BANKING.

Otago Daily Times, Issue 113, 27 March 1862, Page 6

BANKING.

Chambers gives the following succinct and clear account of this commercial operation :—

The service of the banker is to economise the use of money—in other words to keep it always in use, and prevent it lying unemployed and uuprodnrirhe. Some one has money tor which he has not immediate employment ; lie puts it into the bank. Another i - very anxious for the temporary use of lfioney ; he is going to"on>Vloy it in an excellent and will l&sure to repay it; to him the banker lends the money for which the other has no immediate service. Perhaps the p.'r.-on who has deposited the money may want it back before the other can return it. * The banker, however, has many depositors and many borrowers itnd it is his business to calculate, so that he can meet the ends of both.

; An idea of the effect which banking has in economising money, may perhaps be formed thus :— Suppose that fifty gentlemen possess each a horse. They find that 'they use those horses so seldom, thatj upon a calculation ten horses would serve them. Instead, therefore, of keeping the fifty horses separately, th<-y dispose of forty and keep ten. By this "means', each of the fifty, when he desires to ride, finds ahorse just as readily as when he kept ono himself, and there were fifty horses instead of ten. Of course, if the whole fifty, or even a third of them, went at one time to demand the use of so many horses, the greater part of them would have to go away disappointed ; but it is supposed that before the arrangement was made, this' has be'en shown, from experience, to be scarcely possible. If they have calculated rightly the fifty gentlemen arc "as well served with their ten horses as they had been with their fifty, and they have the advantage af their economy. In facf, the profession of a horse-hirer produces the same resnbx He' does not keep a horse for every customer—perhaps not one for every five—yet all are served.

To merchants transacting large business, it is of great importance to have a place where they can immediately deposit any amount of money, knowing that it "is well protected. The London merchants find such a place in the city banks. The banker is allowed to use the money, receiving the profit as a remuneration for taking charge of it; but the merchants often require to draw out large sums, so that the banker must always keep a very considerable amount of ready money. When the customers of the bank borrow money from it, they pay the banker interest for the use of it.

One of these London merchants will require fifty or sixty thousand pounds atasingledraftfrom his banker, but where business is done on a smaller scale, and the (V ■ ..Lors do not draw out these large sums, thi- ' i :er not only takes care of the money, but, allows a small interest for it. This is especially the case in Scotland. The banks receive sums of ton pounds and upwards, allowing those who deposit them interest at the rate of two or three per cent., according to the condition of the money market. While giving this small per centage for deposits, the banker charges four or five per cent, for the money he lends, and the ■difference between the two is his profit as a banker. This system of giving interest on sums deposited is believed to be a great inducemant to industry and frugality. It is difficult to find other investments"for" small sums as they come in. »Land or shares in joint-stock companies cannot be bought until a considerable sum is accumulated, and sometimes thelatter is not a very secure investment; but small sums as thsy accumulate, can be placed in the bank, with the privilege of drawing them out;again, and when a large sum"is'realised," it may be dtvoted to some more 'profitable purpose. "..' '.

Thus the banker's profits are made by receiving money into his custody on n'6.'interest, or-merely, a small one, and lending Yinlarger interest. •-■-!rHe? lends by discounting bills, anl. in other ways, which will presently be more filly considered in connection witli the sn'b'j ect of credit. If to t his the banker can add the business of manufacturing and issuing notes, it is another source of profit. He must-always-be ready to pay the notes when, presented ; but he trusts that they-will not all be presented at once—that only a small portion will comaata time. The greater the public confidence in his credit, tWfe larger will his profit be, since there will be the. less likelihood of gold being demanded for the notes, and he will not require to keep a large supply of it. The legislature, however, has not left this entirely to the discretion of the bankers, but has required them to keep ii certain quantity, of gold or stiver, lest they should be tempted to.issue too many notes;: ■

Banking concentrates money-transactions :■ almost all large payments are inti'le through banks. Tims, it is a coiqp iratively rare thing to pay a thousand pounds in sovereigns, or even in banknotes : it is generally accomplished by a draft on a bank. From so many pecuniary transaction* passing through the hands of bankers, they can thus, as it were, feel the pulse of the money-mar-ket.' They know when trade is doing well, and when it appears to be fallmgiolf. and regulate their transactions accordingly. The first notice that a merchant or speculator mny receive of bad times, is from his reception at the bank when he wishes to' discount a bill, or in any way to borrow money. The. interest is raised, or perhaps the accommodation is refused altogether.

Being thus early and fully informed, bankers have it greatly in" their power to influence, for. good or for evil, the course of their pecuniary arid commercial transactions. When they see the approach of a system of excessive speculation, they may in some measure stem it by restricting their pecuniary advances to the speculators. On the other hand, they may join in the general pursuit of hazardous gain, by allowing the speculators to borrow largely from them. In many unfortunate instances, this course has been adopted. The banks have assisted rather than stemmed the current of speculation ; but in such instances they have been the chief suflerers in'the common'ruin. This has taught discretion to those who undertake the hazardous occupation of the banker, and thus, like many other institutions, banking becomes gradually the more advantageous to the public tbe more it is seen and understood.