The Online Library of Liberty

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• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

PART VII.

NATIONAL BANK OF ROUMANIA.

A BRIEF EXPERIMENT WITH STATE NOTES,

THEN A NATIONAL BANK, WITH MONOPOLY OF ISSUING

UP to 1877, Roumania had no paper money. In that year, however, the Government issued non-compulsory notes of 5, 10, 20, 50, 100, and 500 lei, which were guaranteed upon the State’s domains; a late copy of the ideal of France’s assignats of the last century.

The Roumanian Parliament did not regard this issue favorably, and it invited the Government to consent to the establishment of a national bank which should effect the withdrawal of the State issue. The legislative corps voted upon this proposal on March 27 and 31, 1880, and a law was promulgated on April 11th, which embodied the following provisions:

THE BANK OF ROUMANIA.

A bank of discount and of issue shall be established under the corporate name of the National Bank of Roumania, which shall have the exclusive right to issue bank notes to bearer. The Bank’s privilege shall run from July 1, 1880, for twenty years. The Bank shall be located at Bucharest, and branches shall be established wherever they may be needed. The capital shall be 30,000,000 lei* ($6,000,000); the State furnishing 10,000,000 lei, and 20,000,000 lei being provided by stockholders. So soon as the Bank is in operation, 12,000,000 lei shall be assigned toward the working fund out of the Bank’s capital; and the balance of 18,000,000 lei shall be assigned, in two equal shares of 9,000,000 lei, for gradual investment as the business of the institution may increase. The capital shall consist of 60,000 shares, 24,000 shares of which must be subscribed for to effect the establishment of the Bank.

Within four years at most, the Bank must withdraw from circulation the notes issued by virtue of the law of June 12, 1877, secured by the Government domains; and the Bank’s proper issue shall take the place of said State notes. The by-laws of the Bank were prescribed by the Government, and the Prince of Roumania confirmed them by decree of March 22, 1880.

ORGANIZATION OF THE BANK OF ROUMANIA.

The State’s capital in the Bank carries full stockholders’ rights for the shares in its possession.

The Bank is conducted by a governor, six directors, composing the Council of Administration, and seven censors, who act as supervisors. The Council of Administration, in combination with the Censors’ Council, form the General Council. The governor is appointed for five years. During his term of office, he cannot be a member of the Legislature, nor hold any public office; he must own forty shares of the Bank’s stock. He draws a salary of 24,000 lei, which the Bank pays. He acts as president of the Council of Administration and of the General Assembly, and is the executive officer of these bodies. He presents the reports of the Council of Administration to the General Assembly. He appoints the managers of the various departments and directs all matters pertaining to the by-laws and regulations. He also represents the Bank in law, signs all documents, and has the right to suspend decisions of the Council of Administration in order to obtain a final determination by the General Council.

The General Assembly of the Bank is composed of stockholders owning at least four shares. The Assembly, which represents the whole body of shareholders, meets in ordinary session on the third Sunday of February, and in extraordinary assembly whenever called by the Council of Administration. It decides upon business submitted to it by the Council of Administration and the Censors’ Council and acts upon motions proposed and signed by at least twenty members; such motions must be brought in through the channel of the Council of Administration ten days previous to its meeting. The General Assembly also supervises the business management and accounts of the year and resolves upon the distribution of earnings. It is invested with the right to elect a part of the directors and censors, and can also discharge or revoke its appointees.

Directors must own twenty shares; censors ten. Out of six directors, the General Assembly appoints four for a term of four years; two are nominated by the Government for two years. All of them may be reappointed. Each director receives 12,000 lei per year. The vice-governor is selected by decree from the directors. The censors, to the number of four, are selected by the General Assembly; the Government appoints three; the appointees of the General Assembly serve for four years, and the Government’s censors have a term of three years; both can be re-elected. They receive a gratuity for every meeting at which they attend, and are entitled to a share of the profits.

The Council of Administration is concerned in all business matters, except those provided for in the law, decrees, and regulations. In concurrence with the censors, it fixes the rates of discount and the percentages for loans; it decides upon the amounts to be devoted to the purchase of Government bonds and public funds. It also establishes the budget of running expenses. This Council also appoints and discharges the staff of the Bank; it institutes legal proceedings and reports on all matters of business and management to the General Assembly.

The Discount Council is appointed by the General Council; it consists of six members, who serve for the term of a year. They receive fees for each meeting they attend. This body decides upon the commercial paper offered for discount and sees that the laws and by-laws bearing upon such transactions are observed.

The Government has supreme control of the Bank’s transactions and has the right of veto in all matters which are contrary to the laws and statutes as far as the interest of the State is concerned. The State’s surveillance is in the hands of an officer who holds the title of Government Commissioner. Besides his permanent supervisory function, he can provisionally suspend the execution of decisions relating to discount and issue of bank notes if in his opinion the resolutions of the Council of Administration are contrary to the laws and statutes or to the interests of the State. In such cases, he reports to the Government, whose decision is final.

BUSINESS REGULATIONS OF THE BANK.

Aside from the issue of paper money, of which we shall speak later, the Bank discounts and buys bills of exchange, drafts, and other commercial paper; invests, as far as twenty per cent. of the paid-up capital, in Treasury certificates and loans on storage warehouse warrants.

Discounted paper must not have more than 100 days to run and bear three signatures of recognized solvency; warehouse warrants need only one signature. Exceptionally, upon terms fixed by the General Council and approved by the Minister of Finance, paper with only two signatures is admitted to discount. Merchandise collateral can at any time supplant the necessity of a third signature. Treasury certificates are subject to the same terms of discount as are current for commercial paper.

Roumania has the gold standard, and as her paper money has free and not forced currency, she can only protect her metallic reserve by means of the rate of discount, a rather high one in general, as the following table will show:

The Bank loans on bonds of the State of Roumania, on Treasury certificates, and on other securities under State guaranty. Such loans are only granted to assuredly solvent people for a maximum of four-fifths of the value of the collateral. Loans are granted for four months, and can only be renewed once. Advances are made strictly on collateral; or the borrower may gradually draw against open account established on the security of the pledge. The rate on such loans is, as a rule, one per cent. higher than the current rate of discount.

The Bank opens current accounts, and nothing in its regulations prevents the allowing of interest on deposits; but, hitherto, this point has not been taken advantage of. Depositors can draw on their accounts by cheques or transfer orders. Unfortunately, the Bank embodies in its accounts the movement of the current accounts in the figures given under the head of total cash transactions; we have, therefore, no data on the subject. Following are the balances of current accounts on December 31st:

The total cash movement, i. e., amounts paid in and withdrawn in specie and paper, was as follows from 1881 to 1894:

The Bank takes in for safe deposit securities, precious metals, and gold and silver coin, of which the following statistics are illustrative:

ADMINISTRATION AND CIRCULATION OF COIN AND PAPER.

The National Bank of Roumania has the exclusive right to issue paper money payable to bearer on demand. The total paper circulation must be represented by securities and other values which can be easily turned into cash; and the Bank must keep a metallic reserve amounting at least to onethird of the paper outstanding. The notes of the Bank are received in payments at all State offices and public establishments connected with the State; they are redeemable in gold or silver coin of the realm over the Bank’s counters at Bucharest and at its provincial branches. In cases of emergency, five days’ grace is allowed at the branches, so as to enable them to obtain funds from Bucharest. It may be proper to call attention to the fact that the Roumanian monetary system is based upon the French, except that it is on the exclusively gold standard, which the law of October 15-27, 1890, established. The bourse and wholesale business is transacted entirely in gold; but five-lei silver pieces are so abundant that they have found a place in commercial dealings, and are virtually accepted freely up to fifty lei. The metallic reserve of the Bank comprises gold, silver, and foreign drafts payable in gold.

EMBARRASSMENT CAUSED BY THE STATE’S NOTES.

The charter of the Bank provided for the redemption of the notes secured on State domains; the Bank had to replace them by its own paper money, and consequently this old Government scrip figured in the Bank’s accounts as so much cash on hand. This Treasury paper amounted to 26,260,000 lei, and was to be withdrawn from circulation by 1884. On December 10, 1885, an agreement was entered into between the Bank and State by which the debt of the latter should be paid off in installments, the last to fall due in June, 1892. This measure had the inconvenience of hypothecating a share of the Bank’s circulation for the redemption of State paper money which could not be realized upon and would only be redeemed by the State after a long lapse of time. Consequently the Bank’s issue suffered severely. At one time, the premium on gold reached twenty-two per cent. The Government came to the relief of the Bank by redeeming the 26,000,000 lei of its own notes in the Bank’s hands in gold in 1888. This action improved exchange, which now deviates but little from par.

The authorized denominations of bank notes are of 20, 100, and 1000 lei. Intermediate denominations of 50 or 500 lei may be issued. Like the Imperial Bank of Germany, the Bank of Roumania redeems damaged bank notes in half their original value, if a fragment larger than one-half is presented; as a fact, half bank notes are not uncommon in Roumanian circulation.

On December 31, 1894, the bank note issue was composed of the following denominations:

This shows that the 100-lei note is predominant.

RELATIONS OF THE BANK WITH THE STATE.

We stated in the analysis of the by-laws that the State exercises a broad control over the Bank. It originally supplied one-third of the capital; appoints the governor, two directors, and three censors, and is permanently represented by a Government Commissioner. Nevertheless, the Government has been wise enough to abstain from abusing its powers. The balance-sheet shows an entire absence of Government loans. The Bank is simply held to perform the Treasury service free of charge. The State, however, receives the product of discount on loan rates above seven per cent. Besides the share of earnings to which it is entitled in its quality as stockholder, the Government receives twenty per cent. of the net profits, after deduction of twenty per cent. set aside for the reserve fund and six per cent. interest on the shares. The following statement shows the share of the Government in the net earnings of the Bank:

CAPITAL, RESERVES, AND EARNINGS.

As previously mentioned, the capital of the Bank of Roumania is 30,000,000 lei, of which 12,000,000 lei have been subscribed. Out of this paid-up capital, 8,000,000 lei has been furnished by private subscribers and 4,000,000 by the State. The balance of 36,000 shares, remaining in the hands of the Bank, will be issued, if necessary, in two lots of 18,000 shares each. Each share so far issued represents 1/24000 title to the capital stock.

Out of the profits, the Bank makes up first a reserve fund to set off losses on the capital; this fund serves also to complete a five per cent. dividend, if the year’s earnings are insufficient for that purpose. Twenty per cent. is used for the reserve out of the balance remaining after a distribution of a six per cent. dividend to the stockholders. The reserve fund has accumulated as follows:

The reserve fund grows, moreover, by the accumulation of interest on Government securities in which it is invested. As Roumanian bonds bring high interest, the reserve increases rapidly, and the time is not distant when it will be on a level with the paid-in capital. The reserve may even be virtually worth more than the figure at which it stands in the balance-sheet, as Roumanian funds have risen in market value since 1881. The accumulation of the reserve fund, to which neither regulations nor laws assign a fixed limitation, begins to attract the attention of the stockholders. On February 16-28, 1892, a demand was made by twenty-seven shareholders that the income of the reserve fund should be distributed as dividends. This proposition was rejected; but it will certainly crop out again and will finally be accepted, as the Bank can scarcely continue to accumulate indefinitely an unproductive capital. The by-laws provide that, after the payment of six per cent. interest on the stock and setting aside of twenty per cent. for the reserve fund, twenty per cent. of the remainder shall go to the State, while four per cent. is allotted to the Council of Administration, three per cent. to the censors, one per cent. to the provident aid fund of the employees, and the large remainder is distributed as dividend among the shareholders.

The shares are now usually quoted at about 1500 francs, the par value being 500 lei.

THE BALANCE-SHEET.

The National Bank of Roumania publishes a yearly statement of its transactions, which contains ample information and recapitulatory statistics. There is, though, in this return, a certain dryness of detail, and many items which might show to advantage if given separately are grouped under one head. It may be here suggested that a great public advantage might be gained if the large European banks of issue should come to an agreement with a view to issuing some uniform method of statement which would admit of easy comparison; and possibly the clear and complete statement of the Imperial Bank of Germany would afford the best model for such a form of exhibit.

Besides its yearly statement, the Bank of Roumania publishes weekly a condensed balance-sheet, in which the status of the principal accounts is given. We copy below, as an example, a statement of October 28, 1895. The various items are sufficiently explicit and call for no special observations.

CONCLUSION.

Although the National Bank of Roumania is the credit establishment of a country less rich and economically advanced than other Latin nations, it is a remarkably well managed institution. Its business is conducted sensibly and sagaciously. The various departments have been organized by agents of the Bank of France, who have introduced the spirit of order and method which pervades that great establishment. With slight alterations, the by-laws of the Bank of France have served as a model for those of the National Bank of Roumania, and the experience of its prototype has served to prevent many errors of administration. The Roumanian Government deserves praise for the intelligent discretion which it has practised toward the Bank. It exercises all rights of control which are the proper domain of the State wherever banks of issue are concerned; but it has exacted no loans from the Bank. Such demands would have prejudiced the run of affairs and shaken the confidence of the public in the paper circulation. The Government and the country have reaped the benefit of this wise action. Exchange has remained favorable in propitious contrast to the unfortunate conditions of exchange in Servia and Greece.

[* ] The lei, or leu, is the monetary unit of Roumania; equal in value to the franc. The monetary standard of the country is gold.—Editor.