Was he serious? Was he fooling? Had he developed the faculty of 'make-believe' further than the rest of his countrymen, and in this one point become more English than the English themselves? Probably to such questions he could have given no answer that most of us could understand. Having nothing of the Greek about him either in temperament or training, he never learned to know himself; and, being the subject of vision and humour and political capacity, and having these three gifts most strangely blended, he was to himself as well as to others not the least remarkable of Asiatic mysteries. All we can be sure of is that long after the Conservatism of the 19th century, which he moulded to his likeness, has passed into oblivion, long after the Federal Empire, which he dreamed of, has become a coherent reality, long after the Berlin Congress has been superseded by Congresses of greater weight and greater achievement, men will from time to time discuss that versatile and enigmatic figure which, as it passed through the several phases of human life, gave to each a brilliant and appropriate expression-was in turn the marvellous adventurer, the skilful sophist, and the sardonic sage-and, as they talk, will find reason to thank the two able men who have collected with so much diligence and so much fidelity all that is material to the knowledge of a character as fascinating and as problematic as any that history shows.

ALGERNON CECIL,

Art. 12.-ENGLISH AND GERMAN BANKING IN RELATION TO TRADE AND INDUSTRY.

Two full years of war have opened the eyes of business men to much that use, habit and prosperity had overgrown. Introspection and self-criticism hold the field; congresses call for action, and deputations to Ministers refuse any longer to be put off with official platitudes. In the general welter, banks have not escaped; and many years of careful management, instead of being commended, are now characterised as showing want of adventure and disregard for the real interests of industry. The cry was first raised publicly at the annual gathering of the Associated Chambers of Commerce in February last. The attack had little force behind it and, though well engineered and advertised with some skill, quickly broke down under the weight of contrary experience. Those present knew better. It was the old story of German perfection and English dilatoriness. The success of German pre-war banking was taken for granted, and therefore English bankers were exhorted to go and do likewise. The real question at issue-the soundness of German finance in general— was begged from beginning to end. Modern banking methods wait so closely on the needs of commerce and industry that the general financial condition of both countries must be considered, if a true parallel is to be drawn between the English and German systems.

Properly to consider the present position in England, it must first be realised that our modern joint-stock system is the growth of little more than a generation. Old-time country banking was essentially local, private partnerships and small district companies easily supplying all the accommodation required. Partners and Directors, being of the countryside, knew their customers intimately, and ordered their business accordingly. In the main, this local system, though not without elements of capital weakness, served its purpose; but, as trade expanded and industrial capital accumulated, it undoubtedly lagged behind the growing needs of the times. The introduction of the principle of limited liability into business concerns extended indefinitely the number of

partners, and tapped savings hitherto peacefully at rest in the public funds or on bank deposit. Capital commitments of commercial and industrial companies rapidly grew in direct proportion to the willingness of the public to venture their savings in trade, with the result that small local banks soon began to find increasing difficulty in financing these (to them) overgrown accounts.

Once set rolling, the ball moved rapidly. The game of purchase, amalgamation, absorption and extension in industry was met by a parallel concentration of banking capital. Groups of country banks came together and then joined themselves to a London clearing house, the joint concern later stretching out its tentacles in every direction. Private banks rapidly disappeared, and to-day, outside London, number a bare half-dozen. At first, among the new groups there existed something like a tacit understanding not to poach on a neighbour's territory; but the keen spirit of modern competition soon killed such old-time amenities, and to-day every important town boasts branches of at least three or four big banks. Most authorities consider the change advantageous to industry. The old private bank was often small, narrow in view, under-capitalised, and unable or unwilling to take any but moderate risks; on the other hand, the new concerns, full of capital, alert and energetic, not only offer better security to a depositor but can accommodate themselves to every reasonable borrower's demands.

These arguments may be sound, but the dour particularism of Yorkshire and Lancashire still sees grave objections to being financed solely by unsympathetic and distant London. The big London banks have, it is true, permeated the North, as they have the rest of the country, but they have by no means succeeded in ousting local banking institutions. Although several of these local banks have themselves grown by swallowing their neighbours, they still carry on their business from a local centre. This local feeling is not mere particularist jealousy, but springs from a reasonable belief that the special claims of a local account are in practice frequently overlooked in the general averaging of risks so essential to the large institution centred in London. London Banks must of necessity work their branches through

ever-moving managers who, from the nature of their position, are bound by rigid rules as to overdrafts, and therefore compelled frequently to refer loan requests to London. The local bank, on the other hand, has a better personal knowledge of its customers, is in far closer touch with the trade conditions in which they work, and is as a rule prepared to give a speedy 'Yea' or 'Nay' to all demands. Against this must be set the firm belief in the suspicious minds of some business men that local directors may glean far too much from the bank account of a possible competitor. Certainly there appears to be room for both classes of bank, for both flourish side by side, albeit competing vigorously-a result all to the advantage of their customers.

The unique position of London as the financial centre of the world necessarily exercises an exceptional influence on every bank in the United Kingdom. Once local needs are satisfied, surplus banking money flows automatically to London, there to be invested permanently, used in the purchase of bills, or lent on short notice to the discount houses or the Stock Exchange. It is this well of surplus money augmented by foreign deposits which enables the Lombard Street houses to carry on their international accepting and discounting-in reality a process of specialised banking. Stock Exchange loans are in another category, and, being begotten of a plethora of money, after the war will probably fall out of favour with the banks. For many years short loans and first-class bills have been reckoned by bankers as unimpeachable and most desirable liquid assets. The war brought a rude awakening. Permission had to be given for the reacceptance of bills, and other assets, usually liquid, suddenly crystallised into fixed loans, some of which still remain unpaid. Bills, being essential counters in international trade, will of course resume their old position, but it may be hoped that considerations of genesis and domicile will play a larger part in estimating their value.

The normal flow of money from the country to London and vice versa is closely dependent on the seasonal and cyclical variations of trade. Local variations may be followed with ease, but cyclical changes are very difficult to forecast. The only certainty is that trade activity diminishes, while trade stagnation increases, the

available money supply. The balances remitted to London from outside depend entirely on the countryside covered; as a rule, producing and shipping areas are borrowers from, and agricultural districts lenders to, the banks. Compared with their deposits, English banks have a relatively small usable capital; and thus their lending power depends directly on the mass of their deposits. In the term 'deposits' may be included all money lent to a bank. This money may be at call or at notice, the bulk belonging to active business concerns which are employing it from day to day in their trade. Daily variation is the essence of a business account, with a liability, depending on the exigencies of trade, to sudden and often heavy depletion.

Deposit terms are no longer so simple as in old days. Then good notice was both demanded and exacted. Today large sums are left at interest for a fixed period and thereafter at call; and in many districts outside London interest is paid on day-to-day balances, probably more or less permanent within known limits, but still liable to be demanded at call, and likely so to be demanded in the event of a crisis. With this ever-present liability to sudden call, it is essential for the banker to keep a large proportion of his money liquid; and his power to lend thus depends strictly on what experience tells him is his margin of safety. At first sight the ultra-cautious man would appear to have little to lend at any time, but in practice seasonal ebb and flow of money is a normal occurrence, while the periods at which customers usually deplete their balances vary in season, and are well ascertainable by the banker who knows his business. In this way, and others learned by experience, a banker in normal times can gauge what he may lend with safety. But always, from the nature of his assets, an English banker's first consideration must be his depositor.

We are now prepared to turn to the loan side of the system. Has the legitimate borrower any real grievance against the banks? The expression ‘legitimate borrower' is used advisedly, being intended to exclude individuals without capital or business backing, as there are still speculative middle men who think banks should supply them with capital, take all the risks, and be content with Vol. 226.-No. 449.

2 N