Evening capital. (Annapolis, Md.) 1884-1910, 1903-10-23
THE english BANK WAY
How the Old Lady of Thread
needle Street Manages.
RE-DISCOUNTING BILLS
The English and American Systems
compared-Safety of the Foreign
PIan-VaIue Of Endorsements vs.
Single Named Paper-Possiblllties
in Wall Street.

When the Bank of England raised
| It's minimum rate. of discount lately
from to 4 per cent there was gen.
eral fiuster in all the money markets
of the world.
The rise in the Bank OF England
rate, II was said. no doubt with truth,
was for the purpose or protecting the
banks gold supply from the demands
for the metal from the continent, and
in particular from Germany. Among
the well-informed bankers, meaning
practically thereby the leaders in high
finance in England, does not fear ex-
ports of gold to this country, and
would not put any great barrier in
the way thereof. because 1t knows II
cannot long prevent such exports;
that England must have our cotton and
grain, and must pay for them in some
way, either in gold or securities.
Soon after the Bank of England
raised It's rate 1t was stated by finan-
cial authorities here. as has been
stated before on similar occasions,
that in order to make the rate hold
the bank borrowed money from the
market. and then relent It at a higher
figure. To the animated this had
somewhat the appearance OF two alli-
tors trying to swallow each other.
From the professional Wall street point
of view it looked very much like an
attempt to corner" the money mar
ket, and certain reflections were made
in banking circles as to what would
be the result II the same thing were
attempted here. The questions natur-
ally arose. How could such a thing
be done here? How 1t is done there?
''It is done" said well-known Eng
lish banker. "and 1t is very simple
matter. The bank for what, In It's
judgment, it deems good and suffi-
cient reasons--in this case to check
the outflow of gold to the continent
puts up the minimum discount rate.
1t finds that the open market rate does
not respond sufficiently, and so 1t b0r-
rows from the market, that is from
other banks and bankers at the mar
ket rate If necessary. II takes in this
way all the current or call money avail
able. The natural result usually is an
Increase in the open market rate for
money. and the bank then takes ad-
vantage of that and relends the money
at the advance.
''It is, of course, questions OF judg-
ment as well as OF strength between
the governors of the Bank of England
and the outside bankers. II the tudg-
ment of the bank Is correct the open
market rate will usually promptly re-
spond to the action of the bank. It is
simply another case of the law OF sup
ply and demand. because, after all,
the Bank of England is purely a big
business institution and will not, be-
cause 1t canot, long run counter to
the prevailing conditions in the finan-
cial world.
How does the bank borrow from the
open market? 1t is sometimes asked
here. and some persons say, Just fancy
what CONSERVATION would be caused
in Wall Street If the National City
Bank or some other big Clearing House
bank. for instance. should borrow $5.s
100000 or $10.000OO0 some day in the
open money market on the Stock Elk.
change and. the fact should become
known! And yet that is Just what the
Bank of England sometimes does, and
what 1t did lately. 1t borrows through
its brokers precisely as Stock Ex-
change houses do here. and there is
no secret about 1t. The bank may
borrow on call or on time. II may
put IT its bills receivable as collateral
or rediscount some of them. That is q
regular. very excellent. proper, and
safest method of business. Substitu.
tions are made here. But with redis-
counts that is not usually necessary,
and there is not the slightest trouble.
You can imagine. for example. some
of the drafts of any of our many for.
eign bankers here or their foreign cor
respondents. which have been duly ac-
cepted, and have passed into the hands
of some of the big English banks or
banking houses. private or joint stock.
through English merchants who have
received them from merchants here In
payment OF goods shipped to this coun.
try. Or they may have been received
by banks there from bankers here to
cover their own drafts They may be
commercial bills received for the same
purpose. In any event. they bear be-
sides the names of the drawer and ac-
cepter the Endorsement of the remit
ting banker. the Endorsement OF at
least one English bank-that is, the
one which discounts them at the Bank
of England-and, last Of all, the in
dorsement of the Old Lady of Thread
needle Street herself when she redis-
counts them-that is. borrows on
them. So that there are at least four,
and frequently i've, frst-class names
on the paper. and q safer negotiable
security could not be imagined.
think that covers the entire modus
operandi Of the Bank OF England bor-
P0uyiuUc IN, fhe nv,aw