Front Page Titles (by Subject) CHAPTER VII.: BANKING IN THE FRENCH COLONIES. - A History of Banking in all the Leading Nations, vol. 3 (France, Italy, Spain, Portugal, Canada)
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CHAPTER VII.: BANKING IN THE FRENCH COLONIES. - 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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BANKING IN THE FRENCH COLONIES.
THE BANK OF ALGERIA.
FIFTEEN years after the conquest of Algeria, the need of a bank became felt in that colony. Application was made to the Bank of France. The management deemed it indispensable to interest Algeria in the French institution, but disapproved the idea of a branch pure and simple. By the plan which was accordingly formulated, the Algerian establishment was to be separate, and to have an independent capital of ten millions—two millions to be furnished by the Bank of France and eight millions to be raised by issuing 8000 shares of 1000 francs each. The bank was to have exclusive privilege to put forth notes to bearer payable at sight, under the immediate supervision of the Bank of France, and its operations were to constitute a distinct system of accounts. The Bank of France, however, made haste slowly in the practical work of organizing the Algiers institution. This was due to decided misgivings. The Government, taking cognizance of the reluctance thus displayed, resolved to create a wholly independent bank, to be named the Banque d’Algérie (Bank of Algeria). The law for its foundation was enacted August 4, 1851, and specified a capital of 3,000,000 francs, divided into 6000 shares of 500 francs each. The charter was for twenty years, to expire April 4, 1871. The same measure authorized the Bank to issue notes of 1000, 500, 100, and 50 francs, with the proviso that the note circulation should not be more than three times the amount of coin on hand. The original regulations have been variously modified. A decree of March 30, 1861, increased the capital to 10,000,000 francs, adding 14,000 new shares. The question of renewal of charter came up in 1867. The law of January 15, 1868, extended the duration of the Bank to November 1, 1881, without change of capital.
During the Franco-Prussian War several legislative dispositions were made affecting the circulation of the Bank of Algeria. A statute enacted August 12, 1870, decreed a forced currency for the notes, limiting their amount to 18,000,000 francs. By the law of March 26, 1878, this limit was advanced to 48,000,000 francs, and the use of notes of twenty and five franc denomination was authorized. In 1876, the Bank applied for a further extension of its concession and for the privileges of doubling its capital and making advances on securities. The question of renewing the concession brought up another—whether it would not be expedient to merge the Bank of Algeria into the Bank of France. This was determined in the negative, for the opinion prevailed that such a fusion would add undesirably to the actual and moral responsibilities of the Bank of France, since it would be difficult for the latter to keep the proceedings of the Algerian bank and its twenty-four branches under effective surveillance; and since, on the other hand, the Algerian population would not readily accommodate itself to the rules and practices of the Bank of France. One of the objections urged on the latter score was that the Bank of Algeria had been accustomed to discount paper bearing only two signatures, whereas the Bank of France required three signatures. These considerations dispelled for the time being the whole consolidation idea. But in order that there might be opportunity for full liberty of action in the future, it was deemed wise to fix the same date (December 31, 1897) for the expiration of the two concessions. A law adopted April 3, 1880, again doubled the capital stock, bringing it up from ten to twenty millions. It now consists of 40,000 shares of 500 francs each.
As a result of the successive increases in the value of shares, the surplus was swelled to 11,000,000 francs, of which 1,000,000 was taken to reimburse the State for its loan to the Bank at the outset. The remaining 10,000,000 was applied to the reserve fund.
The notes of the Bank of Algeria are legal tender. The maximum of issue is 75,000,000 francs. The Bank discounts bills of exchange and similar paper to order, including Treasury and other public drafts and warehouse receipts;* makes advances on public securities and Algerian railway bonds upon the same terms as the Bank of France; receives on current account, without interest, sums deposited by individuals, and does cash services for depositors; carries on current account, at interest, funds of large financial institutions and others which are intended for Algerian public works; allowing open credit for such funds in consideration of orders on France; sustains relations with the Bank of France for transactions of collection and discount; takes on free deposit securities, money, and gold and silver bullion, and issues drafts or orders against payments of specie or bank notes at ten days’ sight or fifteen or more days from date. The shareholders are represented by a General Assembly, comprised of owners of at least ten shares. Every shareholder has a vote for each ten shares, with the proviso that no one shall have more than five votes. The General Assembly nominates the administrators to the number of nine, and three censors. The Disbursing Treasurer-General of Algeria is delegated by the Minister of Finance to serve as Government Commissioner in the Administrative Council. The administrators and censors hold office for three years, and perform duty successively in groups of three. They are re-electible. The director of the Bank is named by the Chief of the State on the recommendation of the Minister of Finance, and the assistant-director is appointed by the Minister of Finance.
The administration is complicated. Algeria is a country which exports raw material and imports manufactures. Most of the time the balance of trade is against her, and she has to pay more than she receives. In addition, considerable debts have been contracted to Paris for the building of railways, and exchange is generally unfavorable to Algeria. To supply remittances on France the Treasury sells to the merchants African Treasury orders, and pays its receipts for their account into the Bank of Algeria, which allows interest. This mode of exchange is costly, and the expense is enlarged by the advance account current which the Bank of Algeria carries at the Bank of France in order to maintain a fund for drawing direct on the metropolis. Besides the main office in Algiers, the Bank has branches at Bona, Constantine, Oran, Philippeville and Tlemcen, which promote usefully the commerce and agriculture of the colony. It has tried the experiment of numerous agricultural loans, not all of which have had lucky results. By its co-operation Algerian viticulture has risen to its present importance; but loans allowed somewhat broadly have ultimately had oppressive consequences for the farmers, who have been unable to repay the Bank at the day of reckoning. Thus to-day the Bank owns an enormous acreage, greatly to its embarrassment. The present market price of shares indicates that, granting that the Bank is not seriously crippled and that its capital remains whole, it nevertheless has in a measure lost public confidence.
The Bank of Algeria publishes an annual statement of its transactions. These statements are rather incomplete, and it is vain to search in them for details such as are given by the Bank of France. It issues a monthly balance-sheet, of which the following is a reproduction:
To sum up: The Bank of Algeria has pursued a very liberal policy in its loans, and has contributed energetically to the development of the great French colony; but the methods it has employed are not above criticism. The vast landed property that it owns has absorbed part of its reserves, but, on the other hand, is well administered, and adequately corresponds in value to the figures reported in its statements. Yet the experience of all times, especially illustrated by the recent crisis in Australia, demonstrates the danger of investments in land. Although the condition of the Bank of Algeria excites no alarm, it is infinitely less satisfactory than it would have been if the Bank had kept clear of farm loans, which offer bad security in comparison with obligations on demand, like the bank note. The function of lender on long terms is, indeed, not properly within the sphere of the bank, but belongs rather to establishments that make a special business of engagements at stated maturity. The Bank of Algeria does not stand alone in this matter, however, for some of the French colonial banks have suffered from similar mistakes.
OTHER COLONIAL BANKS.
AT the time of the abolition of slavery in the French colonies, an income of 6,000,000 francs was provided for the slaveowners. To make their position less painful, a plan was also devised to procure for them advantages of credit which had not existed up to that time. With that object in view, Article 7 of the same act stipulated that one-eighth part of the indemnity for Guadeloupe, Martinique, and Réunion should be applied to establish a loan and discount bank in each of those colonies. The income bonds so set apart were to be deposited in the bank as collateral for the bank notes which it was authorized to issue. Each colonist entitled to indemnity, excepting those whose claims were under 1000 francs, had a right to receive shares of the bank equivalent to the damage suffered. It was not within the original purview to have private capital participate in the organization of the banks in the three colonies. Shortly after the creation of the Banks of Guadeloupe, Martinique, and Réunion, like establishments were founded in Guiana and Senegal. Later, banks were set up in Indo-China and New Caledonia. The Bank of New Caledonia had only a brief career, failing after a few years.
The capitals of the colonial banks at present are as follows, all paid up except that of the Bank of Indo-China:
The capital in each case can be increased or decreased only by shareholders’ assessments approved by the Governor of the colony and sanctioned by decree. The colonial banks have the sole right to issue bank notes in their respective colonies. The duration of the various privileges, excepting that of the Bank of Indo-China, fixed at twenty years, was provisionally extended upon expiration, and then renewed until 1894. Provisional re-extensions were made for 1895 and 1896. The Bank of Indo-China, which was established later than the others, has not yet completed the term of its concession. The colonial banks are conducted as joint-stock companies. Their shares are 500 francs, par value. The shareholders are represented by 100 principal owners of shares that have been registered at least six months on the books. Each member of the Assembly has but one vote. The Assembly considers and, when desirable, approves the statement of transactions for the year, and elects the administrators and censors. The treasurer of the colony is ex-officio one of the administrators. The administrators (trustees) selected by the bank are three in number, and serve for three years, one retiring each year, although re-election is allowed. The censor acts for two years, and likewise may be re-elected. The Assembly nominates an assistant-censor, who may take the place of his chief when the latter is absent or unable to perform his duties. The Minister of the Colonies also appoints a censor.
The Administrative Council deliberates and votes on all questions affecting the bank. The censors keep all departments of the institution under surveillance, and also see that the laws and regulations are executed. The director is appointed by the President of the Republic from a list of three candidates presented by the Banking Inspection Commission for the Colonies upon the recommendation of the Ministers of the Colonies and the Finances. The director acts as president of the Administrative Council, and is responsible for the enforcement of its resolves. No resolve is valid unless signed by the director. No discount or advance transaction can take place without his approval. He directs the offices, appoints the employees, and receipts for and indorses documents. He is not permitted to pursue any private business, and must possess as security twenty shares of the bank. In the event of absence or incapacity his place is filled by a director ad interim appointed by the Privy Council of the colony.
By a decree of November 17, 1852, it was determined, as an indispensably necessary measure for properly controlling the colonial banks so far as their European business was concerned, to create in Paris a “Central Agency of Colonial Banks.” The central agent is selected by the Minister of the Colonies. He represents all these banks in their transactions with Paris, attending to the taking up of notes and to purchases for the banks. He also has charge of the transfer of shares in France, and is the legal representative of the establishments in court proceedings before the tribunals of Paris. The expenses of the agency are borne by the banks pro rata according to their capital. The Minister of the Colonies designates some credit house (at present the Comptoir d’Escompte) to carry current accounts for the colonial banks. The amount of collections of the commercial paper on Europe of the colonial banks is credited to them; also the amount of such paper as has to be negotiated in Europe; the amount of back interest on consols belonging to them or intrusted to them, and all other sums which may be received for their account. On the debit side are charged drafts or orders issued in favor of third parties by the banks on the Paris credit house and paid by them, the dividends of their shares, and all expenses on their account. All collections and payments are subject to the approval of the central agent. The colonial banks, further, are kept under inspection by a commission in connection with the Ministry of the Colonies, composed of nine members—a State Councillor chosen by the Council of State, four persons appointed by the Minister of the Colonies, who must reside in Paris and of whom at least two must be shareholders, two persons named by the Minister of Finance, and two selected by the General Council of the Bank of France. The commission elects its president. All documents sent to the Ministry appertaining to the colonial banks are communicated to it. Its advice is asked concerning all acts of the Government that affect them. It recommends such measures of examination and control as seem expedient. Annually it reports to the Parliament and the President of the Republic upon the results of its administration. These reports are published in the “Journal Officiel,” and in at least one newspaper of each colony.
The agency of the colonial banks is from time to time brought under examination by the Inspectors of Finance, who inspect all the current accounts of the banks, report upon the manner in which the central agent fulfills his duties, and recommend any changes of method that may be called for. The transactions of the colonial banks comprehend discounts of notes to order and home commercial paper provided with the signatures of two solvent persons; negotiations, discounts, and the sale of drafts or orders on the metropolis or abroad; and advances on negotiable securities or on non-negotiable engagements secured variously by warehouse receipts for goods in storage, growing crops, bills of lading, transfers of bonds, or shares of the bank, and deposits of bullion, moneys, or gold and silver of every kind. The most remarkable transactions of the colonial banks—or, at least, some of them—are those on growing crops, which seem to constitute, indeed, the chief purpose of their existence. Any proprietor, farmer, or lessee of a farm, or planter, who wishes to borrow on his growing crop gives notice in writing a month ahead. This notice is entered in the book kept for that purpose by the Registrar. Everyone who is not actual owner of the soil must exhibit the consent of the proprietor, which is inscribed in the register at the same time that the declaration relating to the loan is made. Any creditor holding a mortgage on the buildings or a claim on the crop, or upon the proprietor, may remonstrate against the granting of the loan. The remonstrance is filed with the Registrar, who notes it on the margin of the application. The Registrar is obliged to furnish abstracts of such records to all asking for them. At the end of a month after the would-be borrower’s declaration, the loan may be made by the bank. By virtue of procedure which the bank takes in the same connection, it acquires a lien on the crop and is considered the owner thereof. Its lien takes precedence over the rights of all who have not entered protest. If the debtor neglects to gather his crop in sufficient time, or omits to do anything needful in the premises, the bank, after summoning him, and by a simple order from a justice of the peace, can be authorized to harvest and care for the crop in the stead of such negligent debtor, the bank advancing the required sums for expenses, which it receives back, together with the principal of the capital, out of the crop and its money product.
STATISTICS OF THE COLONIAL BANKS.*
(In Millions and Thousands of Francs).
The Banks of Senegal and Guiana make no loans on crops, as those colonies are not agricultural. These very important transactions in Martinique, Guadeloupe, and Réunion have become dangerous because of the fall in sugar. The Bank of Réunion, particularly, is in a most precarious position, owing to the large loans that have not been repaid.
The advances on goods in storage are of importance only in the Banks of Réunion and Indo-China.
We reproduce below, as a sample, the balance-sheet of the Bank of Martinique for June 30, 1894, as published by the Inspection Commission of the Colonial Banks. The various items of assets and liabilities are self-explanatory, and call for no remarks. All balance-sheets of the colonial banks are made up on the same form, and we deem it proper to call attention to the good arrangement of this statement, which might well serve as a model for banking summaries.
BANKING IN ITALY.
[* ] Paper admitted to discount must have the signatures of two persons known as solvent, of whom at least one must be a resident of Algeria. Paper must not be of longer maturity than 100 days. One of the signatures asked for may be supplied by the remittance of a bill of lading for merchandise shipped to Algeria, or by a public warehouse receipt. In such cases the paper cannot have more than 60 days to run.
[* ] The business year of the colonial banks runs from July 1st to June 30th, only the Bank of Indo-China’s business year runs from January 1st to December 31st. The figures given for this bank refer to the year 1881 and forward.