T H E H EO RY A ND H IST O O F B A NK ING CHARLES F . DUNBAR MRLY P E OF P LITICAL EC MY HARVARD U IVE ITY O ROF SSOR O ONO . N RS W ITH CHAPTE RS ON FOREIGN E"CHANGE AND CENTRAL B ANKS B Y L VE AGUE O I R M. W . SPR P FE OF B K G AND F CE H V D U V E TY RO SSOR AN IN INAN . AR AR NI RSI W ITH SU PPLEMENTARY CHAPTER PRESENTING RECORD OF THE FEDERAL RESERV E SYSTEM B Y HENRY PARKE R WILLIS Pnon sso a op B ANKING COLUMB IA U NI VE RSI TY FORuE RLY EC E T Y FED E L E E a a S R AR RA RES RV li t 8 E 4 FOURTH E DITION A ’ G . P . PUTN MS SONS NEW YORK AND LONDON Obe finichetboc ket p ress o ri h 1 8 1 C p y g t , 9 b y e s n bar Ch arl F. Du o ri h . 1 0 1 1 9 1 7 . by C p y g t 9 , ’ P . P n am s Son s G . ut o ri h 1 2 2 b C p y g t , 9 , y ' P. Pu n am s Son s G . t Fi rst P ublish ed { 8 91 con d sed Ed n 1 S e Revi i ti o 1 90 T rd R d E d i on 1 1 h i e vi se it 9 7 Four h R evi sed E di i on Oc ober 1 2 2 t t t . 9 Re ri n ed D ecember 1 2 2 p t . 9 Made i n th e Uni te d States of Ameri ca PREFACE TO THE FIRST EDITION THE preparati on of the followi ng c hapters i s the result of the need of some c onveni ent statement of i i o a i o i ord nary bank ng per t ns , felt by the wr ter when lecturing upon banki ng to a large c lass of s u i n i c om t dents the elements of pol ti cal e on y . To the chapters devoted to suc h Operati ons itwas found useful to add a series of hi stori c al c hapter s on c ertai n of the great ban ks and banldn s s " g y t for a i us ra i o of ems , partly the e sy ll t t n theory and partly to supply the want of any good manual of a i i s or b nk ng h t y . Eight of the c hapters were printed i n 1 885 for the use of c ss i n a i si butw la es H rvard Un ver ty , ere not i u i T o n ow then g ven to the p bl c . these have been an i uc c a c a on c om added ntrod tory h pter , a h pter bin ed reserves or the system of Clearing House l c i c a on e on of oan ert fi tes , and the Bank Amster i dam . The whole has been revi sed and the not c es of current hi story brought down to the present an d i s l i u date , the book now a d before st dents and readers wi th the hope that itmay ai d i n the sys temati c u of u c of i st dy a s bje t , the treatment wh ch by wri ters upon economi cs i s generally either too u r f s mma y or too di fuse for ordi nary purposes . The wri ter has annotated hi s text wi th a freedom iii Prefac e to th e FirstEdition i c r a ma m a o siri wh h pe h ps de nds so e p logy , de ng to mak e hi s n otes answer the double purpose of i n formi ng the reader as to the sourc es from whi ch m s are ra an d of i vi i n him to state ent d wn , n t g ex plore the sourc es more deeply than was possible s s u i i o wi thi n the limit of the pre ent p bl cat n . C . F . DUNBAR. AN RY 18 1 J UA , 9 . CONTENTS CHAPTER I CHAPTER II D S U T P S T AND SSU I CO N , DE O I , I E CHAPTER III BANKING OPERATIONS AND ACCOU NTS CHAPTER IV TH E CHECK SYST EM CHAPTER V CHAPTER VI CENTRAL BANK S W . S ra By Oli ver M. p gue CHAPTER VII FO REIGN E"CHANGE v ' M W . ra By Oli a . Sp g v1 Con ten ts CHAPTER IX PAGE THE FRENCH BANKING SYSTEM CHAPTER " GERMAN BANKING SYSTEM CHAPTER XI THE NATIONAL BANKS OF TH E UNITED STATES CHAPTER XII FE DERAL RE SERVE BANKS By Hen ry Parker Wi lli s INDE" AND HISTORY OF BANKING THE THEORY AND HISTORY OF BANKING CHAPTER I INTRODUCTORY THE o ra i o of a i as s h as pe t ns b nk ng , the sy tem o i n a c uri s a a been devel ped the l st three ent e , ppe r at fir st sight to be singularly c omplex an d diffic ult m si i i n t r c o o . s o due o Of prehen n Th s , h weve , to r in ra io m but any myste y the ope t ns the selves , is the result of their multipli ci ty an d Of the vari ed co i ndi t ons under whi c h they tak e plac e . The a i c i s are of sim i n w nts wh h banks sat fy a ple k d , sur e to arise early i n the hi story of an y c ommerc i al or in dustrial c ommuni ty i n whi c h there i s mutual confidenc e amon g me n ; an d the sati sfac tion of i si i a i i n these wants s a bu ness eas ly est bl shed , what might well be regarded as an almost primitive i i r a ion s i cond t on Of trade . The t ans c t by wh ch a are a i are mor o r as sim these w nts s t sfied , e ve , ple a s ms s an d are di r uc as the w nt the elve , spee ly ed ed uc ou i to a am i i n to s h r t ne as le d Ad Sm th , a well 2 I n troduc tory o as a to ra an i r s kn wn p s ge , te the b k ng t ade a one fe w hi c i n h i s u c ou r Of the w h , j dgment , ld be b ought to suc h un iformity of method as to be safely c on c oi - o du ted by a j nt stock c mpany . The leadi n g want s to be provided for by banks are rs oa u o a c o si ra sc a uir , fi t , l ns p n n de ble le , req ed by indivi duals embarki n g i n enterpri ses beyond i own an an d s c on m or the r me s ; , e d , the te p ary employmen t of money whi c h i s n otrequir ed by the o r for imm i a use or at as m wne ed te , le t the eans of i n i t om a c for n safely keep g . S e gen y lendi g and some plac e of deposit are c alled for as soon as c omm rc i n s to mo i n a r u ar c ours e e beg ve eg l e . In some c ountries the task of simplifyi n g the c u n c of c o u i an d i i n itan rre y the mm n ty , Of g v g asc ai a u was orm r rus to a ert ned v l e , f e ly ent ted b nk in i n s i u i on s but i i s a s i c i c c an g t t t , th s erv e wh h man ifestly be more sati sfac torily performed by governmen t an d h as n ow everywhere bec ome n l r n i n ra s rs of u o e of its regu a fu c t o s . T n fe f nds an d arran gements for making settlements between persons i n different plac es i n the same or i n dif i i n i t r s i e . om s c or fe re n c ou .