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(3) Country bankers wishing to avail themselves of this clearing, to remit their country cheques to their own London agent, to stamp across them their name and address, and that of their London agent.
(4) Any country banker not intending to pay a cheque sent to him for collection, to return it direct to the country bank, if any, whose name and address is stamped across it.
(5) Each country bank to write by return of post to its London agent in reply-" We credit you £ for cheques forwarded to us for collection in yours of ;"adding, in case of non-payment of any such cheques" having deducted £ for cheques returned to Messrs.
returned to Messrs.
Many of the country bankers objected to this arrangement; among others, on the following grounds:
1. That it would place them in a less clear position as respects mutual liability while the cheques are in transitu, inasmuch as each cheque will have to pass through the hands of four different parties, and grave questions as to liability may arise in the event of the failure of any London agent.
2. Increased publicity would be given to the names of the customers of each country bank, involving the possibility of attempts to remove country accounts to London.
16. In order to prevent, as far as possible, the country. bankers incurring any responsibility by adopting the clearing system, in the event of cheques being returned dishonoured, a case was laid before Sir Fitzroy Kelly, and Messrs. James Wilde and J. B. Braithwaite.
As the opinion is an echo of the case, we give all its salient points, avoiding needless repetitions:
"The rule is well settled that the holder of a cheque may present it at any time, during banking hours, the day after he has received it; and we apprehend it to be clear that, where the holder and the bankers on whom the cheque is drawn reside in different places, a cheque posted the day after it is received, to the bankers on whom
it is drawn, would be considered in point of law as presented in due time, though not in fact actually delivered to such bankers on that day. In cases so circumstanced, the act of forwarding the cheque by the general post is, as regards the question of time, equivalent to presentation.
"But as regards banks situated at such a distance from London as not to admit of the cheques transmitted by them to the proposed clearing-house being posted from London to the banks upon which they are drawn on the next day after such cheques are first received by the transmitting bank, we are of opinion they could not avail themselves of the proposed arrangement without the risk of being made liable to the losses which may arise from non-payment of such cheques on their presentation or transmission after the time limited by law.
"This difficulty may be got over by giving to each of their customers distinct notice of the course of business adopted for the presentation of country cheques through the medium of the proposed clearing-house.
"This notice may probably be most conveniently given as mentioned in the case; but we do not think it would be sufficient to state upon the cheques" "that they are presentable through the clearing-house, unless it were proved that the customers signing such cheques" (qy. paying in such cheques) "clearly understood the course of business adopted at the clearinghouse.
"We do not think the proposed establishment of the clearing-house can create a usage, binding on parties not cognizant of it, at variance with the existing law." (Signed) "FITZROY KELLY.
"J. B. BRAITHWAITE.
OF COUNTRY BANKS.
COUNTRY BANKS OF ISSUE.
1. The Banking system a cheque to improvident trading. 2. What is prudent Banking.
3. Difference between discounting Bills and loaning money by Bankers.
4. Difference between Country Bank Notes and Bank of England Notes.
5. Country notes, how to be cashed by Banker. Lost note or half-note.
6. When a holder of Country Notes may have a set-off in case of the failure of the Bank.
7. Difference in practice between London and Country Banks in paying away Notes.
8. No new Bank of Issue can legally be established. 9. When Banks of Issue lose the privilege of issuing Notes.
10. A Bank of Issue may re-issue its Notes if not above £100.
11. Bankers may compound for the stamp duty.
12. Banks of Issue to furnish weekly accounts of their circulation, and how the truth of such accounts is to be tested.
13. All Bankers issuing Notes must take out an Annual Licence.
14. Every Banker in England and Wales must, on the 1st of every January, make a return of the names, addresses, &c., of every member of the firm or company.
15. Difference between English, Scotch, and Irish Banks, in respect to the issue of Notes.
16. Country Bankers must not pay cheques drawn on them, except in legal currency.
1. Country bankers possess, from their peculiar position, very superior means of distinguishing the careful from the improvident trader; indeed, it is considered as a regular branch of their professional experience, that
they should appreciate the credit of the various traders within the district of their circulation, and this sort of practical sagacity they cultivate with great assiduity.
While the transactions of country traders are thus surveyed by the banks of their respective districts, those of the country bankers themselves are subject to the review of the London bankers, their correspondents; and these again are in some degree controlled by the Bank of England, which restricts, according to its discretion, the credit with which the bankers are accommodated. A series of checks thus maintained, though far from establishing a complete security against injurious speculations, presents a powerful obstacle to their
2. The profits of a bank are principally derived from discounting bills of exchange, representing legitimate commercial operations, and it is to the banker's interest to confine his business, of dealing with the money of his customers, to such description of securities; should he be tempted to advance money on mortgage, he will not only be travelling out of his lawful calling, but add considerably to his embarrassment in the event of any hostile combination or panic. Most of the disastrous failures of bankers may be traced to the neglect of this necessary precaution.
Another cause of the ruin of banks is making large advances to single individuals or firms on unmarketable securities. A banker should never allow his funds to go beyond his reach; that is, in other words, the securities he takes should be such as, in case of need, might readily be converted into cash.
3. There is a distinction between the discounting of bills and loaning of money by bankers; in the latter case, when a loan is advanced on the security of land, the title-deeds are deposited with the banker to protect him in case the loan is not repaid. Such an operation is usually for a short term, and is styled an
equitable mortgage;" but it is in the nature of a dead loan, for the banker has no right to part with the deeds, because the money advanced must be repaid by the same party who borrowed it.
In the former case the discounting of bills is simply that of buying debts, and the bills the banker buys be
comes his absolute property, which he can sell again, if disposed to do so, or retain them till the money which they severally represent becomes payable.
The operation of discounting by a banker is simply this-the customer sells to the banker a debt due to him, represented by a bill of exchange, the bill being usually drawn by him on and accepted by his debtor; and when the customer hands it over to his banker for sale, he puts his name at the back of the bill. The practice of indorsing is almost always adopted, though usually only necessary when the bill is in the hands of the drawer and is payable to him "or his order." By indorsement, whether necessary or not, the party indorsing and transferring the bill guarantees the payment of it when due, .in the event of its being dishonored by the acceptor. The customer hopes never to hear of the bill again, after he has sold it to his banker; and the latter would not have bought the debt if he had thought that the acceptor would not pay it.
4. The laws which regulate the issue of bankers' notes, whether those of joint-stock banks or private banks, are different from those which regulate the circulation of the Bank of England notes, notwithstanding the total amount of their issues has been fixed by Act of Parliament.
With the London circulation the Bank pay the dividends to the public creditors; their notes are a legal tender at all places but the fountain from whence they spring; they can increase the amount of their notes beyond the fixed limit, to any amount they please, provided they do so in the purchase of gold; whereas country bankers cannot issue their notes in the purchase of gold or Government Securities, but must pay for all such purchases in Bank of England notes.
Country bank notes are subject to restrictive laws not applicable to Bank of England notes; they are not only legally payable on demand, but payment of them is constantly demanded. A tender of country bank notes, in discharge of a debt, may be successfully resisted, and payment in gold or bank notes insisted upon.
5. Country bankers must pay their notes upon presentment, in coin of the realm or in Bank of England notes, and are liable to an action if they refuse to pay except