The Sun.
London, England, 1855-07-06 00:00:00

BANKING BUSINES4

Recent occurrences seem to have produced an idea
that the business of a banker is attended with some
speculations and uncertainties beyond those to which
other commercial pursuits are exposed. As no impres-
sion could be more erroneous, and as the subject is one
on which it is by no means desirable that error should
prevail, we subjoin a plain exposition of the case, di-
vested of all technicalities and mystery, for the informa-
tion of the general reader. We shall not attempt to
analyse or discuss what are termed the " principles of
banking," but simply give such a general explanation of
facts as will be easily and popularly intelligible.
The original or primary notion of a banker is simply
that of a money-dealer. Money is not only the medium
by which sales and purchases are effected, but it is an
article of purchase and sale itself, and the banker is the
tradesman who deals in it. But how, it will be asked,
is any one to buy money, when money is the very thing
by which every commodity is bought ? The answer is,
that money is bought with credit—in other words, it is
lent out to use upon the faith of the borrower, and on
the condition that it shall not only be repaid, but be
repaid with the addition of a certain sum in considera-
tion of the loan. This sum is called "interest," or more
expressively sometimes in popular language " use-
money." This it is from which a banker, in the original
conception of the trade, would derive the profits of his
business, and upon which he would live. In order,
however, to lend money he must first possess it—that
is to say, ho must have a capital ; and this is what is
meant when it is said that certain sums or properties
are embarked in a banking business. Two or more
persons possessed of private fortunes put their money
into a common stock, with a view of making profit
by lending this stock out piecemeal, and receiving it
back again with interest. Up to this point, therefore,
the hazards of a banker's business, whatever they might
be, would affect none but the bankers themselves. If
they lent their money so carelessly or unluckily that they
could not get it back again they might be ruined, but
the ruin, would be simply their own.
The extension of trade, however, and the development
of commercial transactions add new features to the bank-
ing business. A. man in trade requires another trades-
man to manage his money concerns for him, to receive
such moneys as are due to him, and to pay, according
This dutyi!
to order given, such money as he owes.
discharged by bankers, who thus keep the "accoutts
of their easterners, receiving and paying on their behalf
such tiv.ras a 3 aro brought or demanded. The davreuoo

I between the totalreceipts and the total payments effected
on behalf of a particular customer represents what is
termed the "balance" of the account, and bankers na-
turally desire that this b,alance, or the surplus money in
their hands, should be as large as possible. Accordingly,
as every customer has, or should have, a balance of his
own, the aggregate of these balanees represents a con-
siderable sum, which is at the banker's disposal, like his
own original capital, for the purposes of his trade.
Sometimes these balances acquire a more permanent and
substantial form. Wealthy customers not unfrequently
deposit money at their banker's merely for safe keep-
ing, or even vanity's sake, without much intention of
touching it, and we have heard of instances of lofty
cexcombry where thousands upon thousands of pounds
have been left in this way- for years. Here, therefore,
are large accumulations .of money for the banker to
deal with, and, as the profits of money-dealing must
bear a direct proportion to the amount of money
employed, the advantages of the business are mate-
rially improved. But now comes the important point.
The additional capital represented by these balances and
deposits is not the banker's own. ,He may employ it,
and is, of course, presumed to do so—indeed, this is his
legitimate source of remuneration and profit ; but he is
liable to be called upon for it by the right owners at any
time, and if be cannot produce it a catastrophe ensues.
In the old commercial cities of Italy when a trader failed
to meet the demands upon him the custom was to break
the " bane" or counter over which his dealings were
conducted, and this usage gave rise to the term
" bank-rupt."
_

From what has been said it will be seen that a banker
deals with money of two kinds—first, that which is his
own, and which represents the original capital with
which the concern was established, and next, that which
is not his own, but his customers'. It is upon the ma-
nagement of these latter funds that the prosperity and
security of a banker's business peculiarly depends. He
must needs be a money-dealer or money-lender in any
case, for this, in fact, and nothing else, is his trade;
but, whereas in the case of his original capital he risked
only what was his own, and was liable to no control in
the matter, in the case of his customers' money he
puts out of his hands that which at any moment he may
be required to refund. If he cannot refund it, the
bank is said to " stop payment," and the usual pro-
ceedings under bankruptcy follow.
In all this this there is nothing whatever to make
the trade of a banker uncertain or dangerous ; on the
contrary, it would be very hard to find a pursuit more
advantageous, lucrative, or safe than the business of a
well-established bank. The partners literally find them-
selves put in peaceable possession of other people's
money, and all they have to do is so to manage
matters that they may be able to produce this money
upon demand. For this purpose it is only necessary that
what is lent should be lent with caution and judgment,
and what is invested should be so invested as to be for
the most part within certain and easy reach. Neglect of
either of these precautions may produce disaster. If
money is lent in large sums, or to customers not suffi-
ciently responsible, or if, although placed out on security
good in itself, it is so tied up as not to be available at
the moment of need, there may not remainfunds enough
in hand to meet sudden calls, and a stoppage of payment
must ensue. Perhaps the theory of the case would re-
quire that a banker should always b. able at any given 1
moment to satisfy the whole body of his customers, by
accounting to them for their balances and deposits if
asked to do so ; but this is an extreme supposition. Pre-
suming nothing to have affected the credit of the estab-
lishment, it is in no degree probable that demands of
that character would be made upon it ; and even if a
bank were by some accident reduced to the necessity of
suspending its payments, notwithstanding that all the
ordinary rules of prudence had been observed in its
management, the difficulty would only be temporary, nor
need any loss ensue. If the concern was sound, the
ultimate realisation of the assets, or, in other words, the
reconversion of the investments into money, would pro-
vide the means of satisfying every customer in full.
We thus arrive at what seems the single condiition of
good banking—viz., to keep always available such an
amount of funds as will answer any probable demand ;
and, though this may appear a mere truism, it really
carries with it the other maxims of the trade. The rule
cannot be observed if advances are made in very large
sums, or for very long dates, to single firms or individuals
since in this case it is obvious that there might be diffi-
culty experienced in getting the money at need, and
bankers therefore prefer to spread their dealings in
smaller amounts and at short dates over a large surface.
It cannot be observed if money is largely invested in
securities not readily convertible, and therefore most
speculations of an equivocal kind would be excluded by
the nature of the case. Of course a banker, like any
other tradesman, is liable to bad debts, and may occa-
sionally lose the money he had lent, even on justifiable
conditions, but in this he only shares a peril common to
all trades alike, and is exposed to no greater danger in
such respects than his commercial neighbours around
him.—limes.