j w THE EVOLUTION OF GERMAN BANKING. Four Lectures DELIVERED BY LEOPOLD JOSEPH, MANAGER, SWISS BANKVEREIN, LONDON, AT THE LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE. (London University.) LONDON s CHARLES & EDWIN LAYTON, 56, FARRINGDON STREET. W eltwirtschaftli ches Archiv f/f/j) PREFACE. The following pages contain a course of lectures delivered at the invitation of the London School of Economics and Political Science, and which, on the kind suggestion of some friends who attended, now appear in print. In making this publication, I am actuated only by the consideration that the subject may prove of interest to wider circles in this country, since to my knowledge it has not been presented to the English student in any comprehensive form. It is not claimed that the matter has here been treated in an exhaustive manner; the work must be regarded as a rough sketch of the evolution, principles and methods of German banking. At different periods, grave misgivings have arisen as to the position of German banking institutions, chiefly—the author thinks—owing to misapprehension as to the mode and extent of their operations and obligations. PREFACE. If my presentation of the case will assist in enabling a clearer and unbiassed view to be formed, and in dispelling prejudices with respect to the questions involved, the object of this publication will have been attained. In preparing these lectures I have consulted a number of sources, and wish particularly to acknowledge my indebtedness to publications by Prof. Werner Sombart, Prof. L. Pohle, Prof. Dr. J. Riesser, Dr. von Lumm, Prof. H. von Poschinger, and to books of reference like “Saling’s Borsenpapiere ” and the “ Statistical Manual,” published by the German Imperial Statistical Office. THE AUTHOR. London, July, 1913. CONTENTS. I.—The Economic Development of Germany since 1800. II. —Land Banks, Mortgage Banks, Cooperative ­ Societies, and Savings Banks. III. —The Reichsbank, The Seehandlung and the Money Market. IV. —The “ Grossbanken ” (Big Banks), and their Relation to Commerce and Industry. V. —Tables. THE EVOLUTION OF GERMAN BANKING. I. ECONOMIC DEVELOPMENT OF GERMANY SINCE 1800. Germany is celebrating this year the centennial anniversary of her liberation from the yoke that Napoleon imposed upon her at the beginning of the nineteenth century. It was his thought-out policy to reduce Germany by relentless humiliation and oppression—by sucking the very marrow out of her—to a helpless and hopeless quantite negligeable. The Government was weak and wavering, but fortunately there were men of intellect and courage, public-spirited, great leaders, and heroic patriots who, at an opportune moment, roused and rallied their people in order to free them from the Corsic Imperator’s serfdom; names like von Stein, Hardenberg, Arndt, Koerner, Scharnhorst, Gneisenau, etc., have become household words in Germany. 2 DEVELOPMENT It seems almost natural to assume that the date of Germany’s political resurrection coincides with the starting of her economic regeneration and remarkable development which we have to record during the last century. As a matter of fact, however, it can be said that the foundation of a new economic life and system was laid by Napoleon’s destruction of the old German Empire, due to a large extent to the feeble power of resistance displayed by Germany against her foreign Conqueror, in consequence of the almost mediseval economic conditions still in existence which, in their turn, again prevented her economic forces from being properly developed. A modern German economist has made this very significant observation : “ paradoxical as it may sound,” he says, “ perhaps nobody except Bismarck has done so much for the political and economic unification and consolidation of Germany as Napoleon ! ” What were, then, the conditions which prevailed ­ in Germany in 1800 ? Her population was little over 24 millions, whilst to-day it is probably 67 to 68 millions. Berlin counted 153,121 inhabitants, ­ and to-day over 3,700,000, including suburbs which have been absorbed. In the whole of Prussia there were only 24,643 solidly built houses, out of a total of 1,454,475, i.e., 17 per OF GERMANY. 3 cent., the big majority being primitive homesteads, ­ straw- or shingle-roofed. There were altogether 1,016 towns in Prussia, of which only Berlin had more than 100,000 inhabitants, only three over 50,000 (Warsaw, which then still belonged to Prussia, 64,000, Breslau 60,950, and Konigsberg 56,410), fourteen had more than 10,000, amongst which were Brandenburg, Potsdam, Posen and Frankfurt a/M, thirty-seven counted between 5 and 10 thousand, sixty-five between 3 and 5 thousand, and 502 between 2 and 3 thousand. The remainder had less than 1,000 inhabitants ; 117 less than 500, 32 less than 300, and one had only 59 inhabitants ! Needless to say, the notion of a town was in every respect totally different from what we understand to-day by that term. Streets, illumination, canalisation and means of communication were, of course, of a most primitive type. Travelling was difficult and naturally very slow; high roads were few and in poor condition, and the mail coaches travelled very slowly with long and frequent intervals, necessitated principally by the Custom Houses and Excise dues. It took from Berlin to Leipzig, for instance, i\ days, a journey which can now be accomplished in a few hours; from Berlin to Breslau, four days, which can now be done in 4! hours; from Frankfurt to 4 DEVELOPMENT Stuttgart it took 40 hours, of which 15 hours were taken up with intervals at 13 different places. Between Dresden and Madgeburg, a distance of about 100 miles, no less than 16 different Custom Houses were in existence. We must not forget that up to 1803 there were no less than three hundred sovereigns and princes in Germany. Not until then was she divided into only thirty-eight monarchies, all of which regarded each other as foreign in respect of Customs legislation, so that there were thirty-eight Custom frontiers. Naturally, commerce and intercourse were hopelessly hampered in consequence. Friedrich ­ List, the eminent writer, made a very comprehensive ­ comparison in attributing to these Customs boundaries the same effect as if each member of a human organism was tied underneath, ­ so that the circulation of blood is cut off. In order to transact business between Hamburg and Austria, or between Berlin and Switzerland, one had to cross ten different States, to study ten different Customs regulations, and to pay ten times Transit Customs. Furthermore, the large variety of coins and currencies and of weights and measures considerably complicated business transactions. Germany’s new economic history is usually divided into three periods; the first one from OF GERMANY. 5 1806 until the formation of the German Customs Union in 1834; the second from 1834 to 1871 (the restoration of the German Empire after the Franco-Prussian War) ; the third from 1871 until the present time. Economic developments are, of course, influenced and determined by a great many factors and circumstances, such as size and conditions of the country, geographical situation, climate, natural resources, political leadership, legislation, education and training, character and temperament of the people, etc. Germany occupies to-day an area of 540,857 square kilometres (215,500 square miles).* Her population, according to the last census in 1910, was 64,925,993, compared with 41,580,792 in 1871, and 24,833,000 in 1816; in other words, there are now 120 people located on each square kilometre against only 66 in 1871, and 60 in 1840, and considerably less in 1800. As regards population, ­ Germany holds to-day second place in Europe, whilst as to the area, she is third. If such an enormously increased number of people can not only find their means of subsistence on the same territorial space, but have also been able materially to improve the conditions of life in respect of nourishment, clothing, housing, comfort, amusements, ­ etc., as they have done; it proves firstly, that the country is certainly not a poor one, and * See Table No. I. 6 DEVELOPMENT secondly, that its inhabitants must be physically and mentally sound, morally strong, industrious, intelligent, conscientious, energetic, and enterprising. ­ Still, Germany is by no means rich in natural resources, as compared with France, Russia, the United States of America or some South American countries. She does not grow sufficient for her own requirements in breadstuffs and other foods, in clothing, etc. ; her imports of raw materials are constantly increasing. She is, on the other hand, although essentially an inland country, forming, so to speak, the heart of Europe, well placed for commercial intercourse in all directions. The climate, naturally varying in the different parts of the Empire, is, on the whole, healthy. It is true there is not too much sunshine, but plenty of rain; the sky, more often than not, is covered with clouds and mist. Grey is the atmosphere, ­ figuratively speaking, in which the Germans live. However, just this sort of climate seems to exercise a stimulating influence upon economic energy. It no doubt creates a demand for many things which are not required in milder and more pleasant climates, and consequently the necessity to labour, in order to be able to secure these articles. “ A lazzaroni, covered with a few rags, living on chestnuts and onions, is much less concerned with the struggle of life than a north- OF GERMANY. 7 lander, who has to find nourishing food, warm garments and solid housing.” (Sombart.) Besides, moderate or rather medium climate facilitates uninterrupted activity; extreme cold, as well as extremely hot temperature, interferes with steady working. Without dwelling at length on the other influences ­ which have a certain bearing on economics, we must refer to politics, both foreign and home, that are obviously of importance. One might, with a certain limitation and variation, apply what a French Minister of Finance in the eighteenth ­ century said to his sovereign : (“ Give me good politics and I will give you good finance.”) ‘‘Good politics make good economy.” And yet, even in times when political movements and dangers weighed heavily on the minds of the world, economic progress was not checked to any serious degree. Experience in recent years has shown that it may occur that political and financial crises have no more than a slight immediate effect. The American panic in 1907, the Morocco affair, the outbreak of the Balkan war, still fresh in our memories, may be referred to in this connection. There can be no question that the Government of a country directly and indirectly by action and by passiveness determines, in a certain measure, its economic developments and conditions. 8 DEVELOPMENT The German people are of a bureaucratic disposition. Whilst, before the invasion of Napoleon, the Government in Germany exercised full control over its economic activities, an entire change took place in 1807, with the issue of an edict of Friedrich Wilhelm, which reads :—“ We, “ Friedrich Wilhelm, herewith make known, “ after the restoration of peace, that our intention “ is directed towards raising again the wealth of “ our loyal subjects, which has greatly suffered. “ We have considered that, in view of the general “ distress, the means at our command would be ‘ ‘ inadequate to render assistance to each individual, “ whilst it is only in accordance with justice “ and the principles of a well-organised state “ economy, to eliminate all hindrances which have “ hitherto prevented each individual from securing “ such wealth as he might obtain commensurate “ with his capacities.” This important measure, recognising modern liberal ideas, signified the Government’s intention to leave all economic initiative and energy in the future to its subjects. However, the freedom of action was later on again frequently interfered with by regulations and legislation, whilst during the period since 1871, the State, by establishing the Reichsbank under Government control, by nationalising the railway systems, by acquiring coal and mining properties, OF GERMANY. 9 has taken part in influencing and directing the course of economic development. Of invaluable assistance in the furtherance of Germany’s economic interest proved her admirable educational and military organisation. German discipline in thinking and acting, and German drill have become proverbial. Discipline involves no less the power to command than to obey, to organise no less than to subordinate oneself. The German character boasts of both qualifications, and for this reason Germany has produced the best organised armies and the best teachers. In referring to the victory at Sadowa, the wellnigh famous remark was made by a professor, " The German Schoolmaster has won the battle.” It is evident that in the organisation and building up of great industries in which co-operation on the one hand, and specialising on the other, are required, such qualities as are referred to above are almost indispensable. In returning now to the different periods, we find, at the beginning, most mediaeval conditions. In Prussia, 73 per cent, of the population of ten millions lived in the country, only 27 per cent, in towns. The country population was almost without exception engaged in agriculture. A considerable number of town people also made their living by agriculture and cattle raising. B 10 DEVELOPMENT People engaged in trade and industrial enterprises were very few, the peasants at that time being also their own bakers, butchers, carpenters, masons, spinners, tailors, weavers, dyers, even soapmakers and brewers. The country population produced their own textiles, they manufactured homegrown ­ flax and sheep-wool into clothing material ; only in exceptional cases were outside specialists called in to do that work. Spinning was mostly done by the womenfolk. The same state of affairs existed in the great agricultural estates. In the East-Elbian parts of Germany, it was a principle to produce if possible all that was wanted for the property and for the people attached to it. The conditions in towns were not much different, though, of course, there were already independent tradesmen and craftsmen, ­ whilst the differentiation between producing and consuming economy was not by any means as distinct as it is to-day. At any rate, it was still a practice to remain, as far as possible, independent of outside help. Instead of buying fully manufactured ­ articles the material was supplied to the craftsmen, who made it up against payment of wages, in most cases in their customer’s own houses. Frequently only fees were arranged for their work, in the same way as is still done to-day in some cases, with the family doctor, who receives OF GERMANY. ii a sum agreed upon for his yearly services, whatever they might be. Only a few workmen worked at that time on their own account, and most of them lived in very modest, sometimes indigent, circumstances. ­ Primitive as this mode of production and the methods of trade may appear to us to-day, still more mediaeval were the constitutional and legal conditions relating to economic matters : on the one hand serfdom in agriculture, and on the other hand guild regulations, compulsion to belong to guilds. In the east of Germany, most of the peasants living as hereditary subjects of the owners of manorial estates in their villages, were bound to fulfil a number of duties towards their lords, being not at liberty to leave the soil, or even to marry, without permission. The children could not go into a profession or any other vocation without consent. When grown up, they had to present themselves to their landlords, who could engage their services at discretion, against trifling payment, and were even privileged ­ to apply corporal punishment. In some districts of Germany, the institution of serfdom, “ the right to do wrong,” as it is characteristically described, was already abolished at the end of the eighteenth century. Prussia, however, only decided ­ in 1807, as Hardenberg put it in his memorial, 12 DEVELOPMENT “ to realise democratic principles in a monarchical government, under preservation of morality and religion.” Still, not until 1821, were reforms granted to the peasant farmer, securing the same conditions which the large estate owners had already obtained under Frederick the Great. These reforms led to better cultivation of the soil, to increased results from the same area, and in the sparsely populated districts in the east there was consequently room for a much larger settlement. The agrarian reforms were one step in the right direction, but it was recognised that the conditions of trade also required material improvement. In the first place, more freedom. In the same parts of Germany that came, in the beginning of the nineteenth century, under French rule, the principle of freedom of trade was then already proclaimed ; Prussia followed suit in 1811, by abolishing an institution which required everybody, ­ who wanted to pursue any certain trade, to furnish a certificate of capacity. These, and other reforms, constituted the foundation-stone for the new development of German economy, which, however, only as regards agriculture made themselves markedly felt at an early stage. The modern technical improvements which had already revolutionised England’s industry at the end of OF GERMANY. 13 the eighteenth century were of little use in Germany as long as she was still cut up in so many separate economic territories, and as long as the traffic facilities were in such a deplorable state. The financial powers of Germany were so exhausted after the wars with Napoleon that some time had to elapse before she could sufficiently recover, in order to meet the enormous capital demands involved by the advent of machinery and steam. By the middle of the third decade of the nineteenth ­ century these adverse circumstances had, on the whole, disappeared. Above all, by the conclusion of the Customs treaties between eighteen states with a population of twenty-three millions, the great obstacle in the industrial and commercial intercourse was removed, whilst from year to year additional states joined the Customs Union. At about the same time, railway construction was commenced in Germany. The first line from Fiirth to Nuremberg, about 3f miles long, was completed in 1835. Rapid progress was made ; in 1845, 1,437 miles, in 1850, over 3,750 miles were in operation and gradually a comprehensive railway system became established, ­ now comprising about 37,500 miles, thus exceeding that of any other European country. Almost twenty years before railways were built, river navigation was employed on the Rhine and 14 DEVELOPMENT the Elbe, and in 1830 on the Danube. The basis for industrial development on a large scale was consequently laid. The different parts of the country were brought closer to each other, their connection became more intimate, their interests more common. The prices of articles of consumption ­ in the whole Customs Union became more uniform, more regular : differences of 30 per cent, and more in foodstuffs, which had prevailed before between the Rhineland, for instance, and some Prussian Provinces, were out of question. At the same time, a more distinct difference with regard to the production in the various districts became manifest. Each branch of industry located itself where the most favourable natural conditions seemed to exist. Technical improvements, for instance, the more general use of steam engines, soon stimulated industrial expansion, which was further assisted by tariff reform, introduced in the forties of last century, in order to protect the home markets against English competition. Most of the large industrial undertakings in the Rhineland, Westphalia, and Silesia, etc., which have since assumed such gigantic dimensions, were formed in that period— the works of Krupp, Borsig, Donnersmarck, etc., are much older still. iiiisRr HHI I HI OF GERMANY. 15 In 1837, the 421 fixed steam engines for industrial ­ use in Prussia represented 7,500 h.p. ; in 1846, 1,139 steam engines represented 21,716 h.p. ; in 1879, 29,895 steam engines represented 1,887,784 h.p.; in 1901, 75,958 steam engines represented 3,709,662 h.p. ; whilst to-day the horse-power amounts to more than 8,000,000. Gradually, the whole process of production was placed on a more scientific basis and attention was being constantly directed towards improvements ­ in machinery, etc. The enormous development ­ in the iron industry, for instance, dates from the replacing of wood by pit coal as fuel. In 1847, on ly 32 out of 227 furnaces were stoked by coal. Pig iron production in the Customs Union of Germany in the middle of the last century was still behind that of France and Belgium. To-day, it is only exceeded by America. In a similar manner has the production of iron manufactures and the output of coal forged ahead, whilst some important engineering works, etc., were also established in the second period, which displayed ­ great activity, especially in the decade 1850-1860 after the political unrest in 1848 had subsided. Such rapid industrial expansion created an increasing demand for capital and credit facilities, which could no longer be met by the means at the disposal of individual capitalists. i6 DEVELOPMENT In the first place, a considerable number of note-issuing banks were called into being in order to facilitate payments and to increase the means of circulation. In 1871, thirty note-issuing banks were in existence. At the same time credit banks —so-called credits mobiliers—were established ; in 1848 the A. Schaaffhausen’sche Bankverein in Cologne; in 1853 the Bank fur Handel und Industrie (Darmstadter Bank), an institution founded by international interests which, owing to difficulties raised by Prussia, made its domicile in Darmstadt; in 1856 the Disconto Society, founded in 1848, was reorganised ; in the same year the Berliner Handelsgesellschaft and the Mitteldeutsche Creditbank in Meiningen were established; in 1870 the Deutsche Bank in Berlin ; in 1872 the Dresdner Bank in Dresden. The functions of these institutions were intended to be of a very much more varied character than those of the note-issuing banks, the land banks, mortgage banks, etc., their object being, not only to attract the savings of the people as deposits, allowing low rates of interest, and to apply the same in discounting bills and making advances against securities, and investing in high-class securities, but to assist trade and industry in a much more extended manner. OF GERMANY. 17 Industry and banking in Germany became, in fact, completely interlinked and interdependent. The capitals of the different banks were modest compared to the gigantic agglomeration of the present day. The original capital of the Schaaffhausen’sche Bankverein, for instance, was only £780,000 as against £7,250,000 to-day ; of the Disconto Society £1,500,000 as compared with £10,000,000 to-day; the Darmstadter Bank £2,137,500, now £8,000,000 ; the Deutsche Bank £750,000, to-day £10,000,000; Dresdner Bank £480,000, now also £10,000,000. The capital of the banks was raised by issue of bearer shares, almost without exception fully paid up, under the Limited Liability Act, which greatly facilitated association of capital. The German public showed already in the early stage a gusto for investing in bank shares, so that in many cases their issues met with enormous success. Active promotion of insurance companies also took place in the period from 1850 to i860, more than 25 institutions being founded between *853 and 1857. It is noteworthy that bank shares are almost exclusively issued in bearer certificates; being fully-paid there is, of course, no liability attached, whilst for market purposes, and otherwise, the bearer form is more convenient and congenial i8 DEVELOPMENT to the general public. The capital thus supplied is, so to speak, of an impersonal character, and the limited liability company is actually the means of democratising and stabilising capitalisation. People at large are enabled to take an interest in capitalistic enterprises by the acquisition and holding of shares. Until 1825 there were only 21 limited liability companies in Prussia with a total capital of £1,800,000. In the following 25 years the number rose to 100 with £32,000,000 capital, and in 1870 to 300 with a total of £125,000,000 capital, of which mining enterprises accounted for 30! millions, banks for 5 millions, insurance companies for 8 millions, and railways for 26 millions. For specific industrial undertakings, the limited liability form played no important part before 1870. The increasing intercourse between the different states in Germany soon necessitated uniform regulations in respect of Bills of Exchange and commercial law generally. Complete uniformity in legislation relating to economic matters in the various Federal States of Germany, however, was only attained after the political regeneration. This refers especially to currency and the noteissue system, to weights and measures and to the postal organisation. The growth of the industries brought about OF GERMANY. 19 an important change in the classification of the population. The number of independent tradesmen ­ decreased, whilst dependent wage labourers increased in the same proportion. The larger towns became gradually populated with restive masses of the proletariat, which, of course, gave the cities quite a different appearance. Still more striking, however, is the increase in the number of people employed in trade and industry at the expense of the agriculturists, in other words, the change from the agricultural into the industrial state. This tendency, which has also manifested itself in other western European countries, is illustrated by the fact that in 1816 78 per cent, of the total population in Prussia were still engaged in agriculture and forestry ; in 1849, 64 per cent. ; in 1867, only 48 per cent. ; in 1882, 4 2 l per cent, lived on agriculture ; in 1895, 35I per cent., and now only about 27 per cent. This explains the rapid growth of industrial cities like Essen, Dortmund, Bochum, Mannheim, etc.; yet, compared with England, the distribution of the population in Germany is nothing extraordinary ; m I 9°i, already more than 35 per cent, of the whole population of England lived in big cities, 2 5 per cent, in London alone. In accordance with the rapid growth of the towns, the housing has assumed quite a different 20 DEVELOPMENT complexion. Large tenement houses, barracks for working classes, were put up—rented houses took, in many cases, the place of owned property; more than 80 per cent, of the population ­ in the big cities, with few exceptions, live in rented properties which, on the whole, are built with more regard to health and comfort than the old houses. The building trades were thereby naturally stimulated. As previously stated, the agricultural population has gradually decreased, whilst the number of those employed in trade and industry has risen in proportion. However, the figures are misleading in this respect, that large and small farmers have formerly combined trade and industry with agriculture, even if only for their own requirements. The ultimate separation ­ added many to the number of trades- and industrial people, who actually should not have been counted among agriculturists. This becomes still more evident when we consider, as Sombart puts it, “ the increasing substitution of inorganic matter for organic matter. ” For instance, if wood is replaced by coal as fuel and by iron for building houses, bridges, ships, etc., statistics will show an increase in the industrially employed, whilst formerly those engaged in forestry were included in the agricultural community. OF GERMANY. 21 Having already referred to the difficulties which existed at the beginning of last century with regard to inland intercourse and commerce, it is also essential to deal with foreign trade at that time. It is wrongly assumed that Germany then disposed of a large surplus of agricultural products available for export. It is true, cereals, timber, sheep-wool exceeded home requirements ; on the other hand, the imports of colonial products, hides, flax, cotton and other raw materials exceeded in value the exports and were paid for by manufactured ­ articles. The export trade of manufactures ­ was, however, needless to say, at that period of no significance, compared with the figures since 1871, when the industrial development commenced to forge ahead with great force. The value of Germany’s export of manufactured articles in 1875 constituted 37 per cent, of the total exports ; in 1910, 65 per cent. The importance which the chemical and electrical industries of Germany alone have attained in the world’s markets explains this rapid progress. It seems surprising, however, that, despite this remarkable increase in export figures of manufactured ­ articles, the production of manufactures itself has grown still more in proportion ; in other words, the home consumption has largely expanded, in consequence of the general prosperity. 22 DEVELOPMENT Whilst in former times, until the middle of the nineteenth century, Germany had to borrow capital from abroad—from England and Belgium, for instance—for building railways, tramways, gas and waterworks, etc., and consequently had to provide for the interest and repayment of capital by exporting articles, as a result of which the trade balance of Germany was favourable, gradually, ­ and especially after 1871, since France sent two hundred millions sterling into Germany as war indemnity, Germany became a creditor, instead of a debtor country; in other words, she could afford to export capital. It is estimated that the holdings of foreign investments by Germany amount at the present moment to between 750,000,000 to one billion sterling, the returns on which, together with shipping freights, insurance premiums and commissions (these items are, of course, not included in trade figures) turn an apparent unfavourable or passive trade balance into a favourable or active balance of payment. In fact, the excess in imports represents the liquidation ­ of foreign liabilities in respect of interest, etc., but not necessarily of capital. In 1911, the balance of trade against Germany amounted to 80 millions sterling, whilst there cannot be any question about the great prosperity she enjoyed in that year. In some previous years, the trade balance OF GERMANY. 23 against Germany was as much as 100 million pounds. The employment of capital in foreign countries enables Germany to support a larger industrial population than she otherwise could. This explains that emigration has, in the course of years, entirely ceased in Germany. In 1882, which was a record year, 220,902 Germans left their fatherland, a big majority for the United States of America. Since then, year by year the numbers became reduced. In 1911, the total number of emigrants amounted to 22,690, in 1912 to about 20,000, which is said to be more than counterbalanced by immigration. The transformation from an agricultural to an industrial state, which was progressing in the second period, made rapid strides in the seventh decade, owing to the increased competition ­ of the oversea countries in the supply of foodstuffs. It is a natural law that men and capital seek employment in such industries as promise the best return. The shifting ln the population demonstrates this clearly, and in the chiefly agrarian districts, the population increased from 1816 to 1871 by 91 per cent. ; in West and South Germany, however, ­ by only 23 per cent. On the other hand, 24 DEVELOPMENT from 1871 to 1900, in the former only by 26 per cent. ; in the industrial West and South, however, by 79 per cent. The large estate owners, the " junkers ” and farmers, whose situation was deeply affected and endangered, agitated for Government protection. The Government, at that time already constantly on the look-out for new sources of revenue owing to increasing charges for army organisation, introduced protective ­ duties on agricultural products in 1879, which were raised many times since (causing the cost of living to steadily rise) without, however, affecting the tendency of Germany’s becoming more and more an industrial ­ country. In connection with the growing expansion in industry and commerce, the transportation of goods and the moving and travelling of men assumed constantly increasing proportions. Commercial ­ travellers, “ commis-voyageurs,” became quite a distinct type. Furthermore, scores of men gathering information, studying conditions ­ of markets, etc., captains of industry, bankers, financiers, as members of the Boards of numerous companies, make frequent journeys, whilst as to travelling for pleasure and enjoyment the Germans have become quite prominent. OF GERMANY. 25 A few figures as illustration : In 1901, the tonnage of goods carried by standard gauge railways only was 352,536,000, and the receipts amounted to £60,800,000. In 1910, the tonnage was 575.33 0 . 000 and receipts were £95,000,000. In 1901, passengers numbered 876,000,000, receipts were £28,000,000. In 1910, passengers numbered 1,541,000,000, receipts were £42,750,000. The whole traffic of the narrow gauge and light railways, and of tramways, etc., is, of course, not included in these figures. Beside the traffic facilities provided by the railway systems, river navigation plays an important part, especially as regards the transportation of goods. Large sums of money were spent in building canals and improving the waterways, aggregating now about 8,000 miles. About 25 per cent, of the total goods traffic in Germany is taken care of by navigation. Even much quicker was the development ­ of the ocean navigation, thanks to the formidable ­ growth of the foreign trade, especially since steam reigned supreme. In 1871, the merchant fleet was represented by 147 ocean steamships, with a net tonnage of 82,000, and a crew of 4,736. In 1912, the number of steamships amounted to c 26 DEVELOPMENT 4,733, the net tonnage to 3,023,725, and the crew to 75,130. The importance which the two principal undertakings, ­ the Hamburg-America Company and the North German Lloyd, have gained in the shipping world is so well recognised that we need not refer to it at length. Fluctuations in trade, periods of prosperity, booms, interchanging with depression, crises, have, in connection with and as a result of the progressing ­ formation of capital, become much more frequent and accentuated in modern, than in olden times. We have already referred to the remarkable activity that prevailed in the fifties of the last century. The spirit of enterprise, held in check for a long time owing to the political unrest, was all at once greatly stimulated by the discovery of important goldfields in California and Australia, and of rich quicksilver mines in Mexico, leading also to considerable increase in the output of silver. Large quantities of the precious metals flowed into Germany, whose balance of trade was more favourable at that time. The private deposits in the Prussian Bank alone doubled, its stock of gold and silver rose between the 1st of January and the end of October, 1851, from 11 million pounds sterling to 3! millions OF GERMANY. 27 sterling, and the bank, not knowing what to do with the money deposited, gave notice to depositors ­ (a measure without parallel) to withdraw credit balances. The criterions of a trade boom became soon apparent. Prices of commodities (Index numbers) we would say to-day), wages, profits, railway receipts, state revenues, etc., scored marked advances and at the same time labour raised its head, threatening and declaring strikes at opportune ­ moments. A very serious crisis followed in 1857. Prices suffered a sharp fall and confidence was shaken ; it took a number of years, until the economic forces were again so fully restored as to give a new impetus to enterprise and speculation. In the sixties, a revival took place, but the outbreak ­ of the Franco-Prussian war disorganised trade again. On the one hand, natural^, the heavy demand for articles of consumption; on the other hand, scarcity of capital, lack of confidence, ­ mistrust. With the conclusion of peace, on conditions consistent with the sweeping victory attained by Prussia, a new era commenced politically and economically. The empire gained in power and prestige, and the inrush of the colossal sum of £200,000,000, which France had to P a y as indemnity of war, had an intoxicating effect upon large circles of people. Trade was 28 DEVELOPMENT again booming, prices soared upwards more than ever, fortunes were swiftly made by speculation and by promotions. In four-and-a-half years from the middle of 1870 until 1874, 857 new companies were founded, with a capital of £1,653 millions as against only 295 companies with £1,202 millions sterling in 19! years from 1851 to 1870. A process of liquidation and winding-up of banks and companies, however, set in after 1873, to be followed by a long period of hesitation and probation, in which everybody seems to have given close attention to serious work, and in which the greatest efforts were made to improve and perfect the whole economic system. The introduction of a uniform currency based on gold, as well as the introduction of uniform weights and measures, and the establishment of the Reichsbank as central institution and principal note-issuing bank, which gradually spread its net of branches and agencies all over the country, thus getting into contact with the whole commercial and industrial community, were important progressive measures. At the end of the seventh decade, the expropriation ­ of the railways, which were joint stock undertakings, by the Government, chiefly on strategical, but also on fiscal grounds, brought about a far extending dislocation of capital, since OF GERMANY. zg a large portion of the railway stockholders elected not to re-invest their capital in Government securities optionally offered to them. Great activity was manifested at that time on the German Stock Exchanges, the negotiations for the purchase of the railways by the Government ­ stimulating and exciting speculation. On that occasion, Mr. Maybach, Minister for Public Works, described the Stock Exchange in the Prussian Diet, as a “ poison tree,” because he was prevented, by people who had a keen appreciation of the value of the railway properties, from acquiring these below their intrinsic values. This word was conducive to creating an atmosphere of prejudice and hostility against the Stock Exchange, branding it as an institution by means of which unscrupulous speculators and manipulators were enabled to accumulate huge fortunes at the expense of the general public. The feeling against the Stock Exchange became so strong and popular that the Government could not help introducing legislative measures prohibiting, amongst others, time bargains in industrial securities and, above all, levying very heavy stamp and contract taxes. “ The Stock Exchange must bleed ” was a popular cry for a long time. Only in recent years when, with the growing wealth and the increasing demands of the nation and the expansion of trade 30 DEVELOPMENT and industry, both the Government and the public commenced fully to recognise the necessity and importance of the Stock Exchange as a market for mobile capital and capital values, were certain modifications carried out, and some of the former regulations abolished. The relations between commerce and industry on the one hand and the banks and stock exchange on the other hand, grew closer and stronger the more the industrial development progressed and the more capital was needed by and became employed in industry.* Both the functions of banks and the stock exchanges were required by industry ­ in order to secure the means for extending existing industries and for financing new ones. Take, for instance, the electrical industry, which, starting in earnest in the eighties, has made such rapid strides that the capital invested in electrical concerns has gradually assumed enormous proportions. ­ As a striking example, I point to the General Electric Society of Berlin, which, founded in 1883 with a capital of £250,000, has now a share capital of £7,750,000—Debenture Capital of £4,737,500 ; whilst its open reserves amount to £3,100,000—and it is known that its internal reserves are almost as large. In the chemical and dye industries, and many others, similar developments ­ have taken place and the period from about See Table II. OF GERMANY. 3i 1875 on, gives evidence of the growing influence exercised by capitalistic enterprises in respect of industrial production, whilst heretofore they were chiefly interested in commerce and finance. Moreover, ­ the whole structure of industry and commerce and banking was gradually changed with the growing tendency of concentrating, combining, forming trusts, conventions, communities of interest, cartels, etc., which one and all (differentiated ­ only in name) have the same object in view, viz., to reduce or shut out competition, or to improve selling conditions, whilst the labour organisations, trade unions, etc., formed to represent the interests of labour, naturally did their utmost to secure the highest possible prices for labour. At the same time, the movement amongst the consuming classes to protect and improve their position by collective purchasing through their consumers’ unions, has spread. Especially since the beginning of the twentieth century fusions and amalgamations and community ­ of interest arrangements have come into vogue in all branches of industry, so much so that one may say that practically, in some industries ­ at any rate, monopolistic conditions have arisen, particularly in the electrical industries. And this joining of forces has not been confined ­ to undertakings of the same character and 32 DEVELOPMENT the same pursuits. The big works have gone further by acquiring control of industries which are producing necessary supplies for them and vice versa, the stronger companies naturally absorbing the smaller ones. Iron works, for instance, have got hold of collieries, thus forming so-called mixed works, in order to become more independent of the coal syndicate, which determines the coal prices. The Prussian Government even, being, as railway owners, great consumers, have secured coal properties with the same object in view. Considerable changes have also taken place in the wholesale and retail business. The importance of the fairs in Frankfurt and Leipzig, and other places at which manufacturers and merchants met twice a year in order to take and to give orders has almost vanished. Only a few special trades find it still expedient to attend. Easy travelling, telegraph, telephone, newspaper advertising ­ and other improved means of communication have brought consumer and producer nearer to each other. The position of the wholesale merchant has got more difficult. The manufacturers ­ sell through agents to retailers, especially since the large department stores like Wertheim, Tietz, and others have come into being, handling such enormous quantities of articles that they are able to exercise a certain control over many OF GERMANY. 33 manufacturing concerns, chiefly the financially weaker ones. The mail order or catalogue trade and instalment payment business have also become features in Germany. In the banking world the process of concentration ­ and agglomeration which has been going on for a considerable time made rapid progress in the last decade ; the big banks absorb smaller ones, take up private firms, chiefly in the provinces, and continue them as branches or agencies. They establish new institutions abroad or attach existing ones, form communities of interest, and so on. As a result of every crisis that occurred, a considerable increase in their number of accounts is recorded, so in 1901, in 1907, and also quite recently when in connection with the Balkan War, some failures of private bankers and small banks occurred. At the same time their relations with industry became still more closely interwoven. We find now, not only bankers and bank managers on the boards of industrial concerns, but also captains of industry on the directorate of many important banks. The capitals of the banks have been largely increased. Three banks in Berlin have now a share capital of £10,000,000 each, with open reserves of £12,615,000, and deposits °f £152,290,000. The share capital of 9 credit 34 DEVELOPMENT banks in Berlin is £62,500,000 ; reserves £19,567,000, and deposits £243,000,000. It may be of interest to learn that this remarkable economic development seems to have changed the views even of the most exclusive German nobility, as regards being connected with trade and commercial ­ enterprises. Not long ago, nobody with blue blood in his veins deemed it worthy of his noble birth to take an active part in any commercial and industrial concern. However, recent history shows that two enterprising princes, endowed with huge fortunes, have not only assumed the management ­ of some important works, which were inherited property, but have also embarked in a vast number of different industrial and financial enterprises, which caused them at times serious financial embarrassment; this princely combination ­ is known by the name of “ Princes Trust.” Still more astonishing may it appear that it is no longer an uncommon or startling event for members of the nobility to enter into matrimonial relations with circles which have accumulated large fortunes in trade or industry, with so-called upstarts. Evidently the power of wealth has affected conceptions of previously existing prejudices and preconceived notions of centuries. There can be no doubt that the colossal increase in the gold production of the world, amounting OF GERMANY. 35 now to over £100,000,000 sterling per annum as compared with about £25,000,000 in 1890, has aided and stimulated economic developments all over the globe in a measure without parallel. At the same time, the stocks of gold in the central institutions of the different countries, which form the basis of credit, have by no means increased in the same proportion. This problem is at the present moment the subject of investigation also in Germany, and measures of reform are under serious contemplation. The construction of Germany’s economic fabric and of her banking organisation have, over and over again, given rise to serious apprehensions and misapprehensions, not the least in England. It cannot be denied that the position has at times been strained and involved, though not to such an extent as has often been represented. An outline of the German banking system may enable readers to form their own opinion as to its soundness or otherwise. II. LAND BANKS, MORTGAGE BANKS, COOPERATIVE ­ SOCIETIES, AND SAVINGS BANKS. Banking institutions, acting as money changers and safe-keepers of money and valuables, have, according to “ Poschinger,” already existed at the beginning of the fifteenth century. Under the auspices of the Town Council, a bank was established in 1402 in Frankfurt a/Main, with a capital of 900 guilders (about £75 in English money), which was provided by the Town Council itself. The name of the bank was " Der Wessil,” meaning “ Exchange.” Already in 1403 this bank was reorganised, by being turned into four independent ­ institutions, probably because the one could not handle all the business offering in connection ­ with the active trade at the fairs, which were always largely attended. In 1621 a comparatively ­ large bank, on deposit bank principles, was founded in Hamburg, modelled on an institu ­ LAND BANKS. 37 tion established in 1609 in Amsterdam. A number of other creations of longer or shorter existence followed. Many projects were worked out, discussed ­ and promoted, but not until 1765 was an edict issued in Berlin, promulgating the erection of the Koenigliche Giro & Len Banco, and at the same time a similar institution started business in Breslau. It does not interest us for the present that the activity of these banks, which, as noteissuing ­ and loan institutions, were intended to assist trade and commerce, was disappointing, owing to faulty organisation and mismanagement. Land Banks. In the meantime, the necessity of broadening the basis of credit for landed properties was more and more recognised, and it is due to the initiative of Frederick the Great that Land Institutions— as we shall call for brevity’s sake these Land Mortgage Credit Associations—were organised on a plan suggested by a Berlin merchant named Biihring, the underlying principle of which was to replace a single mortgage by mortgage obligations. Such mortgage obligations were well secured, inasmuch as the whole provincial union was liable for the issue. Furthermore, being bearer securities, they were more easily realisable. However, this new institution was founded only 38 LAND BANKS. in order to afford credit facilities to feudal land owners. The basis for credit to ordinary peasants and farmers only became established at the beginning of the nineteenth century with the elimination of serfdom. In 1769 the Silesian Land Institute was established as the first one, followed by the Kur- & Neumarkische Institution in 1777, the Pomeranian in 1781, the West Prussian in 1787, etc. The legal and financial status of these institutions is very complicated, and many alterations in their constitution have taken place in the course of time. Still, they enjoyed great confidence amongst the public, owing to the several and joint liability of the estates, no matter whether they had themselves issued debentures or not. Many more were established in the ninenteenth century and altogether there are now in existence 17 in Prussia and 3 outside. This joint and several liability is a guarantee that the loan regulations are strictly observed and particularly that the value of the mortgaged properties far exceeds the advances granted. Capital and interest are further secured by a fund accumulated from contributions by property owners belonging to the union. The unions themselves are under permanent supervision ­ of the State Government, which has also power to appoint, at discretion, special agents in order to look into the affairs of any institution. LAND BANKS. 39 The advances granted are not paid in cash, but in mortgage obligations ("letters of pledge” is the verbal translation) at face value which are disposed of either by the borrower himself, or by the institution for account of the borrower. On the other hand, the borrower has the right to effect redemption of his loan by return of mortgages, obligations, etc. Apart from interest, including the amortisation quota, the debtor has to provide a certain fee towards administration expenses. Whilst, formerly, these bearer obligations, although the institution was liable for them, represented a special charge on a certain property which was inscribed in the books of the land register, the system has later on been more and more abandoned. It goes without saying that sufficient control is exercised in order to prevent any circulation of debentures in excess of the outstanding indebtedness. In 1874, nine out of the seventeen Prussian Land Institutions combined ­ in founding a Central Land Institution for the Prussian States, with the object of issuing so-called Central Land Obligations instead of Provincial Land obligations, labouring apparently under the impression that a wider, and possibly international market, might thus be created. The Statutes of the Central Institution left to the Provincial Institutions attached to them a free hand 40 LAND BANKS. in continuing to issue their own obligations and to withdraw again from the Central organisation at any period, which privilege was taken advantage of by two institutions. The practice of the older institutions to issue obligations to the borrower himself was not adopted by the newer ones. They make their advances in cash and dispose of their obligations for their own account. As a natural consequence, the interest on the obligations which could no longer be issued at a discount, must be fixed in accordance with market conditions. Therefore the type varies. In 1900, only 27 per cent, of the circulation were 4 per cent, obligations, and the balance at lower interest. In 1909 the amount of 4 per cent, issues had already risen to 44! per cent. ; since then, owing to the general increase in money rates, some Land Institutions have even issued 41 per cent, obligations. At the end of 1910, there were about £180,000,000 face value of such debentures, issued by German Land Institutions, in circulation. All those issued before the 1st April, 1905, are admitted for dealings and quotation on the Berlin Stock Exchange, without the publication of a prospectus. Later issues can enjoy that privilege only by decision of the Minister for Commerce in each case. LAND BANKS. 4 r D Rente Banks. An interesting development in connection with the liberation of the peasant farmers from the great landlords is the formation of rente-banks. At the time when the dues of the farmers, consisting in kind, and in the rendering of certain gratuitous services, were, as the result of new legislation, converted into fixed rentes (annuities), the Government undertook to attend to the collection of these and in turn to hand over to those entitled to these dues, rentes or discharge obligations. Payments to be made by the peasant farmers were calculated to suffice for interest and sinking fund on these obligations. In 1850, socalled rente-banks were founded by the Government, ­ one in each Prussian province, eight in all. Obligations issued by the rente-banks of a 4 per cent, and 3! per cent, type, enjoying Government guarantee, were, of course, gilt-edged. Such obligations were also issued for redemption of charges due to churches, schools, charitable institutions, etc. Land Cultivating Banks. Another form of land obligations is represented by the land-cultivating rentes issued by the land-cultivating banks, which, however, are not guaranteed by the Government but only by the provincial unions. The object of these banks is 42 LAND BANKS. to promote the amelioration of the soil, irrigation, cultivation of the forests, improvements of waterways, ­ river banks, etc., etc. There can be no question that the credit facilities thereby created are of great importance and advantage to the landowners of all kinds, but whilst the Land Institutions have provided ways and means in order to secure greater facilities for landed proprietors and agricultural interests generally, it has become a practice of the pure mortgage banks to make only town and city properties the basis of their loaning business and obligation issues. Mortgage Banks. Only since 1862 have such banks been in existence. The Bavarian Mortgage & Exchange Bank, founded in 1835, did not commence to cultivate the mortgage business until 1864. A considerable portion of German savings being invested in the obligations issued by the mortgage banks, it is important that the development of these institutions be closely watched. Still, it took a long while before a proper and comprehensive ­ scheme of legislation was introduced and adopted by the Reichstag, which only came into force on 1st January, 1900, establishing uniform regulations for the German mortgage MORTGAGE BANKS. 43 banking system, in place of the different stipulations ­ of each federal state. The law describes mortgage banks as “ such joint stock institutions as lend money on real estate and issue obligations ­ on the security of mortgages acquired.” No other organisation can obtain permission to transact mortgage banking business. Only by concession from the Government can mortgage banks be founded, and the Government has a right to supervise the banks without, however, incurring ­ any responsibility. As to other operations not directly relating to mortgage business, the activities of the pure mortgage banks are strictly limited. Mixed mortgage banks, which, before the law came into force, transacted a general banking business, were allowed to continue with certain limitations. Apart from lending money on real estate and issuing obligations, the pure mortgage banks have power 1. To purchase and sell mortgages and make advances on same. 2. To grant loans without mortgages as security to German communities or under their guarantee and to issue obligations against these advances. 3. To grant loans to German light railways on the security of their undertakings. 4- To act as commission agents for the purchase 44 MORTGAGE BANKS. or sale of stocks or shares, but only on a cash basis (no time bargains being allowed). 5. To take into safe custody money and valuables, but only to an amount not exceeding one-half of the paid-up share capital of the banks. 6. To attend to the collection of bills of exchange, cheques, etc. The available funds of the banks may be applied in repurchasing obligations outstanding, and purchasing such Bills and securities as can be accepted by the Reichsbank, according to the Bank Act of 1875, against advances on securities, or against deposits with banks and bankers. Purchases ­ of real estate, however, are only permitted in exceptional cases, in order to protect loss on mortgages, or for the purpose of providing offices, etc. The total circulation of obligations must be covered by mortgages of at least the same amount and bearing at least the same rate of interest. The outstanding obligations of the mortgage banks must not exceed fifteen times the amount of the paid-up share capital of the banks, including the reserve fund. The banks are only permitted to grant loans secured by first mortgage on real estate within German borders, as a rule up to three-fifths of the value, but with special permission ­ of the Government they can lend up to MORTGAGE BANKS. 45 two-thirds on agricultural property. In Bavaria, however, where the mortgage obligations are admitted as trustee securities, only half of the value may be advanced. Mortgages on building sites and unfinished buildings are only allowed to the extent of 10 per cent, to form cover for the whole amount of circulating obligations, and only 50 per cent, of the paid up share capital may be applied in such loans. The rights of the debtors are clearly defined. Repayment cannot be precluded ­ for more than ten years; on the other hand, amortisation has to commence after ten years at the latest. The holders of mortgage obligations are legally safeguarded in the way that a register has to be kept, in which all the mortgages and securities held as security for them are entered, and should the bank fail, holders of mortgage obligations ­ have a preferential claim on these mortgages and securities before any other creditors. Each mortgage bank has to appoint a trustee and alternate, whose rights and duties are prescribed by law. Such trustee has to satisfy himself only as to the extent of cover for the obligations and not as to the quality of that cover. Jointly with the banks he takes the collateral into safe custody. However, he has a mandate only from the supervisory ­ authorities; still, though not being elected by the obligation holders, he safeguards their interests. 46 MORTGAGE BANKS. The supervision authorities are allowed also to appoint a further official with power to exercise the right of supervision accorded to the state. In Bavaria, a state official has been appointed for each mortgage bank, but not so in Prussia. In fact, for any well conducted bank the appointment of state officials is utterly superfluous, as they can only by advice and suggestion assist the management ­ and administration of banks, whilst they are by no means empowered to inhibit any action of the directorate or to interfere in any way with the decision of the responsible managing authorities of the banks. The law requires a very detailed publication of the balance-sheet, giving not onlyyear by year the assets and liabilities, profit and loss account and a full business report for the fiscal year, but also a statement as regards premiums and discounts realised by the sale or repurchase of obligations, etc. ; whilst at the end of each halfyear a full report on the total amount of obligations ­ in circulation and their cover has to be made known. The question of the admission of mortgage obligations as trustee securities has not been decided by the Imperial Legislature; it is left to the discretion of each individual state. In South and Central Germany, the issues of almost all mortgage banks are recognised as trustee MORTGAGE BANKS. 47 stocks, whilst Prussia has admitted as such only the communal obligations issued by mortgage banks. It must be patent to everybody that the business of mortgage banks is simple and safe enough as long as it is conducted on the lines that loans are granted in due proportion to the intrinsic value of the properties which form the cover for the credit. The obligations issued against these loans are offered by public subscription, or placed by bankers or intermediaries who have an investment ­ clientele, and as the commission bonified is on a comparatively liberal scale, from \ to i per cent, (on condition that the bonds placed do not come on the market again for at least one year), it is natural that intermediaries recommend such obligations as investments, which have become quite popular amongst certain classes, owing to the absence of price fluctuations of any importance. In fact, it has been the practice for mortage banks to make consignments of obligations to certain provincial bankers, in order to facilitate sales. At the same time the mortgage banks regulate the quotations for their bonds on the Stock Exchanges and they are always prepared to purchase in the market if any stock comes on offer. The profit of the mortgage banks consists in the margin between the rate of interest at which they lend and that at 4 8 MORTGAGE BANKS. which they borrow, this margin naturally being in ordinary times a small one. Apart from this, they generally charge a lump commission on entering into contract with a borrower. Taking into consideration ­ that the banks are in a position to issue obligations up to 15 times the amount of their share capital, it follows that even a small interest margin will result in a high return on the share capital. The average dividend of thirty mortgage banks, representing about seven-eighths of the total, was 8| per cent. As already stated, a proper valuation is a most essential matter for mortgage banks. The value of property is, however, not of a stable but of a fluctuating nature, and subject to a variety of circumstances and conditions. Real estate has always been, especially since the rapid growth of wealth in Germany, the object of vast speculation. Conditions in Germany with regard to real estate are very different from those in England. Leasehold ­ is almost unknown, all property being owned freehold, and the question of title can hardly ever come up. Every inch of land, so to speak, is accounted for in the Ground Book (Kataster), in which any charge or transfer must be registered. There is not much title searching work for lawyers in Germany. All this naturally facilitates trade in real estate, and as, in addition, the obtaining of MORTGAGE BANKS. 49 loans is very much simplified, it stands to reason that wider circles take a much more active interest in property transactions than here in England. Prices have risen by leaps and bounds during the last generation, the same property frequently changing hands many times within short periods at considerably enhanced prices. Still, this does not absolutely signify that values have thus become artificially inflated, though with every further advance this danger, of course, increases. We must bear in mind that the rise in property values is not always the result of genuine dealings. It may happen, for instance, that large operators interested in a certain district, perhaps in a newly opened-up part of a town, acquire some lots in the immediate neighbourhood at fictitious prices in order to raise the value of their own holdings, either with a view to increasing their borrowing power, to establishing a higher selling level, or some other abuses. It is therefore of the utmost importance that the valuations on behalf of the banks are made in the most careful manner. The legal prescriptions in this respect deal, more or less, with general principles only that have to be observed by the banks which, in their turn, with the sanction of the supervising authority, give themselves directions as to the mode of valuing. Whilst the mortgage banking system has, upon the whole, proved satisfactory to borrowers, to banks and to investors, it must be admitted that, in spite of legislative supervision, etc., some banks have, owing to dishonest manipulations on the part of the managing authorities, drifted into a very critical position which, on exposure by the Press, naturally created serious misgivings among the obligation holders. The principal institutions involved in the crisis which occurred in 1900 were the old-established Prussian Mortgage Bank (Spielhagen Bank), and the Pomeranian Mortgage Bank, both institutions having affiliated to themselves ­ in a disguised manner a number of real estate and other companies. The Spielhagen Bank controlled in that way the German Ground Bank in Gotha, unloading on it all business which appeared to them too risky to do under Prussian law. Furthermore, it had founded real estate companies, with the object of developing suburban estates near Berlin for building purposes, amongst others the “New Berlin Building Companv,” “ the Company for real estate and mortgage business,” etc. ; altogether about eight different companies, and, apart from them, the once well-reputed banking house of “ Anhalt & Wagner Successors ” was under the absolute government and control of the Spielhagen concern. The directors of the Spielhagen Bank went to work in the following MORTGAGE BANKS. 5i fashion: An undeveloped piece of land was bought and cut up into building plots which, on fictitious valuations, was loaned upon up to the hilt. All sorts of unsound flotations and capital issues were made by the affiliations of the concern for account of the directors, who had entered into large speculations especially through the agency of Anhalt & Wagner Successors. But the everincreasing demand for fresh capital by the concern and the constant offering of its obligations on extraordinary terms (the commission bonified to intermediaries was raised to 2 per cent.) caused widespread suspicion, and investors became alarmed when the Frankfurter Zeitung, which already had, some time previously, severely criticised the methods of the institution, published a series of articles dealing in a most able and impartial manner with the dangerous entanglement and precarious ­ position of the concern. The situation became untenable and, at the end of 1900, when it transpired that there were no funds to meet the interest on the outstanding obligations due on the 1st of January, 1901, some leading banks in Berlin took action in making advances in order to avert a spreading of the crisis. Investigation showed that all balance-sheets since 1896 had been fraudulently drawn up, that the circulation of obligations was in excess of the collateral mortgages, and that 52 MORTGAGE BANKS. one-sixth of the interest payments due on mortgage ­ loans had, for years, remained unpaid, although the balance-sheets stated them as having been received. The accounts showed a deficit of £1,750,000, whilst the share capital amounted to £1,050,000. The Ground Bank in Gotha was in a still worse condition. Needless to say, the managing authorities were prosecuted and severely punished, the spiritus rector being sentenced to a term of six years’ imprisonment. The failure of the Pomeranian Bank was due to similar causes. Under the auspices of some leading banks in Berlin, both institutions were reorganised on drastic lines, and have since been managed successfully. As a result of these disclosures, a decree was issued in November, 1901, by the Minister of Agriculture, stipulating still stricter regulations in respect of state supervision, and the necessary publications for all Prussian mortgage banks, which undoubtedly seem apt to bring to light at an earlier stage any of the irregularities referred to above, though, of course, no scheme of legislation can prevent fraud under all circumstances. The shaken confidence in the mortgage banks was, however, soon fully restored, it being recognised ­ that there was no cause for apprehension as to the situation of any of the other institutions. The commercial crisis of 1907 and the comparative MORTGAGE BANKS. 53 tightness of money for some years have, of course, interfered to some extent with the sale of obligations, while the probable issue of enormous amounts of new international securities in the near future will no doubt lead to the absorption of large amounts of savings, which otherwise might have been invested in mortgage obligations, there is good reason to assume that with the return to normal conditions the mortgage ­ banks can again readily dispose of their obligations. At all events, the colossal amount of capital invested in this class of security illustrates the importance of the mortgage banking system. Out of 38 banks, 31 are pure mortgage banks, and 7 are banks doing mortgage and other business. At the end of 1910 their paidup share capital amounted to £40,000,000 sterling ; the total open reserves were £15,500,000 being 38|- per cent, of their paid-up share capital. The loans granted on real estate mortgages (about £34,000,000 on agricultural property and about £498,000,000 on urban property) amounted together ­ to only about times the paid-up share capital plus reserves, which is considerably below the amount authorised by legislation. The quotation ­ of the shares also shows the confidence which the public has in the banks. The average quotation ­ of thirty banks listed in Berlin and Frankfurt 54 CO-OPERATIVE SOCIETIES. was 177 per cent., the yield to the investor only a little over 4! per cent. The total circulation of obligations issued by the various land and mortgage banking institutions amounted at the end of 1910 to £790,949,800. Co-operative Societies. We have now dealt with organisations, the object of which is primarily to facilitate the mobilisation of fixed capital by means of granting credits for comparatively long periods on real estate property to people who belong more or less to the fairly wealthy classes. On the other hand, it is the aim of organisations which are known as “cooperative ­ societies,” “ co-operative credit societies,” ­ “ people’s banks,” " traders’ banks,” etc., to secure credits for long and short terms, and other facilities to small farmers, traders, etc. In other words, the financially and socially weaker classes join forces in order to attain economic advantages which cannot be obtained individually —at least, not in the same degree. Apart from co-operation for credit arrangements, they combine in buying, producing and selling, through the agency of consumers’ unions, “ material ” and “ building,” “ machinery ” and “ magazine ” societies, " stores,” etc. This movement, which originated in England as far back as 1822, started CO-OPERATIVE SOCIETIES. 55 in Germany in the famine year, 1847, when Raiffeisen founded the first Co-operative Society, while Schulze established in 1850 the first Loan Society in Delitzsch, Saxony. Though actuated by philanthropic motives, they soon realised that their task could, with any measure of permanent success, only be accomplished on business lines ; their plan of operation was also intended to encourage thrift, as well as interest in ethical values—in a word, to raise the standard of life among the masses. Schulze Loan Societies were based more or less on sound banking principles ; to lay a strong financial foundation by gathering and accumulating proprietary capital for his organisations was his determined policy from the beginning, in order to enable them to render adequate assistance to its members. Raiffeisen, on the other hand, was less eager to gradually build up a strong financial organisation than anxious to secure ready support to distressed farmers. For obvious reasons, especially on account of the insignificant amount of capital which the individual members were in a position to contribute or to invest, the limited liability form was not essentially suited for these co-operative societies. However, being recognised as “ corporate bodies,” they required no further legal basis. 56 CO-OPERATIVE SOCIETIES. In 1868, when these organisations had already assumed important dimensions, a special law was passed, thanks principally to the influence of Mr. Schulze, with regard to the co-operative societies. In 1889, certain modifications were decided upon, according to which, societies can be founded, firstly, with unlimited liability, so that each individual member is liable to the full extent of his own fortune to the society and its creditors ; secondly, with unlimited liability to make additional payments by which each member is responsible with his whole fortune not directly to the creditors of the society, but only to make payments to the society itself, in order to enable it to satisfy its creditors; in such societies, each member is permitted to acquire only one business part; thirdly, societies with limited liability, in which case each member is only liable to the extent of his acquired interest in the society. The law of 1889 contains also strict regulations in respect of periodical inspection, auditing, etc. But there are eight banks, serving the ends of the co-operative societies, of which seven are organised as joint stock companies, and one as a company in which the shareholders’ liability is limited, whilst the managing partners are liable with their whole fortune. Already in 1859 .Schulze called a congress of all societies, which decided to form a CO-OPERATIVE SOCIETIES. 57 E general federation of German co-operative societies electing Mr. Schulze as President. At the same time it was resolved to found a Central Institution for money and credit regulations, namely, the Genossenschafts-Bank von Soergel Parisius and Co., which was also a limited partnership as far as the shareholders were concerned, but with unlimited liability on the part of the managing partners; its initial capital of £37,500 was gradually raised to £1,800,000. However, the Genossenschafts Bank, lacking sufficient support by the co-operative societies, and not finding, therefore, that sphere of activity for which it was organised, gradually drifted into general banking, competing with the big institutions, and after becoming involved in some unsuccessful industrial enterprises, gave up its independence in 1904 in being taken over by the Dresdner Bank, which carries on that particular business as a special department. The Raiffeisen Societies, operating in strictly limited districts, with a view to establishing ­ closer personal contact among the members, grant personal credits to members on their own signature, with or without the guarantee of others. In 1877 a federation of 24 societies was formed on the same lines as the Schulze Union, Raiffeissen being elected President. Farmers, who can turn over their capital only in a very slow fashion, 58 CO-OPERATIVE SOCIETIES. require longer credits, averaging two years, whilst the small traders turn over their capital about three times per annum. The average credit to members of the General Federation amounted in 1910 to £317 per year, of which less than £100 was outstanding at the end of the year. On the other hand, the average credit by the Imperial Federation amounted to £33, and at the end of the year £62 per member was still open. An opposition movement ­ to the Imperial Federation started in 1883, under the name of the “ Imperial Union of Agricultural ­ Societies ” in Darmstadt, on the principle of equality of all societies belonging to it. After bitter attacks upon each other, an agreement for peace was signed in 1905 which, though safeguarding ­ the continuance of the two separate unions, as well as of the central institutions allied to them, provided a working arrangement, which is demonstrated by the fact that the acting president ­ of the Raiffeisen Union was elected to act at the same time as vice-president of the Imperial Union. The domicile of the Central Loan Society for the Raiffeissen Union which, in 1910 under the name of Agricultural Central Loan Fund for Germany, took the form of a joint stock company, capital £500,000, was at the same time transferred from Neuwied to Berlin. It is the function of these central institutions to CO-OPERATIVE SOCIETIES. 59 procure for societies in want of credit, the necessary means, and to employ, on the other hand, the surplus funds of the societies to the best advantage, the object being, therefore, similar to that for which the Genossenschafts Bank was established by the Schulze societies which, however, failed in its purpose. In 1895, under the auspices of the Prussian Minister for Finance Miquel, the Prussian State Co-operative Central Bank was founded in order to join together all societies with a view also to bring the economic power of the societies under the influence of the Government. The Government ­ supplied the funds to the institution by loaning £250,000 at the low interest of 3! per cent, and assuming control of the management, without, however, making itself responsible for any further financial engagements. Subsequently the capital was considerably increased, so that the capital now stands at £3,820,000. The Central Societies in regular connection with the Prussian Central Institution are afforded the most favourable conditions, provided they undertake neither to accept credits nor to employ their surplus funds anywhere else. For instance, bills are discounted at | per cent, below the official bank rate, minimum 3 per cent., but under all circumstances £ per cent, above the private discount rate. The Prussian Central Institution is also transacting 6o CO-OPERATIVE SOCIETIES. business with land institutions, savings banks, communal, provincial and public institutions, with business firms and individuals. The majority of the societies, except the Schulze creations, which abstain on principle, keep their account with the Prussian Central Institution. Some figures will illustrate its development. Their current accounts number about 1,500; their loans amount to thirty millions sterling, discounts six millions sterling. In summing up with regard to the co-operative societies generally, the following points are of interest. The amounts invested by individual members in business parts are in the majority very small, in some cases even less than one shilling. The largest proportion, viz., 23^ per cent., has invested between 5s. and 10s. ; the smallest proportion, viz., one per thousand, has invested £500 ; almost half of the members have invested not more than 20s. There were in existence, at the end of 1911, 31,981 co-operative societies, of which 18,176 are credit societies. The members of the latter numbered 2,375,835 ; those of the others are not exactly known. The assets of 16,402 credit societies which publish reports, out of 18,176, amounted to 230 millions sterling ; the credit balance of members to i6| millions sterling ; the reserve funds to 10 millions, loans to 200 CO-OPERATIVE SOCIETIES. 61 millions. The figures of most of the other societies are not available. At all events, the assets stated, representing the savings of a large part of the population, are of such magnitude that careful administration is of vital importance. Applying strict banking principles, the measure of liquidity would be found inadequate, being, as to the General Union 25 per cent., the Imperial Union 17 per cent., Raiffeisen only 3 per cent, (in fact the condition of the latter seems so precarious that a re-organisation appears inevitable). However, considering the nature and the object of these institutions, it seems in many cases almost impossible ­ to change or improve the state of affairs without impairing the interests of those who are more or less dependent upon the support of the societies. Want of liquidity alone is not necessarily ­ bound to lead to heavy losses or disaster; as long as the assets are of undoubted value there will be no difficulty in ordinary times to raise funds on their security in order to meet the liabilities as they fall due, and even in times of crises assistance would hardly be withheld if the situation proved intrinsically sound. Still, it cannot be denied that, by careless or dishonest management, quite a number of credit societies have been ruined ln the course of time ; at the present moment, the collapse of a credit society, which caused 62 SAVINGS BANKS. widespread loss and discomfort in the Duchy of Hesse, is the subject of an interesting trial in the Courts of Justice at Darmstadt. Nevertheless, it must be recognised that, taking it all in all, the organisation and development of the credit societies’ system has efficiently met the requirements of a considerable section of the population, has proved a blessing to many in distressful circumstances and has unquestionably helped to increase the wealth and welfare and the savings of the nation. As to this, we find a fair indication in the growing deposits in the Savings Banks. These institutions, the operations of which are strictly defined and subject to statutes to be sanctioned by the Government, invest in securities, mortgages, and bills of high class, making also advances on securities. The amounts which individuals are allowed to deposit are limited, but in most cases much higher than in England, while withdrawals can only be effected according to regulations similar to the conditions of the Post Office Savings Bank in England. There are in Germany 3,039 Savings Banks, with 7,186 branches; the total deposits amount to about 850 millions sterling; whilst deposits SAVINGS BANKS. 63 in the Post Office Savings Banks in the United Kingdom are only about one-third (£238 millions). In view of the circumstance that deposits can only be withdrawn at previous notice, whilst experience has taught that, unless there is cause for misgivings in regard to a particular institution, they have a tendency ­ to remain intact, there is no need for the Savings Banks to choose only ready cash investments. ­ Therefore, high-class mortgages constitute ­ a considerable proportion, up to 75 per cent, in some cases, of the investments of many Savings Banks. Since, according to ministerial rescript, the Savings Banks have power to open cheque and current accounts, it may become necessary for them to reduce their investments in mortgages proportionately in favour of quickly realisable securities like discounts, etc., and as a result, they might be placed in a position to enter more than hitherto into competition with the credit banks and also with the Reichsbank. THE REICHSBANK, THE SEEHANDLUNG AND THE MONEY MARKET. On the 14th March, 1875, the German Reichstag passed a Bank Law which, inter alia, provided for the establishment of an Imperial Bank. Previous to that, in 1873, a Bill for the introduction of the gold standard had been adopted by the Reichstag, which stipulated also the withdrawal of all notes issued in any other than the imperial currency on or before the 1st January, 1876. Independent of the notes issued by 33 note-issuing banks which were in existence at the time, paper money of a total amount of £9,000,000 sterling, issued by the Governments of 22 Federal states, was in circulation. ­ The extinction of these various issues was ordered by law. At the same time a total issue of £6,000,000 sterling imperial paper money in denominations of 5s. and 10s., to be allocated to the Federal States according to population, was authorised. These “ Reichskassenscheine,” as they are called, representing a non-interest bearing certificate of indebtedness of the Government without cover, must be accepted in payment by all Imperial and Federal Government offices, and must be redeemed in cash by the Reichsbank on presentation. Still, they are no legal tender; REICHSBANK. 65 nobody need accept them in payment, though in practice they are hardly ever refused. 26 out of the 33 note-issuing banks relinquished their privilege with the foundation of the Reichsbank. Since then three more have followed suit, so that at the present moment, apart from the Reichsbank, only four, viz.: the Banks of Bavaria, Saxony, Wiirttemburg, and Baden are still exercising ­ their note-issuing power. The Reichsbank, a corporate body which has not adopted the form of a joint stock company, and is therefore not subject to the regulations of a limited liability company, has been founded in accordance with special imperial laws, though its capital has been privately subscribed. As a matter of fact, the Reichsbank succeeded the Prussian Bank by acquiring the same. The Prussian Bank itself was a Government institution (started in 1765, under the name of Koenigliche Giro & Len Banco), the capital of which consisted of about £300,000 supplied by the Government and £3,000,000 subscribed privately. Under the agreement arrived at, the Prussian Government received firstly, its capital of £300,000 and its share in the reserve of £450,000 ; secondly, a sum of £750,000 as compensation for future profits. At the same time, the Reichsbank assumed the obligation of making annual payments of £93,250 to the Prussian Government until 1925, for which the Prussian 66 REICHSBANK. Bank was liable under the agreement made in 1856. On the other hand, an exchange into an equal amount of shares of the Reichsbank was optionally offered to the stockholders, which offer was readily accepted by almost every holder. By the issue of a further £3,000,000 at 130 per cent., the capital of the Reichsbank was at once raised to £6,000,000 sterling. In 1900, another £1,500,000 was issued at 135 per cent., in 1904 likewise £1,500,000 at 144 per cent., so that at the present moment the issued and fully-paid up capital of the Reichsbank amounts to £9,000,000 sterling, and its reserves to £3,500,000 sterling. Contrary to the general practice, the Reichsbank issued no bearer, but only registered shares. The Government, though having neither supplied capital nor assumed any financial liability for the Bank, is, nevertheless, entitled to a considerable share in the profits and to the full control of the administration ­ and the management. A committee of fifteen, elected annually at the general meeting by the shareholders, has power only to examine the Bank’s operations and to offer advice to the authorities. ­ The Governing body for the supervision of the bank—the Bankkuratorium as it is called—consists of the Imperial Chancellor as President, and four members, of which one is appointed by the Emperor, and three by the Federal Council. That REICHSBANK. 6 7 body meets once a quarter in order to receive a full report. The active management of the bank is in the hands of a directorate consisting of the President and a number of members—at present eight—which, on the recommendation of the council are appointed for life by the Emperor. The rights of the shareholders are extremely limited. At the annual meeting, the Report and the Profit and Loss Account are submitted, members of the committee are elected and resolutions are passed as to the increase of capital or alterations of the statutes, etc. A committee consisting of 15 members and as many alternates represents the body of shareholders in their relation to the administration and assembles at least once a month, the President of the Directorate ­ taking the chair, when all vouchers regarding theoperations and the situation of the bank aresubmitted for inspection, and the views and proposal of the directorate in respect of general business and any particular measures are made known. The committee is invited to express only an opinion about the balance sheet and profit and loss account, the filling of vacancies on the directorate, about the discount and loan rate, about arrangements with other banks, etc. On the other hand, the sanction of the whole committee is legally required in case the bank 68 REICHSBANK. desires to purchase securities for its own account, or for transactions with the Financial Department of the Imperial or Federal Offices, provided any one of the three delegates of the committee, who are in constant touch with the directorate, should so desire. Three delegates and as many alternates are elected by the committee ­ from its midst for one year. They exercise special control over the administration of the bank, are authorised to be present at the meetings of the directorate in an advisory capacity, and are obliged, in the presence of a member of the directorate, to inspect the books and vouchers. Thereportaboutthemeetingsof thecornmittee is regularly published in the Official Gazette. The note-issuing privilege of the bank can be cancelled every ten years, the next time being on the ist January, 1921, in which case the Government has power either to acquire the real estate properties of the bank at the book price, or the bank shares at par value. In either case the reserve fund would be divided between the Government and the shareholders. The original regulations regarding the distribution of the profit was rather favourable for the shareholders, ­ but modifications carried out in 1901 and 1911 resulted in considerable reductions. The proprietors are now entitled to a first REICHSBANK. 69 dividend of 3! per cent., and, after transferring 10 per cent, to the reserve, to one-quarter of the balance, whilst the Government receives the remaining three-quarters. The bank is privileged to issue notes to an unlimited amount and, in accordance with the bank law of 1909, notes issued by the Reichsbank, but not by other banks, are legal tender, in the same way as the Bank of England notes. They have to be redeemed by the head office of the Reichsbank ­ in Berlin in gold coin on presentation, and at its branches as far as the stock of gold permits. As cover for the notes in circulation, the Reichsbank must hold at least one-third in German gold coins, notes issued by the Government (Reichskassenscheine), bar gold or foreign gold coins, and the balance, i.e., twothirds, in discounted bills or cheques of a specific description. Though the amount of the note issue is not limited, measures have been taken in order to check the circulation in excess of the amount covered by gold and cash, by means of an interest tax of 5 per cent, to be charged for one week at least. Originally, the “ Contingent,” as it is called, meaning the amount of notes allowed to be issued without cash cover and free of tax, was 12J million pounds sterling and was gradually raised to 27J million pounds. 70 REICHSBANK. whilst on the last day of each quarter, when the requirements are particularly heavy, a further note issue of io million pounds sterling is exempt from tax, altogether, therefore, on such dates, 37J million pounds sterling. The notes of the other four issuing banks, which are not permitted ­ to form part of the one-third legal cover for the issue of Reichsbank notes, are, however, looked upon as cash in respect of the adjustment of the tax chargeable; in other words, in this particular instance they are considered cash. The difference between the actual note circulation and the amount issuable free of tax is called the tax-free note reserve. From the bank returns published weekly, the respective amounts can easily be ascertained ; by adding up the stock of gold, coins, Government notes, notes of other banks, the amount of the tax-free notes (27J millions resp., 37^ million pounds sterling), and deducting therefrom the actual circulation, you will find either the tax-free reserve or the deficit which represents the amount of excess circulation subject to tax. Until 1906, only notes of Mks. 100 and Mks. 1,000, i.e., £5 and £50, were allowed to be issued; since then, owing to the increasing demand for smaller notes, the Reichsbank obtained power to issue also notes of £z\ and £1. At the same time, the denominations of the REICHSBANK. 7i Government Notes, which were heretofore issued in amounts of 5s., £1 and fz\, became confined to issues 5s. and 10s. In the weekly Reichsbank returns, the amount of securities held is also stated. They consist almost exclusively of treasury bonds, representing the floating debt of the Government, which are being discounted by the bank and, as a rule, kept until due date. Only in cases when the Reichsbank wants to get better control of the money situation, in order to bring the market rates more into line with the official rate, it discounts ­ treasury bonds, causing thereby the market rates to harden. The Reichsbank publishes its return as per Table No. I.; whilst the leading financial organs supplement and analyse it as per Table No. II. Berlin, 2nd May, 1913. TABLE No. I.—Weekly Return of the Reichsbank per 30th April, 1913. Assets. £ Liabilities. £ 1. Stock of metal (current 8. Original Capital 9 000,000 German money, bar 9. Reserve Fund 3,502,000 gold and foreign gold 10. Notes in circulation 102,530,000 coin), the kilogramme 11. Other liabilities subof fine gold calculated ject to call .. 29,309,000 at M.2784 (£189 4s 0d) 62,625,000 12. Other liabilities 2,179,000 including gold: £48,255,000. 2. Imperial Treasury Notes ( Reicliskassen-S89.000 scheme ”) 3. Notes of other Banks .. 600,000 4. Bills and cheques 62,226,000 5. Loans on security 7,711,000 0. Securities 2,122,000 L Other assets 10,4u5,000 Lirectorinm of the Reichsbank. The clearing houses reported during the month of April transactions aggregating £3,518,372,000. Note.—£1=M.20. 7 2 REICHSBANK. TABLE No. II.—German Reichsbank. Return of 30th April, 1913. 1912. Against preceding week. Assets in £1,000. 1913.* Against preceding week. 61,979 -2,254 Stock of metal .. 62,625 -2,687 44,711 -2,079 including gold 48,256 -2,041 2,141 -0,259 Imperial Treasury Notes 0,890 -0,362 (“Reichskassenscheine”) 0,583 -2,000 Notes of other banks .. 0,600 -1,638 58,150 + 3,504 Bills 62,227 +2,631 6,811 +3.850 Loans on security 7,712 +4,337 0,148 -0 611 Securities 2,122 + 1,031 7,520 + 0,450 Other assets 10,405 + 1,118 Liabilities. 9,000 (unchanged) Original capital .. 9,000 (unchanged) 3,347 do. Reserve funds 3,502 do. 89,283 + 6,932 Notes in circulation 102,530 +10,396 34,033 -4,284 Deposits 29,369 - 5,368 1,667 +0,026 Other liabilities .. 2,179 + 0,053 " The maximum circulation not covered in specie is, since 1st January, 1911, M.550,000,000 (£27,500,000). at end of quarters M.750,000,000 (£37,500,000); until that date it was throughout the year M.472,830,000 (£24,641,500). The clearing offices reported during April transactions aggregating £3,518,372,000. The German Reichsbank’s circulation exceeds with £10,915.000 the tax-free maximum compared with a tax-free reserve of £4,666,000 on 23rd April, and a tax-free reserve of £2,919,000 on 30th April, 1912. Note.—£1=M.20. The item “ other assets ” contains advances which the Reichsbank is in the habit of granting free of interest to importers of bar gold and foreign coins, with the object of encouraging and facilitating ­ the importation of gold. At times the Bank of England and the Bank of France are acting in the same way—in fact, the Reichsbank has followed their example. Since 1901 the Reichsbank has been prevented from discounting bills below its official rate if this is 4 per cent, or higher. If REICHSBANK. 73 F the official rate is below 4 per cent, and the Reichsbank decides to discount below that official rate, the special rate must be published in the Official Gazette. This limitation seems to be based on the consideration that a bank-rate of 4 per cent, and above being the result of a position that already requires a certain caution, the Reichsbank should be compelled to husband its means. It is the duty of the Reichsbank, as central institution, to regulate the money market, to protect the gold reserve against too heavy withdrawals from abroad by means of raising the discount rate or by selling part or the whole of its holding in foreign bills. Contrary to the Bank of England, which does not employ any of its funds in foreign bills, the Reichsbank has, for practical reasons, made a point of doing so. In the balance sheet, ending December, 1912, the holdings of foreign bills amounted to over two million pounds sterling, of which almost one-half was invested in England and the balance in America, Belgium, France, Holland, Italy, Austria, Switzerland, and Scandinavia. ­ It goes without saying that the Reichsbank ­ is bound by its statutes to engage in strictly sound and safe business transactions of such a nature as to insure redemption of the notes at any time. It buys and sells gold and silver in bars and coin, discounts bills at maximum three months’ sight, 74 REICHSBANK. with generally three, but at least two, signatures standing in good credit; it grants advances at interest for not more than three months on gold and silver, domestic securities like Imperial and Federal Government loans, Municipal loans, railway ­ stocks, mortgage obligations, etc., at the rate of 75 per cent, of the market value, also Foreign Government or Railway obligations with Government guarantee at 50 per cent, of the market value, on bills with two good signatures with a margin of 5 per cent., on merchandise (warrants) at two-third value. The Reichsbank attends to collections, it buys and sells precious metals and securities for clients. It is also authorised to invest in certain securities, receives money deposits free of interest and also at interest, but the total deposits at interest must not exceed its own capital and reserves. (The Reichsbank has, however, very probably for reasons of policy, never availed of its privilege to accept deposits at interest.) It takes also securities and valuables for safe custody and administration. In the Reichsbank building in Berlin, a special office with every possible convenience has been organised for clients who want to transact their business through the agency of the Reichsbank, such as subscribing for loans, buying and selling of securities, administration of fortunes, etc. SEEHANDLUNG. 75 Before going further into the operations of the Reichsbank, let me direct your attention for a few minutes to an institution founded and owned by the Prussian Government which, after a very chequered career, has gained an influential position in connection with the issue of Government securities and the money market. The Seehandlungs Societat was founded in 1772 by Frederick the Great, with the object of establishing navigation ­ and trade with foreign countries. Two monopolies (1) for the salt import from England, France and Spain, and (2) for the wax import from Poland, were at once granted to the institution. Its capital of £180,000, for which a dividend of 10 per cent, per annum was guaranteed, was held as to 87! per cent, by the King, as to I2| per cent, by the public. The management was in the hands of a directorate consisting of one chief and three members appointed by the King. In 1794 the capital was raised to £225,000, the dividend guarantee, ­ however, being reduced to 5 per cent, per annum. The business results were during the first period disappointing, and therefore the activity of the institution was, under Frederik Wilhelm II. in the second period, concentrated more and more in banking transactions and in negotiations for the conclusion of Government loans, collecting and remitting of interest, accepting deposits by means of issuing obligations, etc. 76 SEEHANDLUNG. The Government took advantage of it by borrowing freely from the Seehandlung in 1806 at the time of the Napoleon crisis. The Government debt to the Seehandlung amounted to £2,600,000, in consequence of which it could not meet its liabilities as the Government was unable to repay its debt. The Government securities fell at that time to 25 per cent. In 1810 the shares and obligations were converted into 4 per cent. Government bonds, the institution thus becoming a pure Government bank. In 1820 a reorganisation ­ took place in so far as the Seehandlung became independent of Government administration, ­ though the Government remained liable for its engagements. In the third period, the institution extended its operations enormously by acquiring interests in all sorts of enterprises like shipping companies, manufacturing concerns, ­ agricultural estates, etc., taking also, in 1835, charge of the Royal Pawn Office in Berlin. This manifold competition caused serious discontent ; as the results were by no means satisfactory, it was decided in 1845 that the institution should no longer embark on industrial enterprises, and in 1848 the Government again took control of the management. ­ During the later period the interests in industrial concerns, with the exception of a few SEEHANDLUNG. 77 like the Bromberg Flour Mills and the Spinning works in Landshut, were gradually disposed of, whilst the Government rejected on several occasions proposals submitted in the Prussian Diet to liquidate the institution altogether. At the reorganisation ­ of 1820 the Government advanced to the Seehandlung about £150,000 as working capital. The profits were not distributed but accumulated, so that in 1832 the whole of the advances made by the Government, plus interest, could be repaid. Since 1841 the Government was entitled to receive £15,000 per annum, and this annual payment increased with the results, amounting in 1871 to £105,000. The proprietary capital, which had been raised at different times, representing in 1871 the equivalent of £2,350,000, was, by resolution of the Diet, gradually reduced to £1,650,000, repayments being made to the Government. In 1870 the Seehandlung proved useful to the Government in raising the means for carrying on the war, by making several issues ; firstly, a federal loan of £15,000,000 which was only partly successful, £10,200,000 being subscribed. Together with the Prussian Bank and others it took over another federal loan of £3,000,000, and made a further issue of £7,500,000 sterling 5 per cent. 5-year treasury bonds, of which £4,590,000 were issued in Germany and £3,060,000 in England at about 7 8 SEEHANDLUNG. 96 per cent. In 1871, an equal amount of 5-year treasury bonds was offered in the same proportion ­ for subscription in Germany and England at about the same terms, both operations meeting with ready success. After the war, the Seehandlung was entrusted with transactions in connection with the collection of the war indemnity, lending large sums (at one time £4,500,000 sterling, chiefly Government money) to the market and supporting thereby—though probably unintentionally—the speculative movement which was spreading all over Germany. Gradually the business of the Seehandlung assumed a similar character to that of the credit and commercial banks, with one distinction, that its transactions were almost exclusively of a short termed nature. Being at the head of the Prussian Consortium, it attends to the issue and placing of the loans by the Imperial, Prussian, and federal states, municipalities, provinces, etc. It takes charge of the employment of Government funds available for temporary use, buys and discounts treasury and commercial bills, grants advances on and takes safe custody of securities. With the agglomeration of capital and the expansion of the big banks, it became increasingly difficult for the Seehandlung to hold its own as connecting link between the financial administration of the SEEHANDLUNG. 79 Government, the money market and the banks. Half of its capital of £1,700,000 was locked up in real estate and industrial enterprises, the other half being invested in securities. The largely fluctuating Government funds, deposited as a rule only for temporary employment, were generally being withdrawn at the quarter terms. Thus it has come about that the Seehandlung was incapacitated ­ at times from operating in the market. A situation like this, leading also to misconstruction ­ as to the state of the Government’s finances, proved more and more unsatisfactory, not least with respect to the institution's function to regulate the market in Government securities, to make temporary purchases in case undue pressure caused alarm amongst investors. As a matter of principle, in order not to compete with the private banks, the Seehandlung does not cater for private deposits, and has, therefore, nomeans to increase its resources in this way. Under the circumstances, it was decided in 1904 to raise its capital to nearly £5,000,000 sterling, and at the same time its style was altered to the “ Konigliche Seehandlung.” The figures of the turn-over show an enormous development, amounting in 1884 to roughly £85,000,000 sterling; in 1889 to £165,000,000 ; in 1905 to £450,000,000, and at present to over £1,000,000.000, 8o SEEHANDLUNG. The holdings of securities were always important, representing at times more than the share capital, and sometimes resulting in serious loss. Still, the general results were upon the whole satisfactory, returning to the Government substantial profits. Being also a large buyer of discounts and making advances on securities of the same type as the Reichsbank, but with a somewhat smaller margin, the two institutions appear to be almost competitors ­ ; but this is not actually the case ; indeed, the facilities granted by the Seehandlung, especially over the ends of the months and quarters, when the demands for credit are generally extremely heavy, are more in the nature of a relief for the Reichsbank. The main duties of the Reichsbank as defined in the Bank Act are literally :— “ To regulate the circulation of money in the “ whole Empire; to facilitate payments and to “ assist the useful employment of available “ capital.” With the constant and rapid economic progress, simpler and less expensive methods than by payment in coin were necessitated for the settlement ­ of claims. The issue of bank notes which came into common use in almost all civilised countries was, of course, already an essential improvement. The cheque system, however, was and still is, highly developed only in England and America. In REICHSBANK AND MONEY MARKET. 81 Germany it has even now not become very popular, partly owing to the Stamp duty which has only quite recently been abolished. On the other hand, the Reichsbank has adopted a system of making transfers amongst their clients, crediting one account and debiting another according to specific instructions. For instance, A owes to B £500. A instructs the Reichsbank to credit B for this amount (which must, of course, stand to the credit of A at the Reichsbank). It makes no difference whether the parties live in the same place or not. Considering that the Reichsbank has now a net of branches in about 500 different places, it is not surprising that the Giro transfers have grown into gigantic figures. In 1912, they amounted to over £2,500,000,000 sterling, whilst the Giro accounts numbered 25,637. Since 1886, the greater part of the Imperial and Federal government offices keep also a Giro account with the Reichsbank, so that all payments to and by the Government can be effected through the Reichsbank. Such Giro accounts evidently offer great advantages and facilities to commerce and industry in many respects, but in view of the circumstance that each party keeping a Giro account has to leave a minimum credit balance, which is generally fixed in proportion to the transactions, only people in a comparatively large way of 82 REICHSBANK AND MONEY MARKET. business can afford it. It is known, for instance, that the Rothschilds in Frankfurt used always to keep a balance of £1,000,000 with the Reichsbank ; the large banks in Germany have balances of £50/£ioo,ooo. The lowest limit for such an account is £50. It therefore proved a very welcome step for the less wealthy classes when, in 1909, the Post Office also commenced to act as agency for the settlement of claims and counter-claims, in the same manner as the Reichsbank, ­ the minimum limit for credit balances being very much lower. An arrangement has even been made between the Reichsbank and the Post Office to the effect that transfers can be made from accounts with the Post Office to accounts with the Reichsbank and vice versa, whilst in 1910, the Post Office Savings Banks in Austria-Hungary, and the Swiss Postal Cheque Office, as well as the National Bank of Belgium, and in 1912 the National Bank of Luxemburg came to an agreement ­ with the German Post Office on the same lines, and no doubt further progress will, in course of time, be made in this direction. The Clearing House System, modelled on the English institution, was already established in 1883 by the initiative of the Reichsbank; it comprises 23 different places. The figures for 1912 formed a record, more than 3! billion sterling being cleared. REICHSBANK AND MONEY MARKET. 83 Compared with England’s more than 15 billions, this appears insignificant; adding, however, the total transfers over Giro accounts, we come to a figure of over 22 billions, and it must be further taken into consideration that the stock exchange settlements take place only once a month in Germany, but twice a month in England. Great progress has certainly been made in the mode of making payment without moving and dislocating actual cash, especially gold, but the accumulation of gold in the Reichsbank has not progressed in proportion, notwithstanding the enormous increase in the gold output of the world. In other words, the gold saving methods of payment, ­ plus increased gold production, have not had the effect of strengthening the gold reserve of the Reichsbank (nor, for that matter, the reserve of the Bank of England or the other Central Institutions)—which ­ is looked upon as the head of the credit organisation and the custodian of the economic safety in the last resort—in such a measure as to enable that institution to readily meet the calls upon it in case of a serious situation. Still, the stock of gold in the Reichsbank now exceeds £50,000,000 sterling compared with the same amount in the Austro-Hungarian Bank, £130,000,000 in the Bank of France, £138,000,000 in the Bank of Russia, and only £38,000,000 in 84 REICHSBANK AND MONEY MARKET. the Bank of England. These figures alone cannot, of course, convey to us a clear conception of the actual position ; we can appreciate their significance only by taking into account also the extent and the nature of the respective liabilities. The notes issued by the Reichsbank must, as stated, be covered only as to one-third by gold, and as to two-thirds by commercial bills with two or three signatures. The Reichsbank also discriminates ­ against finance or accommodation bills which, of course, do not represent the final settlement ­ of a claim resulting from a legitimate commercial transaction, and which, therefore, may have to be renewed at due date. But the real nature of bills is not always absolutely discernible. In active times, when the circulation of commercial bills naturally expands, the note issue automatically increases; when business slackens again the note issue automatically contracts. ­ The tax to which notes issued above the fixed amount (27! millions, respectively 37I millions sterling) are subject, is intended to act as a safeguard, inasmuch as the Reichsbank will then, as a matter of course, raise its discount rate above 5 per cent. Notes issued largely in excess of the tax-free limit (which has been revised, and ought to be revised from time to time in accordance with REICHSBANK AND MONEY MARKET. 85 natural and legitimate economic development, and in due proportion to the proprietary capital) are generally regarded as a danger signal, admonishing ­ banks and industry to put on the brake. You will readily realise the difference between the Bank of England and the German system. Since the Bank of England can issue notes only against an equal amount of gold held, plus £18,450,000 against Government securities, the English system is, so to speak, inelastic. The note issue does not rise and fall with the expansion and contraction of trade; in fact, the state of trade hardly affects the note issue of the Bank of England, which is not in the same degree an institution for commercial credits as the Reichsbank. Indeed, the fact that the Reichsbank has a net of over 500 branches as compared with only a few of the Bank of England, indicates clearly that the Reichsbank is much better placed to serve trade and industry. However, conditions in Germany are undergoing ­ a change in this respect too. Since the big Credit Banks have with the opening of branches all over the country greatly extended their sphere of activity, and are attracting more and more the deposits of the nation, just like the English Deposit Banks and the French Banks, they have become keen competitors in the discount 86 REICHSBANK AND MONEY MARKET. business, bills representing the most liquid investment for the employment of deposits. Furthermore, Bank acceptances, which can be discounted at the private rate, are taking in an increasing measure the place of commercial bills. The bill holdings of the Deutsche Bank alone, according to the last bi-monthly return, amounted to about £35,000,000 sterling, and its acceptances amounted to nearly £15,000,000. The bill holdings of the eight principal Berlin Banks amounted to £86,000,000 sterling, their acceptances to £63,000,000, and of the 83 Provincial Banks to about £51,000,000 and £24,000,000 respectively, making a total of about £137,000,000 sterling bill holdings, and £87,000,000 acceptances, whilst the Reichsbank held at that time bills to the amount of £60,000,000 sterling. But in times of stringency and pressure the Banks must have recourse again to the Reichsbank for the rediscounting of bills, and this explains also the large fluctuations at different periods in the liquidity of the Reichsbanks. It is customary in Germany more than anywhere else to fix the dates of payments for the end of a quarter, and the pressure is, therefore, particularly ­ great on these dates, the more so as the credit banks then also shift credits, which they themselves take care of in the ordinary course, on REICHSBANK AND MONEY MARKET. 87 to the Reichsbank. Besides, in recent years, the Imperial government frequently taxes the financial resources of the Reichsbank at inconvenient moments by discounting Treasury Bills. In view of all this, the fluctuations in the Bank’s returns have lately become much larger, showing great tension at the end of the month and quarter terms. The difference between the maximum and minimum uncovered note issue never exceeded the amount of £24,500,000 sterling in any one year before 1895; since then it has at times more than doubled. In order to discourage applications to the Reichsbank for financial facilities at the ends of months and quarters, that institution has introduced a specific charge of | per cent, per annum for ten days over and above the fixed rate, but thus far this charge has not had the desired effect, because trade was uninterruptedly very brisk and the money was required at all cost. Warnings from the President of the Reichsbank addressed to the credit banks on several occasions as to the necessity of reducing credits also proved of no immediate result; a wheel in full swing cannot suddenly slow down. The Reichsbank, like other central institutions, protects the cover for its liabilities, the gold reserve, by means of its discount policy. It is 88 REICHSBANK AND MONEY MARKET. its duty to raise the discount rate in due time in order to keep credit requirements within bounds. The Reichsbanlc may at times be compelled to maintain a discount rate out of proportion to the private rate in order to protect the currency of the country. Money is often plentiful for short terms, especially in cases when large amounts resulting from new issues of securities are left with the banks for employment until required. The private discount rate declines in consequence, and the market has the appearance of ease and plenitude. Money for longer periods may at the same time be very scarce, the market is then in reality tight, and the Central Institution must therefore, in the general interest, keep up a high rate, though it may get out of touch with the open market. The only means for getting the open market to fall into line with the official rate consists in re-discounting Treasury Bills, but yet it is very important as regards the international situation that the private rate should harmonise as much as possible with the official rate. If too low, it does not only not attract capital from abroad, but may operate in the opposite direction. A considerable difference between the official and private rate simply disables any discount policy from exercising any influence upon the inter- national capital movements. Transfers of short term capital from one country to another, which have in our time become almost daily occurrences, complicate, of course, the dispositions of the Central Institutions, affecting their influence upon the gold movements. Unforeseen events may cause sudden withdrawals as we have seen some years ago at the time of the Morocco crisis, and last year at the outbreak of the Balkan war. Taking all these factors into consideration, it has already for some time past been fully recognised ­ that the gold reserve of the Reichsbank must be strengthened, or else that the other credit institutions ought to share in some measure the responsibility of making due provision for the enormous liabilities in gold. The banks in Germany have hitherto not taken it upon themselves to keep any gold reserve of their own ; the whole burden is upon the Reichsbank. ­ It is true that the same state of affairs prevails in almost every other country. In England the deposit banks have only during the last few years accumulated gold holdings of their own, the extent of which is not known, but a movement is on foot in order to make it incumbent upon deposit banks to hold gold in a certain proportion to their deposits. G go REICHSBANK AND MONEY MARKET. It seems evident that the stock of gold held by the Bank of England, say about £40,000,000 sterling on average, could not possibly prove adequate, if for some reason a heavy percentage of deposits in the banks, amounting to about £800,000,000,* should be called for withdrawal. As it is, the Bank of England has deemed it essential on several occasions to invoke the assistance of the Bank of France in order to raise its gold reserve, with a view to reassuring the public mind. The German Reichsbank is, by its elastic system, better situated, inasmuch as by adding to its stock of gold, it can issue additional notes for three times the amount. For this reason, it may happen, that in spite of unfavourable exchanges, gold is imported into Germany. At the present moment, gold is being bought up for German account, though the exchange is above import point. The most essential question is whether in times of crises and panics, the general public will be willing to regard the notes issued by the Reichsbank as perfectly safe and sound and as full value, or taking alarm, will demand redemption in gold. Since its existence, the Reichsbank has never yet become seriously embarrassed in that way; still, * This figure includes, of course, certain amounts which are counted twice; for instance, the deposits of country banks with London banks, and of London banks with the Bank of England. REICHSBANK AND MONEY MARKET. 91 it cannot be denied that it has happened that considerable amounts of hard cash have been withdrawn from the Reichsbank. Only recently, during the Balkan crisis, quite a number of concerns, ­ especially in outlying districts, have filled their safes with cash as an emergency measure, in view also of the fact that in case of war, traffic interruptions or other obstacles might prevent such concerns from securing the means for paying wages, etc. The gold reserve of the Reichsbank forms not only part cover for its note issue, but also for its deposits called “ Giro Balances,” which naturally fluctuate, averaging about £35,000,000 sterling. A great part of these deposits may be looked upon as fixed because, as explained before, the Reichsbank ­ opens Giro accounts only on condition of a minimum deposit, and naturally enough, nobody, unless absolutely compelled by circumstances, will close his account for the sake of getting hold of his credit balance. What proportion of Giro deposits can be thus regarded as fixed can only be a matter of conjecture. But the gold reserve of the Reichsbank is, to all intents and purposes, not only cover for its note-issue and its own deposits, but for the deposits of all the other banks as well. Those of the credit banks alone amounted, according to the April returns, to £400,000,000 92 REICHSBANK AND MONEY MARKET. sterling, of which about one-half are at seven days’ notice, whilst the deposits of the savings banks, amounting to more than twice as much, can only be withdrawn at considerably longer notice. As, furthermore, in case of war, it would fall upon the Reichsbank to find the means for financing the Government (the war chest of £6,000,000 kept since 1871 in the Julius Tower at Spandau being obviously inadequate), the problem of duly increasing the gold reserve of the Reichsbank is occupying the serious attention of the intelligent classes in Germany. All sorts of proposals have already been submitted and discussed, especially at the Annual Bankers’ Congress, in the press, etc.; above all, the suggestion to compel the credit and savings banks to contribute in due proportion to the gold reserve of the Reichsbank, similarly to the proposals under discussion in England. Another plan suggested that the Imperial Government should be obliged, as compensation for the services rendered by the Reichsbank, to keep a standing credit balance of £15,000,000 with the Reichsbank. The latest plan emanating from the Reichsbank is to create two reserves of £6,000,000 each, one in gold and one in silver, by authorising additional issues of Reichskassenscheine in denominations of 5s. and 10s., by REICHSBANK AND MONEY MARKET. 93 back to the central institution. It cannot be said that this project met with cordial support; it was severely criticised by the leading financial press organ on the ground of assisting inflation, which it should be the recognised duty of the Reichsbank to impede. Co-operation between the Reichsbank and the big credit banks is necessary in the interests of Germany’s economic well-being. The Reichsbank, ­ as head of the credit organisation, must be placed in a position to gain a clear insight into the actual situation of the banks. The yearly balance sheets, which admittedly were specially arranged for the occasion, could not possibly supply all the information required. It was, therefore, a very opportune step which the Reichsbank took in inducing the big banks in Berlin, eight in number (with the exception of the Handelsgesellschaft, which prides itself in being no deposit bank and therefore independent) and 83 provincial banks to publish their balance sheets every two months, arranged in accordance with a uniform scheme, and containing such items of importance as will enable the Reichsbank to form a more or less conclusive opinion on the situation. Can and does the Reichsbank as it is situated fulfil its mission ? It seems to me that the question can unhesitatingly be answered in the affirmative. 94 REICHSBANK AND MONEY MARKET. At any rate, experience has shown that in fairly normal times the mechanism acts perfectly well, and even in times of storm and stress no serious difficulties in the system itself have so far come to light. After all, it is the task of the central institution, in taking, of course, all necessary care and precaution, to help and not to hamper economic developments. It is impossible to make such provisions as to meet all possible contingencies ; all the assets of the world cannot be covered by gold lying in the banks ; they cannot be turned into cash all at one time; the world cannot be liquidated all at once ; but as long as the means of circulation and the instruments of credit represent and are backed by actual values, it cannot be said that the system is unsound or absolutely dangerous. What can happen if the worst comes to the worst is that in Germany the notes issued by the Reichsbank will become forced payment, and in England that the Bank Act must be suspended, certainly in both cases not a desirable state of affairs; but such measures are conducive to bridging over temporary ­ difficulties until normal conditions are restored. IV. THE GROSSBANKEN (BIG BANKS) AND THEIR RELATION TO COMMERCE AND INDUSTRY. The general banking business was, until the 70’s of the last century, to a large extent in the hands of private firms. The economic expansion, however, created on the one hand such heavy demands for credits of all descriptions and claimed on the other hand the public trust in such a measure that, broadly speaking, the means and the position of private houses were no longer equal to the requirements. ­ True, there were, and still are, some private bankers who have been able not only to hold their own, but to gain in importance and influence, notwithstanding the keen and aggressive ­ competition of the big joint stock institutions, which have since become the dominating factor in the German Banking community. The Mendelssohns, Bleichroeders, Delbriicks, Warburgs, ­ and a few more, may be regarded as 96 GROSSBANKEN. exceptions that prove the rule. Originally, banking ­ formed more or less a side issue of commission merchants and forwarding agents who, for the convenience of their clients, made and received payments for their account, etc., such combinations in some cases being still in existence. The oldest banking house in Germany still in existence is Johann Mertens in Frankfurt a/M., founded in 1605, a conservative firm of moderate means and importance, devoting itself almost exclusively to commercial banking. Some Frankfurt firms of greater consequence are D. & J. de Neufville, Johann Goll & Soehne, B. Metzler Sel. Sohn & Cons, and Gebr. Bethmann, which were established in the second half of the seventeenth century, whilst only in about 1780 Mayer Anselm Rothschild ­ started the famous house of Rothschild, and soon attained a unique position in negotiating and issuing Government and other loans. The first important transaction undertaken by Rothschilds was a loan to the Danish Government in 1802 of an amount of £1,500,000 sterling. The Rothschilds soon developed into an international banking house of unequalled position, four of the five sons of Mayer Anselm Rothschild going abroad and opening branches in Vienna, Paris, Naples, and Manchester. The Manchester house was at an early date transferred to London. The GROSSBANKEN. 97 Naples firm was liquidated later on, and in 1904 the business of the parent house in Frankfurt a/Main was, owing to the death of the only surviving ­ partner, Wilhelm Carl, and in the absence of any male successor of the Frankfurt house, taken over by the Disconto Gesellschaft, which belonged to the Rothschild group. In Berlin, the house of Schickler, in existence since 1712, is the oldest firm, Mendelssohns were established in 1795, Bleichroder in 1803. Some other firms of old standing are G. V. Pachalys’ Enkel, founded in 1679, and Eichborn & Co. in 1728, both in Breslau; John Behrenberg Gossler & Co. in 1769, M. M. Warburg & Co. in 1798, C. H.Donner in 1798, L. Behrens & Soehne in 1800, all in Hamburg; J. H. Stein in 1719, and Salomon Oppenheim, Jr., & Co. in 1789, in Cologne; A. E. Wassermannin 1781, in Bamberg. The business of banking in Germany, which is not divided up like here in England into deposit banks, merchant bankers, discount houses, issuing firms, etc., actually comprises all sorts of transactions. ­ The more Germany’s economic development ­ progressed, the bigger became all these transactions, but the demand for credit facilities particularly increased rapidly. Of course, it was also the business of private banks to grant credits, even blank credits. Indeed, the relations between 9« GROSSBANKEN. clients and private bankers were of a much more personal nature than they are, or possibly can be, between clients and banking institutions. Private bankers were influenced to a large extent by personal impressions and experiences. They were in a position to gain a better insight into the business principles, policy, and movements of their clients, and they could, therefore, in many cases give facilities with safety. But the financial resources of private bankers, though very important in individual instances, could not take care of the growing requirements of trade and industry; credit is not a creation of capital, as is often wrongly assumed, but transfer of capital. If A accepts a bill on behalf of B to the amount of £10,000, though A does not actually lay out the cash himself, there is no question that a transfer of capital is being made on behalf of the acceptor by the discounter of that bill. But it is clear that only banks or houses in command of important means will enjoy an accepting credit in a large way. The principal joint stock institutions engaged in general banking, which were in existence before 1870, are the A. Schaaffhausen’ sche Bankverein in Cologne, the Darmstadter Bank in Darmstadt, the Mitteldeutsche Creditbank in Meiningen, Disconto Gesellschaft and Berliner Handels- GROSSBANKEN. 99 gesellschaft in Berlin, and some institutions in Leipzig, Hamburg, Frankfurt, etc., the capital and the business of these banks being, however, insignificant compared with present times. In 1870, the Deutsche Bank and the Commerzand DiscontoBank, and in 1872 the Dresdner Bank, were founded, and, indeed, a feverish activityprevailed at that period with regard to promoting of banks. Whilst the total capital raised for banks from 1851 to 1870 amounted to less than £5,000,000 sterling, over eleven times as much, namely, more than £55,000,000 sterling were already found for banking institutions at the end of 1872. Of these numerous new institutions, however, 73, with a capital of £21,500,000 sterling, were forced to go into liquidation already during the succeeding six years of depression. The Deutsche Bank started with a capital of about £750,000, and with a policy distinct from that of the other credits mobiliers. In its first report for the seven months ending 1870, it says that “ the bank’s function is to transact banking business of all kinds, but particularly to promote and facilitate commercial relations between Germany and other European countries and over-sea markets.” The development ­ of the business was soon seriously hampered by the outbreak of the war, but it was then already decided to take an interest in the proposed 100 GROSSBANKEN. organisation of the German Bank of London. The total turnover of the bank for the seven months amounted to about £12,000,000 sterling; 5,052 bills representing the sum of £1,500,000 sterling were discounted. It is particularly stated that the efforts to secure accounts with over-sea connections ­ met with difficulties owing to the fact that a new institution cannot offer the same advantages as the older ones. It is also mentioned that the bank had commenced to take deposits at interest from 1-3\ per cent, according to shorter or longer notice. This was also a new departure followed later on by the other banks. Deposits received amounted to about £165,000, of which, however, before the end of the year, all but £3,000 were again withdrawn. At the same time, hope was expressed that, in connection with the newly introduced cheque system, the deposit business will extend in the interest of the public and of the bank. The net profit of the first fiscal year amounted to £12,000. The second year, however, already showed considerable expansion. A branch was opened in Bremen and the German Bank of London, in which the Deutsche Bank had an interest of £150,000, had also commenced business. Furthermore, it was decided to establish branches in Shanghai and Yokohama. Transactions ­ and profits showed rapid increases, being GROSSBANKEN. IOI four times as much, and a dividend of 71 per cent, was declared. Deposits also considerably increased. ­ In 1872 the Dresdner Bank was organised with a capital of only £480,000. Its development and growth also made rapid strides, especially since 1881, when, by opening a branch in Berlin, which gradually became the main office, though the central seat is still nominally in Dresden, it commenced to launch out and to enter into competition ­ with the older Berlin institutions. But whilst the Deutsche Bank had obviously a clearly defined policy from the start in respect of promoting and facilitating Germany’s international trade, which, however, has not prevented it from undertaking and cultivating other transactions like promoting railway construction, real estate enterprises, etc., the other banks made no special point of it at the time. With the development of Germany’s commercial ­ relations in all directions, however, they realised the necessity of being placed in a position to properly attend to over-sea transactions. The Deutsche Bank, recognising the importance of London, abandoned already in 1873 its connection with the German Bank of London, which did not sufficiently answer its purpose, and established a branch of its own. Apart from several experimental ­ representations in New York and elsewhere, ­ it gradually developed an extensive branch 102 GROSSBANKEN. system in Germany itself. The Deutsche Bank organised also, in many cases co-operating with other institutions, the German Trust Company, the German Over-sea Bank, the Central American Bank, German East African Bank, and opened branches in Constantinople and Brussels. The Dresdner Bank decided only in 1892 to systematically develop the over-sea business, by opening a branch first in Hamburg, in absorbing the Anglo-German Bank, in 1895 in Bremen, and in 1901 in London ; besides, it took in recent years a considerable interest in J. Allard & Cie.’s bank in Paris, and together with other institutions it founded the German South American Bank and the Orient Bank. The Disconto Gesellschaft was interested in the promotion of the La Plata Bank in 1873, which it disposed of later on to the Deutsche Bank. In 1880 it assisted in reconstructing the German Trade and Plantation Co. of the South Sea Islands, and in the foundation of the New Guinea Company with a capital of £300,000. In 1887 it established jointly with the North German Bank in Hamburg, the Brazilian Bank for Germany with a capital of £500,000. In 1889 it co-operated with six other banks in the organisation of the German Asiatic Bank. In 1890 it took an interest in the firm of E. Tornquist & Co. of Buenos Aires and its allies GROSSBANKEN. 103 De Bary & Co., Antwerp. In 1895, the Bank of Chili and Germany was founded, with a capital of £500,000, under its auspices ; whilst in a number of other banking institutions and industrial undertakings ­ abroad, in Italy, Belgium, Roumania, Bulgaria, and Africa, the Disconto Gesellschaft acquired a more or less considerable interest. Not until 1900, however, did it open a branch in London, and as far as its domestic business was concerned it adhered to the principle of centralisation ­ till 1903, when it started in Bremen, and in 1904 in Frankfurt a/M., by taking over the Rothschild firm. The other big German banks, though interested in some institutions abroad, have no branches of their own in foreign countries, but with the exception of the Berliner Handelsgesellschaft and the National Bank for Germany, they have all developed an extensive branch system in Germany, not only by opening offices in provincial towns, but also by starting numerous branches (so-called Depositenkassen) both in Berlin and other places, with a view to facilitate personal intercourse with clients in the different districts and to attract deposits. Furthermore the majority of the big banks have affiliated to themselves ­ numerous provincial institutions, thus :— The Deutsche Bank controls the Bergisch-Markische Bank in Elberfeld, Schlesischer Bank- 104 GROSSBANKEN. verein in Breslau, Hannoversche Bank in Hannover, ­ Mecklenburger Hypotheken-und Wechselbank in Schwerin with the Mecklenburgischen Sparbank, Essener Credit-Anstalt in Essen, Sachsiche Bank in Dresden, Essener Bankverein in Essen, Oldenburgische Spar-und Leihbank in Oldenburg, Privatbank zu Gotha, Rheinische Creditbank in Mannheim with the Pfalzische Bank in Ludwigshafen. The Disconto Gesellschaft controls the Norddeutsche Bank in Hamburg, Allgemeine Deutsche Creditanstalt in Leipzig, and the following institutions belong to its group ; Barmen Bankverein ­ in Barmen, Suddeutsche Disconto Gesellschaft, ­ Mannheim, Bayerische Disconto-und Wechslerbank in Nurnberg, Bank fur Thuringen vorn. B. M. Strupp Aktiengesellschaft in Meiningen and Stahl & Federer A. G. in Stuttgart. The Dresdner Bank controls the Markische Bank in Bochum, Rheinische Bank in Essen, Oldenburgische Landesbank in Oldenburg, Mecklenburgische Bank in Schwerin, Landgraflich Hessische konsessionierte Landesbank in Homburg Schwarzburgische Landesbank zu Sondershausen, Mulheimer Bank in Mulheim. The Darmstadter Bank controls Ostbank fur Han del und Gewerbe in Posen and Wurttembergische Bankanstalt vorm. Pflaum & Co., and so on. This process of concentration and affiliation, which has been characteristic not only of the development in Germany but also in other countries, is the outcome of the rapid growth of financial requirements of Governments, Corporations, ­ trade and industry, etc., which necessitated the broadening of the capital and credit basis of the banks themselves. They had to increase their responsible capital in the first place, in order to offer greater guarantee and security for their operations, and especially with a view to attracting available capital in the form of deposits and otherwise, for useful employment in a manner compatible with the conditions on which that loan capital is entrusted to them. For instance, money on deposit for three months must not be locked up for a year, and so on. At the same time, they had to make provision for being able to cope with the requirements both as regards short and longer credits, including, of course, taking over and placing of public and other loans. This again necessitated the support of a confident following and the cultivation of a reliable investment clientele for an outlet of new capital issues, etc. The movement of concentration among the banks resulting to a great extent from the rapid industrial development and the formation of cartels, conventions, etc., was also accelerated by io6 GROSSBANKEN. the heavy stamp taxes levied upon transactions in securities, in accordance with the laws passed in 1894 and 1900, and especially also by the Bourse Bill in force since 1897, which not only prohibited time-bargains in industrial and similar securities, but actually gave any dishonest person a handle to wriggle out of almost any engagement by pleading the Gambling Act. Only people who, by entering their names in the so-called Bourse Register, were under all circumstances legally responsible for Stock Exchange transactions. The business of private bankers, which in many cases consists almost exclusively of operations for account of private capitalists and speculators (here in England it is the business of Stock Brokers) was thereby rendered utterly insecure, and many of them were compelled to liquidate in consequence. ­ A great number of those that continued were, owing to the decline in clients’ business, tempted into speculations for own account, which in times of crisis frequently led to failures, and as a consequence to growing distrust with regard to private firms generally, whose resources and operations are not common knowledge. After every crisis, therefore, there was not only a great number of accounts transferred to the banks, but in many instances private firms, which felt more and more the difficulties to contend with, entered GROSSBANKEN. 107 either into closer relations with one or another of the big institutions, or were taken over altogether. The Disconto Gesellschaft has, in the course of time, absorbed more than 60, and the Deutsche Bank about 50, private firms. Nevertheless, there are still between 3,000 and 4,000 private bankers in existence in Germany. The business of the banks comprises all banking transactions in the wider sense, with the exception of issuing notes and mortgage debentures. If the relations between customers and banks are not confined to casual business, as for instance, changing ­ of money, or purchase or sale of securities which would be settled at once, but are of a regular character, a current account is opened, which is the basis of the connection between clients and banks that may gradually become, and often does become, a very close one. Unless otherwise arranged, all operations pass over the current account, which is not, as in England, a simple cheque account. Cheque accounts, which are not subject to charge of commission, are kept separate from the current account, whilst on current account a commission of i 0 / oo or so is charged on the larger side of the ledger. This commission on current account forms a considerable ­ part of the regular revenue of the banks, representing on an average about 25 io8 GROSSBANKEN. per cent, of the gross profit; the charges and allowances of interest on this account generally average i per cent, above and i per cent, below bank rate respectively. The banks, on behalf of clients, make and receive payments, issue Bills of Exchange, cheques, letters of credit, accept bills drawn by or on behalf of customers. They guarantee contracts and put up securities required by custom houses and railway regulations for deferred payment of customs and freights. Within recent years, they have even on occasions given their guarantee for advances raised on mortgages by some of the bigger concerns. They make collections, discount bills, and since some years certain institutions discount also book debts. They grant credits both on covered and uncovered basis. On the other hand, they accept deposits, administrate fortunes, take safe custody of securities, collect dividends, insure against drawings, buy and sell securities, etc. Furthermore, they underwrite issues and place loans, and take an active interest in the promotion and administration ­ of industrial undertakings, etc. Naturally, competition amongst the banks was, and still is, very keen, as a result of which, especially in times of slackness, they undercut each other in conditions, but with the constantly growing expenses, and in view of the risks involved, GROSSBANKEN. 109 the banks, as well as the important private firms, came to the conclusion that, like the cartels existing in industry and trade, a binding arrangement as to the enforcement of uniform conditions should be made amongst the banks and bankers. A draft agreement has lately been published, but no definite arrangement has yet been arrived at. It is not necessary to go into a minute examination ­ of all these operations; the banks protect themselves as much as possible by means of an agreement to be signed by their client as to the conditions fixed for their regular business relations, etc. But in order to fully appreciate the policy and the function of the German banks, you must bear in mind that they are both deposit and credit banks, in the most liberal meaning of the term, a combination which has over and over again raised the discussion as to whether legislative measures should be introduced in order more strictly to limit the operations of such banks as receive deposits. Indeed, since more than 20 years any number of proposals have been put forward, however, without result. Expert opinion as to the necessity or expediency of a division between deposit and general banking business, is by no means unanimous, and whilst hitherto there was really no occasion for serious concern in that no GROSSBANKEN. respect, it seems very probable that in the course of time, as a result of the constant increase in Germany’s wealth, one or the other of the big institutions will gradually reduce its activities in other directions, and become more and more a deposit banking institution on English lines. The deposits of the Deutsche Bank, for instance, amounted, as per end-April return, to £45,000,000 sterling, and the creditors’ balances to £40,000,000 sterling, together £85,000,000 sterling. In Germany a distinction is made between deposits and credit balances inasmuch as the former represent more permanent deposits, whilst the latter are looked upon as being of a temporary nature, representing capital belonging to commercial ­ and industrial concerns forming part of their working fund. It cannot be disputed that the diversified activities of the German banks, and their intimate connection with trade and industry, involve them not only in heavy credit engagements, but also in investments which do not, generally speaking, represent such readily realisable assets as the English deposit banks hold against their deposits.* The total share capital of fifty German banks, with a capital of not less than £500,000 in each case, amounted in 1912 to £134,000,000, the reserves to 35! millions, together 169! million ‘See Table III. GROSSBANKEN. hi pounds. The credit balances were 395 J million pounds, or about 245 per cent, of the proprietary capital. The liabilities were covered by liquid assets of a high class (bills and cash) in the proportion ­ of 35-g, or by liquid assets of first and second class (second class means securities and advances on securities) in the proportion of 64 per cent. Neither book debts or syndicate holdings ­ are included, being considered as not realisable at a moment’s notice. A comparison with English banks is hardly of any purpose. Still it may be mentioned that the proportion of first-class cover, bills and cash, is about 40 per cent, (against 36 per cent.), but first and second class together over 100 per cent., against only 66 per cent, in Germany.* In other words, the English banks have no book debtors so to speak, and no syndicate holdings whatever. Their investments in securities, in proportion to their own capital, is much larger than in Germany, being, however, almost exclusively of a gilt-edged type. Nevertheless, the decline in the price of these securities was comparatively heavier than in less high-class stocks, and at times their realisation could also not have been effected without difficulty. Apart from this, you must bear in mind that the English banks have only a very small paid-up *See Tables IV and V. capital, the unpaid capital representing a reserve to fall back upon, though it may be doubted whether in case of a serious crisis (and only then the question of calling up the unpaid capital of any deposit bank might become acute), the majority of the shareholders would be in a position to meet the call. At all events, such comparisons are of little significance in view of the difference in conditions and men in the various countries. Considering the recognised activities of the German banks, the public at large does not find anything disquieting or unsafe in the manner in which they employ the funds entrusted to them. Its mentality is a different one. Confidence in the administration of the banks, and in the integrity and responsibilities of the Boards of Directors, which are mostly composed of capable and influential men, and in the ability of the management, has in the course of years been so much strengthened that only a serious catastrophe could shake it. Can such a calamity happen ? It seems almost impossible, having regard to the enormous amount of share capital and reserves of the big banks, the solidarity of interest, and the efficient control exercised by the authorities. The failure of the Leipziger Bank in 1901, and the Niederdeutsche Bank in 1910, and some other smaller institutions, cannot be quoted as examples GROSSBANKEN. ii3 disproving this argument. The Leipziger Bank failure was due to the hazardous ventures of the Manager who, not being properly controlled by the Board, actually governed the Institution. But after all the Leipziger Bank was one of the few independent provincial banks left, and therefore ­ not under the influence and control of the big Berlin institutions. The conditions were exceptional, and since then the checking system in all banks has been very considerably improved upon. The credit facilities granted by the banks to trade and industry are of a multiplex character. One of the most frequent forms is a reimbursement credit, which is opened on behalf of clients to foreign shippers who draw on the banks for the customer’s account against delivery of the shipping documents. These documents are, unless otherwise arranged, retained by the banks until arrival of the merchandise, when they are usually taken up against payment. In many cases, however, the banks hand over the documents to clients in trust without payment, giving them thereby a blank reimbursement credit, which is, of course, a great help. Such credits, which are or ought to be liquidated ­ the moment the merchandise is paid for by the purchaser, according to contract, must be recognised as perfectly legitimate. Some of the GROSSBANKEN. 114 more important private firms also cultivate this sort of credit business, and it is a well known fact that many commercial firms could only develop their business so successfully with the liberal assistance of their bankers. Mannheim, for instance, became one of the most prosperous commercial cities owing to the liberal support given by the bankers, especially by the former house of Ladenburg, which some years ago was converted into the Suddeutsche Discontogesellschaft, to importers and traders in grain and corn, tobacco, and other products. The enormous growth of trade in Hamburg is also due to a large extent to the liberal assistance of the Hamburg bankers. Notwithstanding occasional losses, which can hardly be avoided in the credit business, the bankers themselves also greatly benefited by their business policy. In England, this class of business is still chiefly in the hands of merchant bankers, who also give large credit facilities by giving their acceptances for considerable ­ amounts, confining themselves, however, to this kind of business, and therefore incurring no other liabilities in consequence : they receive no deposits, etc. Even at the present time, notwithstanding the enormous development in German banking, very considerable credits of London houses are utilised by German import and export firms, and by banks on GROSSBANKEN. ii5 behalf of clients, partly as a result of old standing connections, but chiefly because the sterling bill is the best known and most marketable everywhere, especially in the over-sea markets and also because the discount rate is generally more favourable in London than elsewhere. There can be no doubt that the credit facilities available in London for international trade are unequalled. At the same time, industrial undertakings ­ in England are practically left entirely to their own resources, the banking community being guided by its foremost principle not to engage in any transactions which might involve them in any lock up of their means. Not so in Germany. On the contrary, the relations between industry and the banks there are very close and interwoven. The credits granted by the banks in Germany to industrial undertakings, so far as they are not short-termed, and can be liquidated out of receipts, are required, as a rule, for extensions, equipments, or for acquiring interests in other concerns. It is then already practically agreed between them to make a new issue of capital at the first opportune moment. It is true, circumstances ­ might arise which would prevent such issues being made for a long time, and, therefore, it is essential that the risks taken by the banks are within limits and are well distributed. GROSSBANKEN. 116 We must, however, not lose sight of the fact that conditions are very different in Germany with regard to Company law, Stock Exchange regulations, ­ and the press, and as a result of all these circumstances, as to the marketability of industrial ­ securities. The Company law in Germany protects the public in every possible way from being deceived or misled by misstatements in the prospectus. At all events, two annual balancesheets of the company after its registration have to be submitted before the security can be introduced ­ in the market. Most stringent regulations as to the responsibility of Directors are in force. The prospectus has to be signed by the issuing firms, which make themselves responsible for the correctness of statements, and at the same time place their prestige and credit as issuing houses at stake. A Committee of Admission, consisting of able bankers and merchants appointed by the Government, ­ and authorised to demand any explanations, has, after careful and searching investigation into the facts and figures of the prospectus, to express its opinion as to the desirability of the introduction ­ and quotation of the security concerned. They do more than simply (as the Committee of the London Stock Exchange does) make sure whether all technical formalities are complied with. GROSSBANKEN. n 7 Their opinion gives a clear indication as to the merit or demerit of the security proposed for introduction. Besides, the leading press organs devote much attention and space to financial matters, and are not timid in passing severe criticism whenever necessary, even at the risk of being sued for libel. Any number of actions have been brought against the “ Frankfurter Zeitung,” for instance, but the law in Germany protects the press as long as it can prove its good intentions of safeguarding the public interest and is not actuated by malice or personal motives. All this is apt to create an atmosphere of confidence and trust in industrial stocks, the more so as the banks themselves are represented on the Boards of Directors and exercise considerable influence in the management of affairs, not only in its financial, but also in its general aspects. The experience of bankers being connected with a vast number of different concerns (some of them are on the Boards of 40 or more companies, and the Dresdner Bank states in its jubilee publication that it is represented on the Boards of 200 companies), ­ thereby gaining inside knowledge of various industries, is often very valuable even in technical matters, and especially in questions of amalgamations and the formation of cartels, etc. GROSSBANKEN. 118 They are enabled to look at problems and situations, not only as to how they will affect that particular company or industry, but from the point of view of the whole economic fabric. Two examples will serve to illustrate this. Some years ago the Prussian Government was at work secretly to acquire, by purchases in the market, the control of an important coal mine in order to become less dependent on the coal syndicate for the supplies of the railways. The astute chief of a large Berlin institution, intimately connected with that colliery, devised means of instantly increasing the share capital of the company in order to prevent the Government from exercising a controlling influence. Action was taken by the Government with a view to having the issue cancelled, holding that it was illegitimate, but the case was decided against the Government. No doubt the bank defended its own interest in the first place, but surely that of the whole industry as well. In another case, the manager of a very large ironworks objected to his company joining the Steel Union. Obviously it would have been to the advantage of that particular company to abstain, but the banking interests, considering it necessary for the sake of the industry as a whole, insisted and succeeded in bringing those ironworks into line, the manager resigning his position in GROSSBANKEN. 119 consequence. In this way, individual interests are being subordinated to the interest of the community at large. The modern phases of industrial development, combines, trusts, cartels, etc., are due as much to the banking influence as to the initiative of the captains of industry themselves. On the other hand, the leaders of industry, by joining the boards of the big banks have gained a certain influence in the direction of the banks. The banks recommend industrial securities to their clients, and regulate the market if there is need. Important ­ transactions take place daily in Berlin and on the other German bourses, and the public invests largely in them, knowing that they are carefully managed and supervised. Under the banking influence, it has become more and more the policy of industrial companies to build up such reserves as to avoid too sharp fluctuations in the dividend distributions. The balance sheet of the General Electric Company, Siemens & Halske, Gelsenkirchen, Phoenix, Hochster Farbwerke, and many others, give clear evidence to that effect. Actually some of the bigger concerns strengthened their financial position to such an extent that they have become independent of banking credit, for instance, Krupp, the General Electric Company, some large dye works, etc. Nevertheless, the 120 GROSSBANKEN. intimate relations with the banks are continued. All the leading institutions are represented on the board of the General Electric Company, for instance. The issues made by that company are taken over by a syndicate including all these institutions. The manner in which issues of securities are guaranteed and manipulated differs from the underwriting ­ syndicate in England. Certain banking groups in Germany, consisting of a number of banks and private firms, take over loans from Governments, corporations, communities, companies, ­ etc., and syndicate the same amongst themselves for a fixed period, in an agreed proportion, ­ with a view to issuing. When the issue has been made and has been fully subscribed, the syndicate may be, but need not necessarily be, dissolved, because, for the purpose of activating and stabilising the market, the syndicate leaders may decide to keep it together, in order to be able to repurchase stock that is offered by subscribers after the issue. If the issue is unsuccessful, the syndicate continues until the date fixed, and may even be prolonged. There is this advantage, firstly, the market cannot be prejudiced and spoiled by underwriters who sell below issue price in anticipation of an allotment, thereby—taking into consideration the underwriting commission—still GROSSBANKEN. 121 1 securing a profit, and secondly that, aft§r the issue, support is forthcoming, whilst the syndicate members, who are tied up, and do not get possession ­ of the securities, cannot dispose of their interest. On the other hand, the English underwriting ­ system is bound to bring the plain facts, the real state of affairs, to light; after the issue the underwriters are informed of the result, and they can deal with the amount which they are called upon to take up at their discretion. Consequently ­ a genuine market becomes established, the new securities will find their own level. Should there be little or no inquiry for new issues in normal times, even at attractive prices, it proves that no capital is available for investment, and underwriters unable to sell or only able to sell at considerable loss are warned in this way. In other words the English system creates a natural market, the German system in many cases an artificial one. Such a “consortium,” as the syndicate is called in Germany, was formed at an early date already by the Rothschilds with the Darmstadter Bank, for the issue of German Government and municipal loans. Since 1848, a close connection existed between the Vienna Rothschilds and the Austro-Hungarian Government which, until 1855 when the Austrian Creditanstalt joined, concluded and carried through all the Austro-Hungarian Government loans. 122 GROSSBANKEN. In 1864, the Disconto-Gesellschaft heading a consortium of German bankers, entered into succesful competition in taking over part of a loan to the amount of £2,000,000 sterling, as a result of which, this institution was also admitted into the consortium, ­ and later on, Bleichroder and Mendelssohns ­ of Berlin and Oppenheim of Cologne, and some other houses and institutions in Austria, were also included. The Prussian Consortium, headed by the Seehandlung, comprises the banks and private firms which also belong to the Imperial Loan Consortium, led by the Reichsbank. In a similar manner groups have been formed and are being formed where occasion arises, for loans of industrial concerns, light railways, electrical enterprises, oil companies, etc. The Deutsche Bank, together with the Handelsgesellschaft and Sterns, took an active interest in the South African Mining industry, promoting the Goerz concern. Likewise the Dresdner Bank, in conjunction with the Disconto-Gesellschaft and Bleichroder, are interested in the General Mining Company. The English system of guaranteeing issues being in use for many years and answering very well at the time, has recently in several instances failed, owing to the change in conditions, so much so that the question whether underwriting should not be GROSSBANKEN. 123 replaced by the German method, has been freely discussed. The public, learning that the issues have been underwritten at a certain commission, prefer now not to subscribe, but to wait until the list is closed in the expectation of getting the stock below the issue price from underwriters who want to dispose of their allotment. In fact, many investors like insurance and trust companies have become underwriters and take an interest in the issues on underwriting conditions as a firm allotment. Naturally, the unfavourable conditions prevailing in the money market lately have also had a great deal to do with the fiasco of the new issues, just as much as in Germany, where the result of the subscriptions for the new Imperial and Prussian. Loans has proved most disappointing. It is generally acknowledged that the industrial progress made in Germany has been most striking. Without disregarding any other factors conducive to the remarkable development, it seems to me that it was due in a large measure to the intelligent and most liberal assistance of the financial circles. The co-operation between the banks and industries has proved upon the whole most salutary to both. Therefore, there appears to be no reason to change the underlying principle, TABLE I STATES. German Empire Prussia Bavaria Haxony Wurtemberg . Baden • - Hesse .. Mecklenpurg-Sclnverin Saxe Weimar-Eisenach Mecklenburg-strelitz Oldenburg .. Brunswick .. Saxe-Meimngen Saxe-Altenburg Saxe Coburg.Qoth a t Anhalt. • Schwarzburg-Sondersbause Sehwarzburg-R U fl 0 l s tadt Waldeck .. Reuss. Senior Branch )( Junior Schaumburg Lippe’ Lippe •* Lubeck Bremen Hamburg .. Alsace Lorraine German Empire .. Area. Population. Square Miles. Number. Increase, ­ 1871-1910, Per cent. Per Square Mile. 1871 1890 1910 Millions. 1871 1910 2 3 4 5 6 7 S 215,500 41.059 49.428 64.926 58.1 190 301 139,000 24.689 29.957 40.165 62.7 178 2S9 30,200 4.S63 5.595 6.887 41.6 161 228 6,000 2.256 3.503 4.807 88.0 423 805 7,800 1.819 2.037 2.438 34.0 2,292 314 6,000 1.462 1.658 2.143 46.6 243 357 3.100 0.853 0.993 1.282 50.3 279 419 5,200 0.558 0.578 0.640 14.7 107 122 | 1,400 0.286 0.326 0.417 45.8 199 290 1,200 0.097 0.09S 0.106 9.S 83 91 2,600 0.317 0.355 0.483 52.6 124 183 1.500 0.812 0.403 0.494 58.6 212 33s 1 000 0.1 ss 0.224 0.279 48.3 191 283 500 0.142 0.171 0.216 52.1 270 410 800 0.174 0.207 0.257 47.5 223 327 900 0.203 0.272 0.331 62.8 223 361 i 300 0.067 0.075 0.090 33.8 196 262 400 0.076 0.086 0.101 33.3 202 269 400 0.056 0.057 0.062 9.8 126 138 100 0.045 0.063 0.073 61.4 358 578 300 0.089 0.119 0.153 7l.ti 271 464 0.032 0.039 0 047 45.5 236 344 0.111 0.128 0.151 35.8 230 312 100 0.052 0.076 0.117 123.5 440 983 109 0.122 0.180 0.300 144.7 1,197 2,932 2nu 0.339 0.623 1.013 199.3 2,050 6,143 1.550 1.604 1.874 20.9 268 324 215,500 41.059 49.428 64.926 58.1 190 301 t without'?educS 1 19u - BaiI iTnoltt$n I ° y8es ‘- 11 ° lnterest ° n th0 Railway Debt and of Pension Fund Expenditure for other Federal States! 0 ' 1 ”' expen diture, and therefore not strictly comparable to the debts of the Revenue Floating and Funded Debt.* from Public Under-Per Head of Population. Bonds in Circulation. § takings. Amount. In-Amort- State Debts. Revenue from Public Undertakings. ­ Municipalities ­ Cities and other large STATES. terest. isation. ways, t Nominal Amount. Interest. ­ Amortisation. ­ Rural Authorities. ­ mous Corporations. ­ Million Marks. Marks. Million Marks. 9 10 11 12 13 14 15 16 17 18 19 20 4323.7 189.58 95.0S 18.8 102.6 74.29 2.92 1.46 1.87 •• German Empire. 9531.7 336.02 57.49 520.9 123.9 237.31 8.37 1.43 16.05 2407.4 1388.1 Prussia. 2165.9 78.93 5.47 83.2 4S.4 314.48 11.46 0.79 19.11 563.6 18.3 Bavaria. 871.5 28.13 11.84 40.3 14.3 181.30 5.85 2.46 11.35 447.7 Saxony. 608.5 22.04 4.01 20.1 20.8 249.64 9.04 1.65 16.78 114.5 Wurtemberg. 562.7 23.24 13.73 20.6 4.9 262.59 10.85 6.41 11.91 240.3 *0.2 Baden. 441.2 15.19 1.97 14.6 3.5 344.17 11.85 1.54 14.12 163.5 7.4 Hesse. 142.6 5.34 1.29 4.1 4.5 222.90 8.34 2.01 13.44 24.7 Mecklenburg-Scliwerin. 2.S 0.10 0.04 3.2 6.76 0.25 0.10 7.75 15.6 Saxe Weimar-Eisenach. 2.7 0.10 0.06 1.5 25.71 0.95 0.61 13.87 0.6 Mecklenburg-Strelitz. 74.6 2.67 0.41 3.2 0.5 154.40 5.53 0.85 7.53 11.7 3.5 Oldenburg. 47.4 0.98 1.77 2.6 4.9 95.97 1.98 3.57 15.23 6.7 16.4 Brunswick. 7.0 0.20 0.32 0.2 2.5 25.16 0.70 1.13 9.90 12.2 Saxe-Meiningen. 0.9 0.04 0.4 4.09 0.17 1.97 4.3 Saxe-Altenburg. 4.3 0.19 6.07 1.3 16.70 0.75 0.27 5.22 11.4 Saxe Coburg-Gotha. 5.3 0.20 0.22 4.3 16.10 0.60 0.66 13.03 9.4 1.2 Anhalt. 1.1 0.02 0.01 0.8 11.69 0.26 0.14 9.43 1.1 Schwarzburg-Sondershausen. 4.6 0.17 0.03 1.1 46.06 1.67 0.34 10.93 3.3 Schwarzburg-Rudolstadt. 1.6 0.06 0.04 26.24 0.92 0.71 0.20 Waldeck. 0.42 6.7 Reuss. Senior Branch. i.o 0.04 0.6 6.81 0.27 3.69 5.4 ,, Junior ,, Schaumburg Lippe. 0.3 0.01 6.01 6.98 0.24 0 29 1.03 0.7 1.0 0.04 0.01 6.1 6.67 0.27 0.09 0.59 5.4 Lippe. J70.4 2.42 0.60 2.3 603.79 20.77 5.18 19.47 4.6 Lubeck. J263.1 9.87 0.49 ii U4.4 878.38 32.97 1.64 14.77 7.3 Bremen. 715.8 24.66 5.98 0.5 8.1 705.42 26.28 5.89 8.48 2.6 Hamburg. 1.13 0.38 4.0 22.50 0.60 0.21 2.11 115.5 7.8 Alsace Lorraine. 20393.9 743.37 201.32 729.1 362.9 314.11 11.45 3.10 16.82 4180.0 1443.0 German Empire. §31st December, 1910. II No calculation is possible of the profit value of harbour lines. 1 Not including harbour and shipping dues and similar revenue. TABLE II, GROUPS OF INDUSTRIES. Number ­ of Companies. ­ CAPITALISATION. ANNUAL RESULTS. GROUPS OP INDUSTRIES. Share Capital Paid up. Open Reserves. ­ Bonded Debt. Mortgage ­ Debt excluding ­ col. 5. Employees' ­ Provident ­ Funds. Other Liabilities. ­ Total Liabilities, ­ excluding ­ carry forward. No. Of Companies ­ operating ­ at a profit. No. of Companies ­ operating ­ at a loss. No. of Companies ­ operating ­ without profit or loss. Total Annual Profits. Total Annual Loss. * Balance of Annual Profits. Dividends, Mill Mark. Percentage ­ of Share Capital ranking for Dividend. ­ Percentage ­ of total working ­ Capital Mill Mark. Percentage ­ of Capital ranking for Dividend. ­ Million Marks. Million Marks. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 T. Agriculture and Forestry .. 11. Stock Breeding and Fisheries HI. Mining and Smelting (including Salt Mining) Including— 1. Ore Mining 2. Smelting, including Fineries and Enlarging Works Including Iron and Steel .. 3. Product of Salt Including Potash 4. Hard Coal Mining 5. Soft Coal Mining 6. Production of Oil, including Refineries Ilia. Mining, Smelting, Metallurgy and Engineering combined IV. Quarries and Potteries V. Metallurgy Including Iron and Steel VI. Engineering— Instrument Making, etc. Including— 1. Machines, Apparatus 2. Shipbuilding 3. Electrical Engineering 4. Electric Lighting and Power VII. Chemical Industry Including— 1. General Chemicals .. 2. Colours 3. Explosives and Matches VIIT. Industries of Forestry By-products, ­ Lighting Materials, Soap, Fats, Oils, Varnish IX. Textiles X. Paper Making XI. Rubber, Leather, and Leather Imitation .. XII. Woodwork and Wood Carving XIII. Foodstuffs Including— 1. Sugar Factories and Refineries 2. Breweries and Malting Works XIV. Clothing XV. Cleaning XVI. Building XVII.) and [Graphic Trades + XVIII. > XIX. Commerce Including— 1. Banks Amongst which Mortgage Banks XX. Insurance XXI. Transportation Including— 1. Railways 2. Tramways and Local (rural and street) Railways 3. River and Coasting Shipping 4. Sea Shipping XXII. Hotels, Restaurants XXIII. Music, Theatres and Public Amusement.. ­ XXIV. Miscellaneous Companies .. Including— 1. Companies operating in German ­ Colonies 3 19 221 6 67 55 42 31 40 53 5 36 348 160 115 534 346 18 42 85 151 101 22 28 151 352 99 58 62 812 66 548 12 3 43 114 6S3 415 38 130 479 58 227 64 52 61 35 114 13 2.3 19.7 1.285.7 24.8 330.8 279.6 243.3 227.0 398.1 227.6 27.8 1,083.6 448.9 278.5 207.6 789.5 744.7 62.9 213.5 673.7 468.0 254.4 147.1 66.5 169.8 637.7 178.6 122.8 73.5 1,027.8 106.5 632.4 20.3 0.3 80.6 83.0 4.309.7 3.815.4 808.0 155.2 1.543.5 229.9 736.6 75.1 418.8 65.6 17.1 365.4 29.5 0.2 0.6 287.9 1.4 91.4 80.0 46.2 42.1 95.4 48.0 0.7 224.4 67.9 43.2 30.7 351.0 170.1 14.8 39.0 111.1 146.2 63.6 58.6 24.0 34.5 165.1 41.5 40.2 9.3 207.6 28.1 139.6 2.8 11.5 11.7 1,091.3 1,042.7 340.9 238.0 226.1 27.2 88.0 7.5 94.5 13.3 0.7 39.0 2.8 1.3 333.9 89.1 79.3 53.0 49.5 110.0 71.0 0.6 365.3 105.2 48.7 39.0 694.9 145.5 31.6 73.9 427.4 115.1 41.3 68.2 5.6 53.2 155.7 65.3 36.5 15.6 246.3 15.5 186.2 2.2 *7.6 7.3 273.5 127.3 1.5 0.3 657.8 125.7 309.4 18.0 185.0 26.9 2.3 129.1 18.7 0.4 0.5 55.2 1.3 5.8 4.1 1.9 1.5 14.7 29.6 0.3 27.9 57.8 20.9 9.8 73.8 47.8 1.7 6.2 12.9 15.9 12.4 2.4 1.2 8.5 36.7 21.0 8.4 10.9 393.1 6.5 346.7 1.5 0.1 15.1 20.3 324.5 32.8 0.9 5.5 75.3 3.6 31.2 5.5 21.7 111.3 19.2 13.6 0.1 22.6 0.2 7.6 6.1 5.0 4.6 5.7 3.5 28.1 5.3 9.6 4.9 00.2 34.6 1.8 7.4 14.5 35.0 7.8 24.5 0.7 1.8 33.4 8.6 3.7 0.8 18.8 5.2 10.2 0.2 1.3 1.7 68.9 65.8 21.6 25.2 6.8 1.4 2.C 0.6 1.4 l’.2 0.4 3.8 419.2 6.7 141.6 111.8 55.8 44.8 122.1 56.0 6.3 538.7 132.2 109.3 71.5 1,225.0 539.7 22.7 145.5 281.0 226.4 123.5 56.4 46.5 108.6 470.0 97.6 97.2 34.8 588.6 85.9 310.0 6.6 80.0 22.6 22,834.2 22.498.9 11.608.9 3,396.0 440.1 58.1 190.0 24.0 140.5 21.2 4.1 345.4 15.6 3.4 26.0 2.404.6 34.6 666.3 561.0 405.2 369.6 746.1 435.5 35.8 2.271.1 817.4 510.3 363.6 4.195.1 1,682.4 333.5 485.6 1.520.6 1,006.8 503.0 359.2 144.6 376.5 1.498.6 407.6 308.9 145.0 2,482.3 247.8 1.625.1 33.6 0.6 196.1 146.7 28,902.1 27,582.9 12,781.8 3.820.1 2.949.7 445.9 357.8 130.7 862.0 238.5 43.6 893.8 66.7 1 15 171 2 50 40 30 21 34 45 3 30 244 136 95 446 288 12 37 74 127 88 17 22 137 2*3 85 43 45 698 57 485 11 1 34 97 587 403 37 124 421 56 199 53 44 49 21 82 12 2 3 41 4 13 11 10 8 6 7 1 4 98 23 19 84 57 6 5 9 22 12 5 5 8 85 14 15 15 108 9 60 1 1 9 17 92 11 1 5 50 2 25 10 7 10 12 24 1 "l 9 4 4 2 2 ”l 1 2 6 1 1 4 1 "2 2 1 ”l 6 4 *2 6 *3 ”l 4 1 ”l 8 3 1 1 2 2 8 0.2 1.1 133.4 2.1 42.5 33.0 19.2 17.0 39.1 26.6 0.9 136.1 36.4 28.2 20.2 196.3 87.5 3.1 19.1 73.1 92.7 39.4 42.3 10.9 21.7 60.7 18.2 18.0 7.5 101.6 19.5 52.1 2.8 10.7 7.7 399.3 366.0 84.2 62.6 100.3 12.8 42.8 3.9 33.9 5.1 1.0 30.9 4.4 0.2 7.3 0.3 2.6 2.4 3.0 3.0 0.6 0.8 2.6 7.2 3.1 2.7 9.2 5.8 1.6 0.8 0.5 1.8 1.5 0.1 0.2 1.0 10.8 4.7 4.6 1.1 8.3 663.0 5.2 2.2 1.0 6.3 1.0 0.2 0.7 5.5 2.0 1.2 1.9 0.3 0.3 0.7 0.1 "l.O 126.1 1.8 39.9 30.6 16.2 14.0 38.5 25.8 0.8 133.5 29.2 25.1 17.6 187.1 81.6 1.5 18.2 72.6 90.8 38.0 42.2 10.6 20.7 49.9 13.5 13.4 6.5 93.2 18.5 46.9 2.8 8.5 6.7 393.0 365.0 84.0 61.9 94.8 12.7 40. S 2.7 32.0 4.8 0.7 30.2 4.3 0.92 5.22 10.00 7.37 12.40 11.31 6.80 6.81 9.67 11.83 3.08 12.58 6.53 9.25 8.73 10.84 11.13 2.51 8.95 11.44 19.67 15.27 23.80 16.01 12.51 7.87 7.83 10.99 8.87 9.16 17.93 7.43 14.13 0.63 10.03 8.24 9.24 9.71 10.58 40.48 6.18 5.60 5.59 3.61 7.65 7.62 4.19 8.34 15.70 0.83 5.05 5.14 6.96 9.66 8.73 5.70 5.31 7.80 9.70 3.00 10.39 5.67 7.98 7.57 9.01 9.03 2.02 752.00 9.73 14.94 12.16 20.57 11.75 10.36 6.24 6.31 5.27 7.86 7.61 14.14 6.08 12.33 0.60 9.29 7.22 7.36 7.60 7.40 15.84 5.89 5.00 4.99 3.28 6.24 6.25 4.02 7.53 14.23 0.2 0.6 106.4 2.0 29.8 22.6 13.4 15.8 35.9 21.8 9.7 105.8 28.6 20.7 14.6 150.3 66.0 2.6 14.6 56.5 71.3 29.3 32.7 9.3 16.2 47.2 14.1 13.0 5.7 76.0 13.0 39.8 2.2 *9.7 5.7 321.6 297.6 67.6 35.4 76.4 10.0 33.7 3.0 24.2 2.8 0.6 22.8 2.3 6.99 2.99 5.43 8.28 9.28 8.36 5.63 5.30 9.02 9.99 2.53 9.98 6.38 7.64 7.24 8.70 9.00 4.33 7.15 8.91 15.45 11.80 22.28 14.05 9.78 7.44 8.16 10.59 7.83 7.47 12.37 6.30 11.45 2.50 12.13 6.96 7.56 7.91 8.51 23.14 4.98 4.40 4.62 3.97 5.77 4.45 3.68 6.29 8.31 I. Agriculture and Forestry. II. Stock Breeding and Fisheries. III. Mining and Smelting (including Sale Mining). Including— 1. Ore Mining. 2. Smelting, including Fineries and Enlarging Works. Including Iron and Steel. 3. Product of Salt. Including Potash. 4. Hard Coal Mining. 5. Soft Coal Mining. 6. Production of Oil, including Refineries. Ilia. Mining, Smelting, Metallurgy and Engineering combined. IV. Quarries and Potteries. V. Metallurgy. Including Iron and Steel. VI. Engineering-Instrument Making, etc. Including— 1. Machines, Apparatus. 2. Shipbuilding. 3. Electrical Engineering. 4. Electric Lighting and Power. VII. Chemical Industry. Including— 1. General Chemicals. 2. Colours. 3. Explosives and Matches. VIII. Industries of Forestry By-products, ­ Lighting Materials, Soap, Fats, Oils, Varnish. IX. Textiles. X. Paper Making. XI. Rubber, Leather, and Leather Imitation. XTI. Woodwork and Wood Carving. XIII. Foodstuffs. Including— 1. Sugar Factories and Refineries. 2. Breweries and Malting Works. XIV. Clothing. XV. Cleaning. XVI. Building. XVII.) and [ Graphic Trades, t XVIII.) XIX. Commerce. Including— 1. Banks. Amongst which Mortgage Banks, XX. Insurance. XXI. Transportation. Including— 1. Railways. 2. Tramways and Local (rural and street) Railways. 3. River and Coasting Shipping. 4. Sea Shipping. XXII. Hotels, Restaurants. XXIIL Music, Theatres and Public Amusement. ­ XXIV. Miscellaneous Companies. Including— 1. Companies operating in German ­ Colonies. Total 4,680 14,227.4 3,254 3,347 1,317.4 328.2 31,202.6 63,078.4 3,868 743 69 1,472.5 78.9 1,393.4 9.95 8.08 1,133.3 8.09 Total. 19O9A0 4,607 13,721 3,013.1 8,359.1 1,259.4 302.3 29,653.1 51,208.0 3,821 707 79 1,366.1 78.4 1,287.6 9.57 7.82 1,043.9 7.76 1909/10. 1908/9 4,579 13,200.6 2,85S.6 262.9 28,597.8 49,197.7 3,688 809 82 1,233.0 118.5 1,114.5 8.57 7.03 959.7 7.3S 1908/9. 1907/8 4,578 12,063.7 2,660.6 227.5 26,404.3 46,121.8 3,906 598 74 1,351.4 71.4 1,279.9 10.11 8.35 1,022.6 8.07 1907/8. * Taking into account the amount brought in from year. mount brought in iroi * umg y ear . f share capital ranking for dividend plus open reserves. X Including booksene » ‘ a ers, newspaper publishers and distributors, advertising agents telegraph agencies, and artistic handicrafts. TABLE III, 31st December, 1912. BERLIN BANKS. Paid-up Share Capital. Reserves. ­ Total Capital (Share Capital plus Reserves)-Own Securities. ­ Syndicates. ­ Permanent ­ Investments. ­ Total Investments ­ (3 preceding columns) Own Securities ­ in per cent, of total Capital. Total Investments ­ in per cent, of total Capital. Million £ Million £ Million £ Million £ Million £ Million £ Million £ Million £ Million £ Deutsche Bank Dresdner Bank Disconto Gesellschaft Darmstadter Bank A. Schaaffhausensch. Bankv Berliner Handels Ges. Nationalbank f. Deutschland Commerz & Disconto Bank Mitteldeut. Kreditbank 10.000 10.000 10.000 8.000 7.250 5.500 4.500 4.250 3.000 5.50 3.05 4.06 1.60 1.71 1.72 0.78 0.67 0.45 15.50 13.05 14.06 9.60 8.96 7.22 5.28 4.92 3.45 5.67 3.05 1.86 2.36 2.26 2.09 1.33 1.69 0.61 2.47 2.31 2.33 2.27 1.89 2.59 1.94 0.82 0.52 3.93 1.83 5.33 0.95 1.27 0.55 0.31 0.55 0.11 12.07 7.39 9.52 5.58 5.42 5.23 3.58 3.06 1.24 36.6 23.4 13.2 24.6 25.2 28.9 25.2 34.3 17.7 77.9 56.6 67.7 58.1 60.5 72.4 67.8 62.2 35.9 — 62.500 19.54 82.04 20.92 17.34 14.83 53.09 25.4 62.1 TABLE IV. Liabilities (preceding column) WERE COVERED BY Total Cover. 31 December, 1912. LONDON BANKS. Liabilities. Easily realisable assets of first rank. (Cash, Bankers and Discounts.) All easily realisable assets. (Preceding column plus advances, loans on securities, bills not already included.) Preceding column plus other assets. Preceding column plus uncalled capital. Million £ Million £ Per cent. Million £ Per cent. Million £ Per cent. Million £ Per cent. Barclay & Co. Capital & Counties Bank Glyn, Mills, Currie & Co Lloyds Bank London & South Western Bank London City & Midland Bank .. London County & Westminster .. London Joint Stock Bank Martin’s Bank Metropolitan (of England and Wales) .. National Provincial Bank National Bank Parr’s Bank Robarts, Lubbock & Co Union of London & Smiths Bank 57.5 39.2 16.02 89.39 20.21 83.66 81.44 33.83 3.02 11.01 65.66 13.88 42.31 3.77 39.5 21.7 11.2]f 5.99 33.51 8.91 24.29 39.11 16.26 2.40 3.32 17.28f 7.71 14.22 17.90 18.31 37.7 28.1 37.4 37.5 44.2 29.3 48.0 48.3 79.5 30.2 26.3 55.6 33.6 47.5 46.4 60. OS 40.81 17.24 94.79 21.63 89.48 91.56 37.17 3.45 11.59 70.18 16.63 45.88 4.15 42.20 104.5 104.1 107.6 106.0 107.0 106.8 112.4 109.9 114.2 105.4 106.9 119.5 108.4 110.1 106.5 61.87 42.42 17.61 97.29 22.48 91.53 93.28 38.16 3.73 11.95 70.90 16.92 46.98 4.27 44.11 107.6 108.2 109.9 108.8 111.2 109.4 114.5 112.8 123.5 108.5 108.0 122.0 111.0 113.3 111.6 67.57 49.42 17.61 99.49 24.40 106.69 103.78 55.19 4.23 11.95 83.08 16.92 57.28 4.27 63.49 117.5 126.1 109.9 111.2 120.7 127.5 127.4 163.1 140.1 108.5 126.4 121.8 135.4 113.3 160.7 TABLE V. 31 December, 3912. Liabilities. Assets. Current Account Creditors, Deposits and Acceptances. Million £ Easily realisable assets of first rank : Cash, Bankers’ Balances, Discounts. All easily realisable assets: Preceding column plus Contangoes, Advances on Securities and merchandise, investments. Total Cover: Two preceding columns plus Sundry Debtors and other Assets. Million £ Per cent. Million £ Per cent. Million £ Per cent. Deutsche Bank 95.04 42.21 44.4 71.50 75.2 113.0 118.9 Disconto Gesellschaft 42.17 16.47 39.1 29.7S 70.6 57.70 136.9 Dresdner Bank 57.74 19.28 33.4 35.08 00.8 72.27 125.2 Darmstadter Bank 34.40 11.22 32.6 20.27 58.9 44.74 130.1 A. Schaaffhausensch. Bankver. 22 26 6.20 27.9 11.27 50.6 32.06 144.0 Berliner Handelsgesellschaft 20. SO 7.13 34.3 13.09 62.9 28.72 138.0 Nationalbank f. Deutschland 16.99 5.90 34.7 11.08 65.2 22.80 134.3 Commerz & Discontobank .. 17.95 4.50 25.1 11.73 65.4 23.32 130.0 Mitteldeutsehe Creditbank .. 7.49 2.02 27.0 3.71 49.5 11.19 149.4 Total 9 Berlin banks 314.84 114.93 36.5 207.51 65.9 405.80 128.9 NOTE.—Own Securities included under “Easily realisable Assets of second rank” amounted at end 1912 to £20.94 millions, i.e., only about 6.65 % of Liabilities. The investments of 8 of the Banks in above table consisted to the extent of 55.2 % of securities accepted by the Imperial Bank as loan collateral; a further 31.4% were officially quoted securities, and 13.4% were unquoted. Amongst “Other Assets” there were at end 1912 £17.34 millions Permanent Investments and £14.84 millions Permanent Participations in other Banks and Firms. These two items together amount to 10.2 % of the Liabilities. LONDON: C. & E. LAYTON, 59, Farringdon Street, E.C. A SELECTED LIST OF WORKS PUBLISHED BY C. & E. LAYTON, 56, FARRINQDON STREET, LONDON, of general Commercial use, especially to Solicitors, Valuers and Accountants. The Detection of Forgery. A Practical Handbook for the use of Bankers, Solicitors, Magistrates’ Clerks, and all handling Suspected Documents. By DOUGLAS Blackburn (Late Expert to the Natal Criminal Investigation ­ Department, and the Transvaal Republic), and Captain Waithman Caddell. Price 6s. net. Simple Interest Table at 1%, on amounts ranging from £\ to ^”100,000 for intervals of one day up to 365 days, and for intervals of 1 month up to 12 months. The items are calculated correctly to the nearest l-10th of a penny, enabling the calculator to find the Interest very expeditiously at any rate per cent, for any number of days by simple multiplication, and more correctly than by many other larger and more costly tables. Also contains useful tables for finding number of days between any two dates. By Alex. S. Sellar, M.A., F.R.S. Cloth. Price 5s. net. Table for Computing Income Tax at Is. 2d. in the £, showing Income Tax and also Net Amount at one inspection on any amount up to ^1,000. By Alex. S. Sellar, M.A., F.R.S. Printed on tough paper. Price Is. C. & E. LAYTON’S PUBLICATIONS—Continued. LONDON: C. & E. LAYTON, 56, Farringdon Street, E.C. 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Half-leather. Price 10s. 6d. net. Fire Loss Settlements, and the Conditions of Fire Insurance Policies. A Handbook for general use. By Thos. J. Milnes. Price 3s. 6d. net. Extract from Review:— “Our advice is to buy Mr. Milnes’ book forthwith, and having studied it turn up all existing Policies and study their conditions; a surprise may await many of us.” Full Catalogue may be had on application. the scale towards SOI f> y\ & y 1 to c: GROSSBANKEN. 123 by the German method, has been freely 1. The public, learning that the issues ;n underwritten at a certain commission, ~.)w not to subscribe, but to wait until the [osed in the expectation of getting the plow the issue price from underwriters nt to dispose of their allotment. In my investors like insurance and trust es have become underwriters and take rest in the issues on underwriting is as a firm allotment. Naturally, favourable conditions prevailing in >ney market lately have also had deal to do with the fiasco of the ues, just as much as in Germany, he result of the subscriptions for the perial and Prussian, Loans has proved sappointing. enerally acknowledged that the industrial made in Germany has been most striking. ‘| disregarding any other factors conducive remarkable development, it seems to it was due in a large measure to the it and most liberal assistance of the circles. The co-operation between the ad industries has proved upon the whole : utary to both. Therefore, there appears reason to change the underlying principle,