs have passed, the discounted bills, in exchange for which these notes were issued, mature and are paid in greater volume than new bills are created and presented for discount, and notes, or a corresponding amount of coin, accumulate in the vaults of the Bank. The notes are cancelled and destroyed and the coin is kept in store until it again passes into circulation through exchange for notes still outstanding, or for discounted bills.
On account of the elasticity of its note issues, and the extent to which they are used in the commerce of the country, the Bank of France has occasion to change its rate of discount less frequently than any other bank in Europe. The result is that the country enjoys the advantage of steady and low rates, since in France, as in England, the discount rate of the central bank controls the market rate, and the ease and inexpensiveness with which the notes are issued make low rates possible.
4. The German System
The Imperial Bank, with head offices in Berlin, and about one hundred branches and more than four hundred sub-branches scattered throughout the country, plays essentially the same rôle in the German banking system that the Bank of England and the Bank of France play in the English and French systems, respectively. It was established in 1875 by an act which also profoundly affected the entire banking system of the country, and its development has been aided and directed by several acts passed subsequently.
Its capital, supplied by the general public, amounts at the present time to 180,000,000 marks ($45,000,000), and it is governed by three boards, known respectively as the Curatorium, the Direktorium, and the Central Ausschuss.
The Curatorium is composed of five members, of which body the Chancellor of the Empire is ex-officio chairman. A second member is appointed by the Emperor, and for that position he has always selected the Prussian Minister of Finance, and the three remaining members are appointed by the Bundesrath. It meets quarterly and reviews all the operations of the bank. It, or rather, the Chancellor, its chairman, has supreme power, which, however, he has never exercised except on one occasion, when he ordered the bank not to accept Russian securities as collateral for loans, an order since revoked.
The administration of the bank's affairs is chiefly in the hands of the Direktorium, consisting of a president, vice president, and seven other persons, all of whom are appointed by the Emperor for life, from a list of candidates recommended to him by the Bundesrath. This board selects the staff of bank officers and clerks, and superintends the daily conduct of the bank's business.
The Central Ausschuss is a committee of fifteen persons elected by and representing the stockholders. It holds monthly meetings; has the right to demand complete information concerning the bank's operations, to discuss all matters freely, and to tender advice and counsel; but it has no power to control except regarding two matters: it can set a limit to the amount of securities the bank can purchase, and can veto any proposed transactions with the Imperial Government or with the governments of any of the states.
Like the other central banks described above, it receives on deposit and disburses the funds of the Imperial Government; administers the coin reserves of the country; conducts the domestic exchanges, and serves as a bankers' bank. It is free to do business with the general public, but the legal and other limitations under which it must operate give the other banking institutions of the country the advantage in competition for this kind of business.