GERMAN BANK LEGISLATION.
BEFORE the old Germanic Confederation was broken up by the cannon of Sadowa, each State forming the Confedera- tion possessed the right of granting to Banks the exclusive power to issue notes within its territory, and several of the States exercised this right. At the present time, there still exist thirty-four of these Banks, each with a monopoly of the paper circulation in its own district. Some of these insti- tutions were chartered by powerful Governments, have a large capital, and consequently stand in high repute. Others, on the contrary, derive their concessions from petty States, their notes circulate over a very restricted territory, and from the outset, therefore, they were doomed to insignificance. More- over, some of the Banks are subjected to strict limitations in regard to the issuing of notes, and are well managed. Others, again, may issue as much paper as their customers will take from them, and consequently flood the country with notes. The evils of such a state of things need hardly be pointed out. The credit of several of the Banks is so low that grave doubts are entertained of their ability to endure a really severe mone- tary crisis ; while it is perfectly certain that were Germany to be involved in war with a powerful league, and to suffer inva- sion, most of the Banks would perish in the storm. Throughout all the disasters of 1870-71, the notes of the Bank of France remained almost at par. But were suspension to become necessary in Germany, it would be impossible to manage thirty- four Banks in such a manner as to prevent the evils of bank- ruptcy from being added to those of invasion. However, the danger of foreign invasion is for the present remote. A more immediate disadvantage is the inconvenience suffered by traders and travellers in passing from one small State to another. In the case of the larger Banks, indeed, such as that of Prussia and some others, there is little difficulty, as their notes, though not legally current outside their own States, are yet ge,!:..rally accepted. But the notes of the smaller Banks cannot easily be disposed of outside the petty States where they are current. Lastly, the existence of so many Banks deriving their con- cessions from such various sources, managed under so many conflicting laws, and issuing paper current only within frac- tions of the Empire, offends against the unifying, centralising spirit so completely in the ascendant in Germany at pre- sent. Accordingly, in obedience to the popular demand, the Imperial Government last summer draughted a Bill for the regulation of Banks of Issue throughout the Empire. The Bill was duly discussed and approved by the Federal Council, and was then submitted to the Reichstag, on its reassembling in the autumn. But the Bill did not provide for the establishment of an Imperial Bank, and consequently the Reichstag refused even to consider its provisions. After a lively debate, the bill was referred to a Committee with a plain intimation to the Confederate Governments that it would never be passed unless they consented to the erection of the Central Bank. The decision of the Reichstag had its effect. The Imperial Government prepared a second Bill creating a Bank of Ger- many, which was at once approved by the Federal Council, and was then submitted to the Committee to which the pre- vious Bill had been referred. The two measures were then discussed clause by clause twice over with minute care, were recast into a single Bill, were introduced in the Reichstag by the Reporter of the Committee, Dr. Bomberger, and on Saturday last were read a third time and passed.
The new Act is divided into three parts. The first contains the general provisions binding on all classes of Banks of Issue, the second deals with the new Bank of Germany, and the third has reference only to the old State Banks. The Act in its first clause declares the right to establish Banks of Issue in the future to be an Imperial function. The Act is, therefore, a further step in the unification of the Empire, and its conver- sion from a federation of States into a centralised State. It strips the State Governments of one more of the attributes of • sovereignty. Yet the Act does not give full effect to the public desire. Not only does it preserve all but one of the State Banks in their present capacity, it is even not obligatory on those Banks. Any bank that pleases may, during the exist- ence of its present charter, refuse to submit itself to the provi- sions of the Act. But if any bank does so, it is rigorously pro- hibited from doing any kind of business outside its own district, either by establishing branches, by appointing agents, or by entering into partnership. There is only one way in which it can escape from this prohibition, and that is by reducing its note issue to the amount of its paid-up capital as shown on New Year's Day, 1874. By fixing on the first day of last year, Banks are prevented from " cooking " their accounts ; and by limiting the circulation to the amount of the paid-up capital, the note issue would be so greatly reduced as to be hardly worth pre- serving. However, any bank that chooses so to limit its issue may disregard the other provisions of the Act, and establish branches, open agencies, or enter into partnership in any part of the Empire. This latter clause was introduced into the Act by an amendment carried on the second reading, and it was supported on the express ground that the number of Banks that will refuse to conform to the Act is likely to be so large that it is necessary to devise other means of limiting the note issue. In the opinion of the majority of the Reichs- tag, therefore, the Act will not affect several of the Banks. The grounds for this opinion are, that the original Bill of the Imperial Government was intended to prepare the way for a Bank of Germany, not to create one, and it endeavoured to do this by imposing so many restrictions on the State Banks as would gradually lead to their extinction without the necessity of indemnifying the shareholders. The Banks were, therefore, given the option of remaining local banks with all exist- ing privileges, under the certainty that their charters would not be renewed, or of purchasing the right to do business in every part of the Empire by submitting to regu- lations and restrictions which seemed likely to ruin all but three or four of the greatest amongst them. Even when it was decided to create a Bank of Germany, these provisions of the original Bill were retained, and others were added which promised a speedier extinction of the State Banks. The notes of the Bank of Germany will be current throughout the whole Empire, the Bank is empowered to open branches wherever it pleases, and it is authorised to treat with the State Banks for the cession to it of their right of issue, while it is further allowed to perform for the State Governments all the services now rendered by their State Banks. The expectation is that the smaller Banks will be unable to sustain the competition thus created for them, and will gradually be obliged to make way for the Imperial Bank, or to constitute themselves its branches.
To insure the convertibility of the note, the Act adopts the principle, while rejecting the actual provisions, of our own law. The Bank of England, as the reader is aware, is authorised to issue notes to the value of about £15,000,000, against Govern- ment debt and securities. For every note above that amount it must have specie in its vaults. This enactment works well enough in ordinary times, but in periods of panic it breaks down, and the Government is obliged to autho- rise the Bank to violate the Statute. The German Act endeavours to avoid the necessity for Government inter- vention and for infraction of the law by the introduction of a self-acting machinery. It requires every bank to keep at all times a reserve of not less than one-third of its circulation ; in addition, the whole of the Banks are permitted to issue notes of the aggregate value of £19,250,000 " uncovered,"— that is, without keeping any reserve against them. For every note issued above this amount the issuing bank has to pay a tax of five per cent. The Government originally proposed a tax of one per cent, on the £19,250,000, but their proposal was struck out. As long as the interest of money does not exceed five per cent.—that is to say, in all ordinary times—this tax will prevent every bank from exceeding its quota of the nineteen and a quarter millions. It is only when money becomes dear—in other words, when a crisis is apprehended— that it will pay the Banks to issue notes subject to a tax of a shilling in the pound. With regard to the probable working of this device, Dr. Michaelis, the representative of the Federal Council, stated in the course of the debate that the Note cir- culation of Germany at the end of December last amounted to • a little over £66,000,000. In consequence of the Act abolishing notes under £5, he estimates that about £16,000,000 of notes will be superseded by gold. The note circulation will thus be reduced to about £50,000,000. Of the present circulation, about £3,000,000 consist of Treasury notes and foreign bank- notes. Adding this sum to the £19,250,000 permitted without taxation, we get £22,250,000 as the amount of uncovered notes. Consequently the Banks will in future have to keep a Reserve of £27,750,000, or of over 55 per cent., instead of 33 per cent., as required by the Act. If this calculation is correct—and Dr. Michaelis bears a high reputation as an economist—the measure, it will be seen, does not deserve the reproach, hastily east upon it, of encouraging inflation. The Imperial Bank is to be created by the conversion of the Bank of Prussia into a Bank of Germany, the Prussian Govern- ment receiving an indemnity of £750,000 and taking half the reserve fund. The Bank is to be the property of private share- holders, with a capital of £6,000,000, half consisting of the shares of the Prussian Bank converted at par, and half newly subscribed. But though the Company is private, the Bank is to be under the management and control of the Imperial Chancery, and the profits are to be divided between the shareholders and the Imperial Treasury. The shareholders first receive a dividend of 4i per cent., then 20 per cent, is to be added to the reserve fund, till it reaches a quarter of the capital. If profits still remain, they are to be divided equally between the shareholders and the Treasury, until the shareholders' dividend reaches 8 per cent., after which the Treasury takes three parts for every one to the shareholders. The Bank is to transact the business of the Imperial Govern- ment and of such of the State Governments as arrange with it; its notes circulate through the whole Empire; it may open branches where it pleases; and it acquires the right of issue ceded, forfeited, or in anywise lost by any of the State Banks. One of the principal functions which, it is hoped, the Bank will perform, is that of sustaining the new gold currency. To enable it to act on the foreign Exchanges as the Banks of England and France do, by raising the rate of discount, it has been the aim to make the Bank as great as possible. To ensure its encouraging the import of gold, it is bound, in imi- tation of the Bank of England, to buy gold at a fixed price from every person offering it, charging the seller with the cost of coinage, the price being so fixed as, while protecting the Bank from loss, to make it the interest of private persons to take the gold at once to the Bank. The amount of notes which the Bank may issue " uncovered " is £12,500,000, or nearly 70 per cent, of the aggregate amount permitted to all the Banks.
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