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CHAPTER VI.: BANKS AND BANKERS AFTER THE REVOLUTION. - Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 3 (France, Italy, Spain, Portugal, Canada) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 3 (France, Italy, Spain, Portugal, Canada).
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BANKS AND BANKERS AFTER THE REVOLUTION.
THE GREAT DISCOUNT BANKS OF PARIS.
NAPOLEON 1. had little liking for speculation. Under his reign the bankers played only a minor part. After the Ouvrard affair, the Government ceased to ask them for special contributions, and, indeed, no longer applied to them at all. As, moreover, the Imperial Government contracted no loan and made no issue of consols, the influence of the bankers was almost nil. Meantime important houses in Paris, whose existence antedated the Revolution, continued to do a large and prosperous business. Several of these are still at the forefront of French finance.
Conditions underwent a complete change with the return of the Bourbons. The indemnities exacted from France by the Allied Powers, and the reimbursements granted to the émigrés for their confiscated estates, required large issues of consols, which were negotiated through the agency of the bankers. Throughout Europe, the governments entered upon an era of loans, and a vast field of activity was opened up to banking institutions, which was continually enlarged until it became necessary to bring together capital for the creation of railroads.
The relations of bankers to commerce in France consist chiefly of discount operations. Banks discount paper with three signatures, but refuse to discount direct for original parties to such instruments. The third signature is ordinarily a banker’s indorsement. It may properly be said that, at the outset, one of the principal aims of the Bank of France was to act as a counterpoise against the bankers and their stock of discount paper.
With the object of rendering access to the privileges of the Bank of France more practicable for ordinary tradesmen, a temporary establishment was founded in 1830, called the Comptoir d’Escompte (Discount Bureau), mentioned in the chapter on the History of the Bank of France. At the time of the Revolution of 1848, the experience of 1830 was put to advantage, and discount bureaus were set up in many places. These concerns, designed as only temporary offices, became permanent in various instances, and several of them are now important banking institutions. The best known is the one in Paris. A decree of March 8, 1848, authorized the formation of the Comptoir d’Escompte de Paris (Discount Bank of Paris), with a capital of 20,000,000 francs, one-third to be supplied by shareholders, and the other two-thirds by the State and the city of Paris. The profits were to accrue exclusively to the shareholders, the State and the city waiving all gains on their investment. This extraordinary arrangement is accounted for by the exceptional circumstances under which the bank originated. The raising of capital in France during that revolutionary period was necessarily attended by great difficulties, and, in fact, could be successfully brought about, for the purpose in view, only by the co-operative action of the Chamber of Notaries and the charitable societies. The Government emphasized its proceedings by setting apart a fund of 60,000,000 francs “for the interests of small trade,” which it advanced to the different discount bureaus, repayable at the end of three years. On the 18th of March, 1848, the Comptoir d’Escompte de Paris began its career with a paid-in shareholders’ capital of 1,587,021 francs in coin—all that had been subscribed up to that date of the 6,666,500 francs capital required to be found by shareholders. In addition, it received one million from the Treasury as a share of the sixty millions fund. With these feeble resources the Discount Bank undertook to come to the rescue of the trade of Paris. In twelve days, from the 18th to the 31st of March, 30,087 commercial instruments bearing two signatures, presented by more than 5000 persons, and amounting to 13,402,167 francs, were admitted to discount. The soundness of the paper offered was passed upon by a Discount Council, or advisory board, of sixty members, selected from all departments of commerce and industry. On each discount transaction five per cent. was retained by the bank, and its equivalent in shares was credited to the individuals having recourse to the services of the institution. The regulations of the bank were narrowly restricted. Its business was confined to the discounting of paper bearing two signatures. Paris discountable paper was limited to 105 days, and provincial paper to sixty days, except such as was payable in cities where the Bank of France had branches, in which cases ninety days’ maturity was allowed. These restrictions soon underwent change. Storage warehouses were established in France, which issued warrants modeled upon the ones that for a long time had been in vogue in England. The Discount Bank received authority to make loans on such warrants as collateral. Sub-Treasury bureaus were created, which deposited their funds in the Comptoir d’Escompte, accepted collateral from their clients, and caused them to sign notes that in turn were discounted at the bank. These Sub-Treasury bureaus proved to be quite superfluous. They were discontinued, and the Comptoir d’Escompte dealt directly with borrowers.
From the beginning of the institution, on March 18th, until July (1848), its total discounts amounted to ninety-three millions and its collections to sixteen millions. The paper rediscounted at the Bank of France showed a total of fifty-nine millions, and the provincial paper sent for collection twenty-two millions. In the second half of 1848, and during the whole of 1849, the bank continued to develop and to render the most valuable aid to the business community of Paris. It gradually lost its special character as a bureau, and took on more and more the aspect of a true bank. It asked for and readily obtained an extension of its charter for six years, from March 18, 1851. Thus assured, for a certain period, of an active existence, the Comptoir d’Escompte broadened the scope of its operations. In February, 1850, it negotiated the loan of the civil list, designed to liquidate the debts of the old civil list and of the private estate of Louis Philippe. In December of the same year, it put in a bid for two millions of consols, which, however, were not awarded to it. In 1851, it opened a subscription for the capital of the Bank of Algeria, and in the month of August it had charge of the subscription lists for fifty millions to the city of Paris.
Its discount business, meantime, showed as follows:
In 1848-49, 124,000 notes for 98 millions of francs.*
In 1849-50, 237,000 notes for 145 millions of francs.
In 1850-51, 319,000 notes for 215 millions of francs.
In 1851-52, 382,000 notes for 273 millions of francs.
THE COMPTOIR’S CAPITAL DOUBLED AND QUADRUPLED AND ITS REGULATIONS CHANGED.
In 1853, the Comptoir d’Escompte’s transactions had reached such magnitude that the inadequacy of the capital was recognized, and it was accordingly increased to twenty millions. This was apart from the original funds contributed to the capital by the State and the city of Paris, which, it was now arranged, should be gradually repaid, the concession being extended to March 18, 1887. At the same time, the regulations were modified. Aside from discounts and the taking up and collecting of commercial paper, the bank was authorized to make loans on securities and to undertake subscriptions to issues of securities for the accounts of third parties. The business still expanded, and the Discount Bank acquired a genuine character of comprehensive public usefulness.
In 1860, the Government inaugurated a free-trade policy, and as the throwing open of the French markets naturally led to sympathetic treatment of French commerce in foreign markets, the Comptoir instituted agencies in France, in the French colonies, and in other countries. In order to provide for the requirements of this enlarged field, it now doubled its capital by the issuance of 40,000 new shares of 500 francs each, which were offered to the public at 580 francs, making its capital stock 40,000,000 francs. A contract was made with the banks of the French colonies, allowing the latter to draw on the Comptoir so as to procure for themselves remittances on France. Prominent among the foreign agencies was that at Shanghai, created in 1860. Through its instrumentality the collection of the war indemnity which the Chinese Government owed to France was effected. This agency had made itself a powerful promoter of direct relations between France and China. Shortly afterward, the Calcutta, Réunion, Bombay, Hong Kong, and Saïgon agencies were founded.
In 1866, the Comptoir, though operating under a capital of 40,000,000 francs, with ten millions of reserve, again found its means utterly insufficient for its vast business, and the shareholders decided on another doubling of capital, which brought the total up to eighty millions. The new shares were sold at 625 francs. Under the provisions of an act relating to joint-stock companies, promulgated in 1867, credit associations increased in number. To keep abreast of the competition, the Comptoir d’Escompte still further extended its organization, opening agencies at Nantes, Lyons, and Marseilles in France, and abroad at London, Alexandria, and Yokohama. At the same time, several other agencies were seen to be unprofitable experiments and were abandoned.
UNFAVORABLE CONDITIONS AFTER THE WAR OF 1870.
After the Franco-Prussian war of 1870, the institution found itself in a difficult position. The circumstances of its agencies in the Orient had been considerably affected by new conditions, such as the opening of the Suez Canal, rapid steamship service, and the construction of telegraph lines, which gave to England marked advantages. The management of the bank, having to struggle against these quite novel embarrassments, devoted itself to plans for recuperating its strength. The Alexandria agency was discontinued in consequence of the dangers occasioned by the financial disorders of Egypt. From 1873 to 1875, every effort was made to develop strength without attempting to grow. In 1876, the bank received substantial reward for this sagacious course. It was intrusted by the French Government with the duty of consolidating and converting the Egyptian debt. In 1877, it lent its services to the Government of Russia in the negotiation of a loan of three hundred and seventy-five millions. But, whilst the affairs of the central office improved, those of the remote Oriental agencies constantly became more troubled. The Saïgon agency was turned over to an independent bank; the Bank of Indo-China, and the agencies at Hong Kong, Yokohama and Réunion, were dissolved. On the other hand, agencies were opened at San Francisco, Melbourne, and Sydney. Although the Comptoir took an active part in the business movement of 1879-81, it managed to avoid the entanglements of excessive speculation, and was not seriously disturbed by the distressing crisis of 1882.
The Comptoir’s concession ran out in 1887, but had been renewed in its original form for an additional term of twenty years. The management now displayed much activity, seeking opportunities everywhere to counteract the diminishing tendency of its discount transactions. Discount business had become a subject of warm rivalry on the part of all credit associations, and, in consequence of the abundance of capital and the low rates for capital, was growing less and less remunerative.
THE COMPTOIR’S COMMITMENT TO THE SOCIÉTÉ DES MÉTEAUX.
Unfortunately, the Comptoir d’Escompte lent its support to a concern styled the Metals Company (Société des Méteaux), which, at its beginning, was a purely commercial enterprise, but was soon drawn into the whirlpool of speculation. The Metals Company had cornered a large stock of copper and tin; and its first purchases, although within reasonable bounds, had exercised a strengthening influence upon the market. Allured by this success, M. Secretan, the head of the company, set out to achieve a colossal operation, analogous to the famous cotton deal of Mr. Biddle, president of the Bank of the United States, in 1839. He entered into contract with a great number of copper mines to force a general rise in prices by a limitation of production. The chief of the Comptoir d’Escompte, without the knowledge of the administrative council of the institution, was a party to several of these contracts, guaranteeing their execution. When the Administrative Council became aware of this, heavy advances had already been made to the Metals Company on copper which, at forced sale, would have occasioned disastrous losses. Throughout the whole of 1888, copper production increased largely as a result of the energy of mines not in the pool; and as consumers refused to pay the prices demanded by the Metals Company, the stock of the company grew alarmingly. Consequently, the Comptoir was obliged to allow enormous advances. Several combinations intended to facilitate the settlement of the Metals Company’s engagements were without favorable issue, and the liabilities soon reached such proportions that the chief of the bank, M. Denfort Rochereau, crushed under the responsibilities he had assumed, committed suicide. A panic ensued, and a terrific run was made upon the Comptoir d’Escompte. The Government, viewing with much concern the probable effects, upon the Paris market and the Comptoir’s commercial clientage, of a discontinuance of payments by so important a house, caused the governor of the Bank of France, the principal bankers, and the heads of the great credit establishments to meet in conference. The outcome was that the Bank of France agreed to advance 140,000,000 francs to the Comptoir, in consideration of guarantys by numerous banking concerns that they would permit it to settle matters amicably. The French and English courts annulled some of these pledges on the score that they were contrary to the by-laws of the bank, and thereupon the Comptoir’s trustees, who had consented to such breaches of the regulations, had to make good a portion of the losses incurred by their fault, and paid in a total of 25,000,000 francs. The settlement was conducted with prudence and skill, and yielded results that the public had hardly dared to hope for. The entire liabilities were wiped out, the loan of the Bank of France was repaid without having recourse to those who had guaranteed it, and almost the entire capital was ultimately recovered.
THE NATIONAL DISCOUNT BANK OF PARIS TAKES OVER THE COMPTOIR D’ESCOMPTE.
The downfall of the Comptoir d’Escompte de Paris was a real national calamity, for this institution had been very successful in organizing and serving numerous French interests, principally in foreign countries and the far East. Encouraged by the Government, a new financial combination, comprising representatives of the banking, commercial, and manufacturing interests, undertook its reconstruction, under the general advice and supervision of M. Denormandie, former governor of the Bank of France. M. Denormandie, on April 26, 1889, concluded a negotiation with the liquidators of the Comptoir, whereby its charter and goodwill, together with its real estate and other effects, were acquired. To the old shareholders was reserved preferred right of subscription for the new shares; and, besides, they were to enjoy exceptional benefits in the division of the profits. The capital was fixed at 40,000,000 francs, and a call for an immediate subscription of half the amount was made, which had great success. The new company, adopting the name of Comptoir National d’Escompte de Paris (National Discount Bank of Paris), recovered quickly the ground that had been lost. Its business advanced with such rapidity that on November 5, 1889, it became necessary to provide for more capital; which, accordingly, was raised to 80,000,000 francs, by the issue of 80,000 shares of 500 francs each, at 30 francs premium, 250 francs per share being paid up. In 1891, the company absorbed the Banque de Dépôts et Comptes Courant (Deposit and Account Bank), which had an intact capital of 15,000,000 francs and a splendid establishment in the heart of Paris. It called 125 francs per share of the new issue of stock, exchanging the shares of the Banque de Dépôts et Comptes Courant for absolutely non-assessable new shares, which increased the paidup capital to 75,000,000 francs. The National Discount Bank has since that time continued its successful operations, steadily enlarging the working sphere of the old concern. Besides agencies in France, it has opened offices in Chicago and Madagascar. The Comptoir stands to-day in the first rank of French finance.*
THE CRÉDIT FONCIER—MORTGAGE BANKING.
In the early career of the Second Empire the landed proprietors became quite strenuous in urging the construction of a special credit institution as a remedy for the “mortgage leprosy,” as it was then styled. Since 1770, Germany had possessed a system of so-called land credit companies that had performed important services. Acquaintance with German methods had been spread in France by the illustrious economist Walowski. Several plans were formulated between 1835 and 1852, but none was considered practical. Some of these devices went so far as to propose a species of mortgage paper money, which meant practically a renewal of the assignat fiat scrip. A decree of February 28, 1852, laid the foundations of the mortgage banking scheme. It provided for loans repayable in yearly installments, with long maturities, secured by mortgage bonds (which, in turn, were secured by mortgages), bearing interest and negotiable without cost. These mortgage bonds had to be issued in each case by a broker, whose function it was to verify the securities, collect the yearly installments from the borrowers, and pay the interest to the lenders. As soon as the decree became law, a company with a capital of 25,000,000 francs was formed in Paris at the initiative of Walowski, entitled the Banque Foncière de Paris (Mortgage Bank of Paris). Among its promoters were some of the most eminent men in France. Its establishment was authorized by decree of July 3. 1852. Other companies on the same plan were formed in the Departments.
The independent action of these different mortagage banks proved prejudicial to their common welfare. There was much clashing of interests. The Government resolved to bring about a fusion, and to make the Paris Banque Foncière a central agency for all land credit transactions. The consolidation was accomplished on December 10, 1852, and the central bank, extending its scope throughout the whole country, took the name of Crédit Foncier de France (Mortgage Bank of France). It received a subvention of 10,000,000 francs from the State, and its capital was swelled to 60,000,000 francs, half of which had to be forthcoming immediately. The bank engaged to loan, within a brief period, 200,000,000 francs on landed estates, at a rate of five per cent., which was to provide for both interest and sinking fund. These two hundred millions were to be distributed among the Departments pro rata, according to their mortgage debts. In order to raise the required 200,000,000 francs, the company set out to issue a loan, consisting of mortgage bonds of 1000 francs each, “to bearer,” with interest at three per cent. This loan did not realize what was contemplated, and the conditions had to be modified. By a decree of November 21, 1853, the bank’s original rate of five per cent. (including interest and sinking fund) was replaced by a sliding scale calculated on the basis of the consol rate of three per cent. The new plan worked admirably, yet the loans of the Crédit Foncier aggregated only about 50,000,000 francs. Another decree (July 6, 1854) gave rise to a complete reorganization. The direction of the business was assigned to a governor and two under-governors, appointed by the Chief of the State. The administration was vested in an Administrative Council, chosen by the Shareholders’ Assembly, and the control was confided to censors, also selected by the shareholders. It will be noticed that this organization is copied from that of the Bank of France. Having acquired its final constitution, the Crédit Foncier made another effort for resources through the sale of bonds, but it was necessary first to enlist the special favor of the public. The management addressed itself to the general tax collectors, who were authorized to lend their co-operation. Still, the bond sales showed only slow progress. Finally, it was decided to profit by the example of the German companies, and instead of borrowing cash from the public on loans, to pay its own borrowers with mortgage bonds, which were to be taken at par and which the Crédit Foncier also agreed to receive at par in settlement. This method has various advantages, on the principle that issues of bonds and loans granted are always on the same level; but it involves the serious inconvenience of leaving the borrower to speculate on the mortgage bank’s bonds, first when he negotiates them at the time of effecting the loan, and second when he needs them again for settlement. Despite these difficulties, the Crédit Foncier saw the quotations of its mortgage bonds go up rapidly, so that it was induced to discontinue the paper loan system and resume cash loans, for which it issued premium (prize) bonds.
The theory of these bonds is very simple. They are repayable in fifty or sixty years, and bear fifteen francs interest (three per cent.). A certain number of them receive, at each drawing, prizes ranging from 1000 to 100,000 francs. The fascination of the prize tempts the public to pay much more for such bonds than for similar ones having no premium feature. Notwithstanding the necessity of paying prizes, the Crédit Foncier borrows money at cheaper rates than other companies which issue bonds payable strictly at par—for instance, railway companies. The Crédit Foncier is but a broker between proprietors and capitalists, and therefore can issue bonds only for the amount of the loans made. The loans must not exceed half the value of the real estate pledged, upon which a first mortgage is placed in favor of the institution. As special security to the public, the capital of the bank must be equivalent to at least five per cent. of the bonds outstanding. Apart from long loans, the Crédit Foncier grants loans at short maturity—to run not less than ten years. Finally, the company is authorized to make advances at long or short maturity, with or without mortgage, to Department administrations, communities, and agricultural associations, in the shape of prize bonds, and to loan to landed proprietors for drainage and improvement of lands.
In addition, the Crédit Foncier does a regular banking business, discounts commercial paper, makes loans on securities, negotiates issues of securities for third parties, and runs current accounts—to each of which the following tabular statement (in millions and hundred thousands of francs) relates:
The Crédit Foncier, by virtue of the very important volume of its capital and reserves, and of the distribution of its premium bonds (which are the preferred securities of small investors), is intimately connected with the economy of the country; yet at the present day it has to contend against embarrassments that were not foreseen when it abandoned its bond loan system for cash loans. The rate of interest has declined steadily during the last years, and the repayments of loans have in consequence grown to proportions that have upset all calculations. Loans repayable in a term of fifty to sixty years are accordingly paid back in twenty-nine or thirty years. The Crédit Foncier, by its regulations, must diminish the circulation of its bonds in an even ratio with repaid loans. Now, as the regular market price of its bonds is rather above that at which they were issued, and as at special times (in proximity to drawings) special values are added in consequence of the prize feature, the buying up process means decided loss for the bank. Some counteractive efforts have been made in the way of conversions of several series of bonds, but it is necessary to move with much prudence so as not to disturb the public holding the premium bonds. The Crédit Foncier, in view of this situation, has increased its sinking fund reserves at the expense of dividends, which declined for some years, and so occasioned a fall in shares without affecting the solidity of the company or its credit. With these exceptions, the bank has worked in a manner that cannot be regarded with unreserved satisfaction.
By the mortgage loan system a great impetus has been given to the building of cities, and the loans to communities have largely encouraged the prodigality of municipalities. As the capital of the whole of France, drained by the premium bonds, has been thrown into the cities and principally into Paris, it has come to pass that the country population has flocked to the towns. There, during the progress of great public works, they have found high wages; but they have remained notwithstanding the loss of employment. The Crédit Foncier has consequently contributed, more than any other responsible agency, to the growth of the city proletariat, which affords the most favorable soil for the seeds of Socialism. This institution, however, has not been able to realize in any large way the hope that it would cause the rural mortgages to vanish. Its scope hardly reaches the agricultural acres at all, and its influence there is almost nothing. For the purposes of loans to cultivators of the soil the Crédit Foncier formerly conducted a distinct branch, the Crédit Agricole, which completely failed to perform what was expected of it. The following balance-sheet contains some instructive particulars on this point:
CRÉDIT FONCIER DE FRANCE.
Situation au 30 Novembre 1895.
THE CRÉDIT AGRICOLE.
In 1856 the crops failed, and the distress in the rural districts engaged the solicitous attention of the Government. All competent authorities concurred in the opinion that one of the chief causes of inadequate agricultural production was the lack of sufficient capital and credit to enable the farmers to procure the requisite equipment and fertilizing material. The projects conceived were numerous, but none solved the problem. The Government, urged by the people to take some definite steps. addressed itself to the Crédit Foncier, and asked that institution to complete its work of establishing a department having for its especial object the furnishing to agriculture of the credit so much needed. Accordingly, the Crédit Foncier, July 28, 1860, organized the Société de Crédit Agricole (Farmers’ Credit Company), with a capital of 20,000,000 francs, which was increased to 40,000,000 on April 22, 1865. The new concern proposed to procure capital and credit for agricultural and kindred industries, and to assume, with the Government’s sanction, all transactions necessary for affording means for clearing and improving the soil, for stimulating and preserving its productiveness, and for generally developing the farming interests. It was authorized to undertake, or to facilitate by its guaranty, the discounting or negotiation of notes; to open credits or allow loans on collateral or other special securities; to receive deposits, with or without interest; to open current accounts; to make collections, and to issue and place securities corresponding to loans and credits granted. The company discounted and guaranteed paper having at least two signatures, one of the signers being entitled to the privilege of discount. Discounted paper could not run longer than ninety days. In the cases of advances and credits, the company was not permitted to issue either bonds or scrip having longer than five years or less than forty-five days to run. No scrip for less than 100 francs could be given out. The business management of the Crédit Agricole was placed in the hands of the governor and under-governors of the Crédit Foncier, but it had a separate administrative council and censors. In spite of all endeavors, the Crédit Agricole did but little for agriculture. The Government, disappointed in its expectations, conducted an exhaustive investigation in 1866, the result of which, so far as the company was concerned, demonstrated that hardly anything had been accomplished. Some practical reforms were hinted at, but, on account of the Franco-Prussian War, they could not be put into execution. As the Crédit Agricole was unable to find employment for its resources in the field originally prescribed, it went into enterprises quite alien to its mission. Noteworthily, from 1873 to 1876 it made advances to the Egyptian Government amounting to 168,000,000 francs. It had procured this enormous sum by opening credits through the Crédit Foncier and handing over to that company the securities received from the Egyptian Government. When Egypt declared her insolvency, the Crédit Agricole, at its own application, in order to escape bankruptcy, went into liquidation. The Crédit Foncier incidentally suffered seriously. In order to recover, it asked the governor and under-governors for a sum of 16,000,000 francs. The 300 francs per share still due on the stock of the Crédit Agricole was called, and 24,000,000 francs was thereby netted. The share-owners of the Crédit Agricole, by paying a complementary assessment of fifty francs per share, received full-paid stock of the Crédit Foncier. Meantime the financial situation of Egypt had improved, and the settlement of loans, far from leaving a loss, showed a profit for the Crédit Foncier. The marked failure of the Crédit Agricole affords a fresh demonstration of the impracticability of experiments for applying to agriculture the methods of credit employed for commerce.
THE CRÉDIT INDUSTRIEL ET COMMERCIAL.
When France, by the commercial treaties of 1860, abandoned the system of Protection and adopted a more liberal trade policy, the need for a financial machinery to correspond to the new circumstances was much felt. The English joint-stock banks, with whose organization and methods the Continent had never been much acquainted, served as a model to those who desired to furnish France with institutions that she lacked. A decree of date May 7, 1859, authorized the creation of a company designated the Société Générale du Crédit Industriel et Commercial (General Industrial and Commercial Company), to be capitalized at 60,000,000 francs, with 120,000 shares at 500 francs each, one-quarter to be paid in. Eighty thousand shares were issued at par, upon the company’s organization, and the balance of 40,000 were sold at 600 francs in June, 1864. The forms of business included in the company’s transactions were: to discount commercial paper in France and foreign countries; to allow advances on warehouse vouchers, and all kinds of obligations with fixed maturity transferable by indorsement; to make advances on pledges or collateral; to open current accounts; to perform for the account of its clients payments and collections; to issue and accept drafts and bills of exchange; to negotiate securities on the Bourse; to receive deposits of securities from individuals; to undertake issues of public loans, stocks, and all other securities; to make conveyances—in brief, to conduct all the operations of banking houses. The company has had a relatively placid existence. It possesses a substantial clientage, which has always remained faithful to it, and for which it does very numerous services. It conducts ten branch offices in Paris. The following statement affords a record of its operations:
COMPANY FOR THE ENCOURAGEMENT OF TRADE AND INDUSTRY.
Like the Industrial and Commercial Credit Company, the Société Générale pour favoriser le développement du Commerce et de l’Industrie en France (General Company for the Encouragement of Commerce and Industry in France) was originated on the plan of the English joint-stock companies. It obtained its authorization by a decree of May 4, 1864, and its incorporation was effected on the same day. Its purposes are to help companies in existence or to be established which seek to promote manufacturing or commercial enterprises or are connected with public works; to dispose of their stock and bonds; to accept on behalf of shareholders commissions to watch and control them; to take shares in such companies up to half their stock capital; to open credits for companies, merchants, and manufacturers; to discount commercial paper on France and abroad; also to discount vouchers of the Treasury, of public departments and municipalities, having at most six months to run; to undertake collections and other cash services for customers; to make advances on securities; to receive voluntary deposits, and to afford accounts current. The company is not permitted to speculate in public securities on time transactions, but is allowed to make advances on speculative continuations (contangos). The stock capital is 120,000,000 francs, in 240,000 shares of a face value of 500 francs, on which 250 francs have been paid in. The operations of the Société Générale are on a vast scale. It has manifested great activity in fulfilling its aims, and has opened numerous branches in France. There are thirty-eight in Paris alone, and 145 in the provinces. An agency also is maintained in London. The offices are run with a strict regard for economy, and by intelligent management the whole system has attracted a splendid business. The history of the company is one of animated enterprise. Large interests have been taken in a great many undertakings, like Paris Guano, Port of Callao, etc.; which have given rise to numerous lawsuits and tied up a considerable part of the capital. In recent years, the company has given its principal attention to ordinary banking business, for which it is perfectly equipped and which it prosecutes with large success.
THE CRÉDIT LYONNAIS.
The Crédit Lyonnais stands to-day at the head of French financial establishments, both for the magnitude of its capital and the volume of its business. It was inaugurated in Lyons as a limited company on July 6, 1863, and changed into a stock company on April 25, 1872. It discounts commercial paper, issues and indorses bills of exchange, makes advances on listed stocks and other collateral, transacts every kind of cash service for customers by means of current accounts, buys and sells securities for clients, takes charge of subscriptions for public funds and other securities, negotiates loans for governments, Departments, and public and commercial establishments, receives securities on free deposit and takes care of them, engages in real-estate transactions, and does a general banking business in France and abroad. Conducted with remarkable tact and a perfect understanding of the needs of its clientage, the Crédit Lyonnais has grown rapidly. It makes a chief specialty of discounts. In order to keep fully informed about conditions in the various countries from which applications for its services may be received, it has a separate department, under the direction of experts, for the collection and analysis of documents, etc., relating to every country and its business affairs. The records and compilations of this branch of the Crédit Lyonnais are not in any general manner available to the public; but all who have ever had access to its archives, embracing the financial history of the whole world for the past twenty years, have found added reason for admiration of its magnificent equipments. There are twenty-six agencies of the Crédit Lyonnais in Paris and the suburbs, one hundred and sixteen in the Departments, and sixteen abroad. The subjoined statistics will set forth the essential facts of its vast business better than any descriptive account.
Stock Company—Capital, 200,000,000 francs.
THE BANK OF PARIS AND THE NETHERLANDS.
The establishments hitherto considered are the principal French banking and financial concerns, and represent well the aspects of modern French banking. It remains for us to glance at an institution which is rather different, but which, by its standard and its connections, has an important place in the affairs of France. We refer to the Banque de Paris et des Pays Bas (Bank of Paris and the Netherlands). It began its existence on January 27, 1872, as a result of the consolidation of the Société de la Banque de Paris (Paris Banking Company) and the Société de Crédit et des Dépôts des Pays Bas (The Netherlands Credit and Deposit Company). Its objects are to perform financial, industrial, and commercial transactions, including real-estate business and public works contracts, in France and abroad, for its own account or for third parties. Its capital, which was originally 125,000,000 francs, divided into 125,000 shares of 1000 francs each, with 500 francs paid up, was reduced to 62,500,000 francs of 125,000 shares at 500 francs each, fully paid. The Bank of Paris and the Netherlands receives no deposits for current accounts, and admits comparatively little paper to discount. It operates with its capital and reserves, and exercises its activities specially for the emission of stocks and securities. Besides the central office in Paris, there are branches in Amsterdam, Brussels, and Geneva, where extensive relations are enjoyed and a very faithful clientele is possessed. Alliances are maintained with the principal French and foreign banks, so that the influence of this house may be said to extend throughout the world. Its statistics are not very comprehensive, for only one balance-sheet is issued each year, and the profit and loss account is not itemized in much detail. Information respecting the development of its business is chiefly to be sought in the accounts of its correspondents and in those relating to its securities. Subjoined are the figures of principal interest, stated in millions and hundred thousands of francs:
Aside from the incorporated banking institutions, France has a great number of private banks. In the large cities the bankers have clienteles made up, in general, of merchants and manufacturers pursuing kindred lines of business. For instance, certain houses discount paper specially for the hardware trade, others for the wine and liquor traffic, others for grocers. By this system the banks are able to keep well informed about their customers. The transactions of the private banks are usually very simple, embracing discounts, credits, current accounts (generally entitled to interest), transfers, and collections, advances on securities, and finally Bourse operations.
THE BOURSE, CLEARING-HOUSE, AND FINANCIAL OPERATIONS AT LARGE.
STOCK Exchange bankers, or rather coulissiers (stock-jobbers), are intermediaries whose functions are to execute time or cash orders on securities which are not handled by licensed brokers. The latter are styled agents de change (exchange agents), and their guild enjoys the monopoly of negotiating “parquet” securities—i. e., those listed and dealt in on the floor of the Bourse. The Bourse bankers do not, however, content themselves with transactions in stocks non-listed in the official bulletins of the Bourse brokers, but frequently encroach upon the prerogatives of the latter; whereby numerous difficulties arise between the brokers and the jobbers. Several plans have been under discussion for doing away with the exchange brokers’ monopoly and substituting a free body of brokers in securities.
CLEARING-HOUSE OF PARIS.
In conclusion of our survey of the financial machinery of France, some words require to be said about an organization that has held forth great hopes, which have hardly been realized, the Chambre de Compensation des Banquiers de Paris (Clearing-House of the Paris Banks). It was created in 1872, as an exact counterpart of the Clearing-House of London. As the English regulations were reproduced without alteration, it is unnecessary to make any explanations. The Bank of France has lent its most cordial support to the Clearing-House, but unfortunately the French public makes but a limited use of cheques, and the clearings reach only a comparatively insignificant total. Practically, clearings are done through the Bank of France, and consist of transfers on the part of account-holders. The following are the statistics of Clearing-House transactions from the beginning, expressed in millions and hundred thousands of francs:
In illustration of the above statement that cheques are but little employed in France, the figures below are interesting. They are taken from an exhibit compiled by the Ministry of Finance, which, regrettably, stops with 1891:
CHANGES IN BANKING METHODS—COMPETITION FOR PAPER.
The French credit and deposit institutions have adopted, in their business, methods resembling those that are in successful operation in the great Parisian stores, like the Louvre and Bon Marché. Trade is attracted by performing cheaply and even gratuitously all kinds of cash and transfer services, and charging light fees only when occasion requires. The active rivalry that characterizes their operations has been advantageous to the public in a certain measure, but it has had the serious consequence of so reducing the rate of interest that there is no longer any elasticity, while margins for profits have disappeared and losses have become hard to support. The ruin of the Comptoir d’Escompte, soon followed by the fall of the Société des Dépôts et Comptes Courants—both of which disasters were largely brought about by the stagnant condition of deposits on demand or short terms—made a profound impression on the minds of managers of credit institutions. They resolved to confine their investments of deposits first to commercial paper which, in case of necessity, could be rediscounted at the Bank of France, and second to advances and to margins which had to be settled within fifteen days, or a month at farthest. Therefore examination of the balance-sheets of the credit companies easily shows that liabilities due are covered by ready assets, and that, from this point of view, the situation is entirely free from menace. But in order to arrive at such security, the financial concerns are constantly prosecuting what has been picturesquely styled a “discount chase.” Everybody likely to have commercial paper for disposal is canvassed by the brokers, who place it not only with the banks but with railway and insurance companies, which always have on hand a goodly supply of bank bills with a view to earning income for their surplus cash. The quantity of discountable paper annually made in France can be calculated with ease. The stamp duties from commercial paper indicate the gross apparent amount on which the tax is assessed. The tax is 5 centimes per 100 francs, or 1/2000 part of the total. But as 5 centimes is the minimum tax, each fraction of 100 francs being counted as a full 100 francs, the figure obtained from this percentage would be too large. An investigation based on the books of the Bank of France demonstrates that ten per cent. should be deducted. The following table gives the aggregate yearly valuation of commercial paper:
The volume of discountable paper has sensibly decreased in recent years. At present, assuming that the making of notes is a constant matter and that the average time to run is forty-five days, the amount outstanding at a given time may be reckoned at about 2,500,000,000 francs. But not all this paper is admissible to discount; and deducting in the ratio of refusals at well-conducted banks, it may be considered that two billions is an approximately correct estimate. Of this two billions of discountable paper, the Bank of France carried during 1894, according to the statement of December 31st, 497,700,000 francs; the Comptoir National d’Escompte 172,000,000 francs; the Crédit Industriel et Commercial, 63,000,000 francs; the Société Générale, 141,300,000 francs, and the Crédit Lyonnais, 585,400,000 francs—showing a total for the five institutions of 1,459,400,000 francs. There remains at most only six hundred millions to divide among other banks and bankers and the railway and insurance companies—not taking into consideration that a good many merchants and manufacturers retain their own commercial paper. The Bank of France receives, generally, more than a third, but less than one-half of the notes drawn, and probably fully half of the really discountable paper; but much of this reaches the Bank only at maturity, so that the profits derived from this source do not always compensate for the cost of handling and collection.
In view of the diminution of the mass of commercial paper and the continual fall in the rate of exchange, the banks will, in all probability, be compelled soon to look for profits in other directions. Up to the present they have dispensed genuine credit almost entirely—credit on the strength of substantial property—and have rarely granted personal credit. But the innovation of personal credit, if practised according to the methods in use in the banks of Scotland, by the process of “cash credit” (as the English term runs) would offer no more serious risks than the discounting of paper. Such a system would admit of solving a problem hitherto considered unsolvable—the problem of credit for farmers and artisans.
AGRICULTURAL AND POPULAR LOANS.
This problem has always been regarded as a rather whimsical one in France. Most of those interesting themselves in it have been guided more by philanthropic and charitable sentiments than by matter-of-fact and economic ideas. The signal failure of the Société de Crédit Agricole, which has already been considered, proved that a great institution cannot make loans to agriculture the fundamental basis of its operations. In reality, there can no more be a special agricultural credit than a special maritime credit or mercantile credit. The one thing in existence is credit, without any specialization—meaning the confidence manifested in the borrower by the lender. The law, under the guise protecting the farmer, has occasioned for him all kinds of drawbacks. It sets aside all his assets as a guaranty for the landlord’s rent for a period of three years (including the running year). It declares that the farmer who buys in order to resell is not a merchant and cannot be pronounced a bankrupt; and it allows him the privilege of declining to be tried before the Tribunals of Commerce, so that his creditors are reduced to the necessity of suing him in interminable and ruinous civil proceedings. The consequence is that, in France, with few exceptions, farmers find it well-nigh impossible to obtain credit. Those who consent to loan to the farmer, taking the perilous risks involved, make him pay a large bonus. Thus, while credit is easily procurable for the merchant, it is ruinous for the farmer. One of the chief grievances of the French rural population is the usury which is the natural product of the murderous so-called protection inflicted by law on agriculture.
Nevertheless, in certain special cases the Bank of France has been able to place its services at the disposal of agriculture. M. Giraud, director of the Nevers branch, originated a novel plan. In the Nièvre the cattle-growers buy lean cattle in the spring, fatten them on their grazing lands, and at the end of nine months sell them to the butchers. M. Giraud concluded that, if the Bank of France should lend these individuals money for the purchase of lean cattle, it would certainly be paid back at the end of the fattening season. In order to make the required advances conform to the regulations of the Bank, the cattle-men were to execute notes with three signatures, which the Bank would discount, allowing two renewals, so that after nine months the advances would be regularly wiped out. The Bank, applying in this instance its rule to accept directly only paper with three first-class signatures, required a banker’s surety in case the signer and first indorser were not persons of strong standing. At the same time, it demanded the production of rent receipts, so as to avoid the danger of being forestalled by the landlord’s lien. Thanks to the co-operation of the Bank of France, the cattle industry has been developed materially. It has been taken hold of successfully in many Departments; and one of the poorest, the Department of Lozère, has experienced a very considerable growth of wealth and prosperity as the fruits of a branch of the Bank of France introduced there on the plan inaugurated by M. Giraud in the Nièvre.
But this contribution by the Bank of France to a solution of the problem of agricultural credit was merely to meet the circumstances of a most exceptional case. Projects for discounts of farmers’ paper in general, for loans on growing crops, etc., are still unmatured.
Many people whose views merit consideration have proposed the introduction in France of Schulze-Delitsch banks and Raiffeisen institutions. The latter, which do not require the organization of actual capital, have generally been regarded with preference, and to-day there are a number of Raiffeisen establishments operating in France, although no details as to the amount of business done by them are accessible. They have, as a rule, been instituted by agricultural syndicates (co-operative societies) in conformity with a law of November 5, 1894—which statute, by the way, is perfectly superfluous. That law authorizes all or part of the members of an agricultural syndicate to form an agricultural credit association, having for its exclusive object to facilitate and extend the agricultural business undertaken by the syndicate or those belonging to it. The associations may receive deposits on current account, with or without interest, and they may assume the duty of making collections and payments for the syndicate and its members so far as agricultural matters are concerned. They are permitted to contract necessary loans to establish or increase capital. The capital cannot take the form of shares, but only of such subscriptions as the associated persons choose to make, which subscriptions may be of unequal amount, must be registered, and are transferable only among the members and with their joint consent. The profits that the association is to make on its transactions are stipulated by the regulations; and, after deducting for general expenses and for interest due on loans contracted, at least three-fourths of them is to be applied toward the creation of a reserve fund, which must amount to at least half the capital. The surplus is to be divided pro rata among the members of the syndicate, according to the business done by them. There are no dividends to parcel out. In the event of dissolution, the reserve fund and the excess of assets over liabilities go to the members pro rata according to their subscriptions. The credit associations so established are commercial bodies, but must keep accounts in conformity with the provisions of the Commercial Code. They are exempt from license fees and from the tax on personal property. The individuals intrusted with the administration are personally responsible for violations of the regulations and for breaches of the law. It may be doubted whether the associations started under the act are to be taken very seriously. The French people, with their spirit of equality, find it rather galling to be bossed and to have their affairs discussed by men with whom they are in daily contact. It appears to the Author that the Scotch “cash credit” system, under the auspices of important credit associations, would work much more efficaciously for the interests of both agricultural and popular credit.
POPULAR CREDIT INSTITUTIONS.
“Popular credit” is a term at present no better adapted for favorable acceptation than “agricultural credit.” A pioneer “People’s Credit Association,” founded during the Second Empire by men of consequence, was an absolute failure. A society christened “The Prince Imperial,” for which collections were made, exerted only an insignificant influence. In the early years of the Third Republic, a Caisse Centrale de Crédit Populaire (People’s Central Credit Institution) was attempted by one of the great credit associations, with the patronage of the chief men of the Republican party—Gambetta, Paul Pert, and others; but it had only an ephemeral life and rendered no services. Finally, a so-styled “People’s Credit Society,” started by a venerable friar, Father Ludovic de Besse, recently went into liquidation after suffering heavy losses. Several small mutual loan associations exist, but credit for artisans seems even more remote—if that is possible—than credit for farmers. In France everything still remains to be done along such lines.
[* ] Comparing this amount with the 93,000,000 francs mentioned in the foregoing paragraph, it is to be inferred that the 93 millions includes paper rediscounted, while the 98 millions is exclusive of rediscounted bills.—Editor.
[* ] Most of the foregoing data have been taken from a pamphlet published by the Comptoir National d’Escompte.