The Online Library of Liberty

A project of Liberty Fund, Inc.

• 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 X.

THE BANKS OF ALSACE-LORRAINE

AFTER THE ANNEXATION.*

THE portrayal of the economic history of the provinces which the war of 1870 so severely separated from France is a task of great interest and much difficulty. We need not dwell upon the obstacles which would probably be encountered by a student who should go into those provinces from France and seek access to the necessary documents, and devote himself to a personal inquiry upon the spot. We must, therefore, be content with the information contained in works published in Germany.

That which forms a special chapter of this history involves an inquiry into the method by which the laws and institutions of the conqueror have been introduced, and the manner in which they have operated in a country that had become great and prosperous under the régime of French laws and customs. If we bear in mind the all-important rôle of the Bank of France and the influence it exercised upon the organization of credit in the country, we shall be anxious to see how it was replaced, how it has been possible to substitute the machinery of other institutions for that of an establishment so justly popular. For twenty-five years the Bank of France, represented by three branches, was a factor of the greatest importance in the development of Alsace-Lorraine. Its methods and usages were known and liked, and commerce had so entirely adapted itself to them that the Bank of Prussia, when it superseded the Bank of France, was impelled to carry out the policy inaugurated by the latter. Some new principles were indeed introduced; but, even in this process, it was necessary to take account of the sentiments of the annexed provinces and their patriotic attachment to ancient memories.

The Bank of France was the central point toward which converged the whole system of credit; the inexhaustible source from which private banks and bankers drew the resources needful for commerce and industry. There must, of course, be an intermediary between the bank and those seeking credit. They do not come into immediate contact; there are several steps between them; such as bill-discounters and brokers, who facilitate transactions among the various banks as well as between them and the public.

M. von Lumm, author of an interesting work on the subject,* calls attention to the fact that the circulation of bills of exchange is more general in France than in other countries. The merchant often finds it to his advantage to take a bill for his merchandise instead of debiting the purchaser upon his books. The retail merchant or the artisan buys the articles necessary for his trade or his production with a short-time bill drawn to order. The seller can realize upon the credit he has given by discounting the bill of the purchaser; the latter meanwhile utilizes his credit, and when the due date arrives he pays with the money resulting from the sale of his goods. Thus the French merchant needs, as cash in hand, a smaller money capital than is required in those countries where the system of book accounts prevails, or where long dating of bills is practised. The advantage of this system is that it encourages habits of prompt payment and gives to the seller a means of proceeding summarily if the bill is not met at maturity.

This custom has had a considerable influence upon the number and the amount of bills of exchange in France. One effect of it has been to develop the business of discounting far beyond the point it has reached in Germany. In Alsace-Lorraine the circulation of bills of exchange has always been larger than on the other side of the Rhine, both as regards the sum total and the number of bills. The use of credit has been more general and its organization broader.

In 1840, commerce in Lower Alsace had become of so great importance that the citizens insisted that an institution of credit should be established among them capable of meeting the needs of the district. The Strasburg Chamber of Commerce petitioned that a branch of the Bank of France be established there. In Upper Alsace the same desire arose on the part of a powerful cotton industry. On January 2, 1844, was opened the branch of Mulhausen; on August 20, 1846, that of Strasburg. In 1848 the Departmental banks were abolished, or rather they were incorporated with the Bank of France, which was thus enabled to be more liberal in the extension of its branches and to found one on June 29, 1849, at Metz. There was a constant and rapid increase in the business of these branches, and in 1868 Strasburg held fifth place among the sixty branches of the Bank of France, with a business exceeding 200,000,000 francs per year.

The disastrous events of 1870 were reflected immediately in the economic world. The people were in the hands of the enemy; their relations with France were severed, and the uncertainties of war prevented an influx of capital from Germany. A crisis was precipitated mainly by these three facts: a suspension of operations by the branches of the Bank of France, a forced extension of the due date of bills, and the suspension of the savings-banks. Immediately after the surrender, the business of the Bank at Strasburg was suspended and the employees were held prisoners in their homes. This unfortunate measure resulted from a mistake of the German authorities in supposing that the Bank of France was purely a governmental institution. The Germans acknowledged their blunder, insisting at the same time, however, upon a right to supervise and control the Bank. They found themselves face to face with the forced circulation secured to the bills of the Bank by the law of August 12, 1870, and they wished to prevent a new issue.

On November 4th, the Civil Commission of Kuhlwetter ordered the liquidation of the affairs of the Strasburg branch, which was followed by the liquidation of the branches at Mulhausen and Metz. Those banks afterward renewed their activity, but in a very restricted form. Their most important task was to convert their bills and acceptances into money (17½ millions of francs at Strasburg, 2 millions at Mulhausen, and 4 millions at Metz). This liquidation was accomplished without loss to the Bank, and was finished at Strasburg shortly after December 31, 1871. The branches having thus stopped discounting, the reservoir was closed from which the citizens had drawn their resources, and there followed a veritable credit famine, especially as private bill-brokers and bankers were also refusing to discount any paper. On October 26, 1870, the Strasburg Chamber of Commerce demanded of the Civil Commissioner that the Bank be allowed to renew its discount operations and that the Government place at its disposal a sum sufficient for that purpose. There was a complete stagnation of business, accumulations of merchandise with no outlet, and a large population of workingmen consigned to idleness. If the branches of the Bank of France were not allowed to renew their operations, then it was demanded that a new institution of credit be established as the only means of escaping total ruin. Considerations of general politics stood in the way of the desired concession, but permission was given to the branch to make certain indispensable discounts.

The extension of the due date of bills, by virtue of the law of August 13, 1870, proved to be another source of mischief. Debtors living in France to whom merchandise had been shipped took refuge behind this enforced opportunity of delay. The citizens of Alsace-Lorraine requested that the same extension be granted for their benefit. The German authorities yielded, but with bad grace. An order of the Governor-General of Alsace-Lorraine, dated March 20, 1871, postponed for seven months the payment of bills falling due between August 13 and November 12, 1870, and those of November 13, 1870, to April 12, 1871, were put forward to June 13 to July 12, 1871, the debtor being required to pay six per cent. per annum to the creditor from the original due date.

The suspension of the savings-banks affected other classes than those injured by the liquidation of the Bank and the extension of the due date of bills. In 1868, there were, in the departments of the Moselle, one depositor out of every fifteen inhabitants, with an average deposit of 252 fr. 82; in the departments of the Lower Rhine, one depositor out of every twenty-one inhabitants, with an average of 348 francs; in the departments of the Upper Rhine, one depositor out of every thirty-three inhabitants, with an average of 411 francs. The savings-bank of Strasburg had 18,180 depositors, and that of Metz 25,590; in these two provinces there were twenty-two savings-banks in full operation. The suspension of payments by this class of institutions resulted from the peculiar organization of French savings-banks, the money belonging to them being kept by the State and not by the banks themselves, as in Prussia. Their moneys were kept together in the Deposit and Consignment Office, which pays an interest of four per cent. There was due to depositors, in 1870, 22,110,896 francs, but the money was in Paris. The banks thus deprived of their resources and reduced to an insignificant amount of ready money, could not pay their depositors. But they declined to accept any further deposits, inasmuch as they did not know whether the new administration would acknowledge the same obligation that the French Government had observed. Under these circumstances, the German authorities made advances to the savings-banks, on account of the sum due from the Deposit and Consignment Office, to the extent of 4,200,000 francs. In November, the Strasburg savings-bank was enabled to pay all deposits below fifty francs, and to pay dividends upon larger deposits. At the close of 1871, when the financial situation seemed to be more stable, the German authorities, being assured of reimbursement on the part of France, committed to the Landeskassen (provincial treasuries) the powers of treasurers-general and those of deposit offices. In 1872 and 1873, the sums due to savings-bank depositors were once more intact and ready to be paid over; 1,230,000 francs had been remitted in French rentes. Little by little, the savings-banks, which had recently confined themselves to paying off their depositors, began once more to accept deposits.

In proportion as business resumed its normal course, the disappearance of the Bank of France branches was more severely felt. In order to avoid a real catastrophe it became necessary, at all hazards, to establish the business of credits upon a basis similar to that which had disappeared. The Prussian Parliament had merely skimmed the surface of the problem. At Strasburg, those most concerned took it upon themselves to settle the question by private initiative. Certain capitalists and bankers formed a syndicate to found, with a capital of thirty millions of marks, a bank to take the place of the branches of the Bank of France. A complete charter was drawn up; the bank was to have its headquarters at Strasburg, with branches at Metz, Mulhausen, and Colmar; bank notes were to be issued expressed in francs, and the establishment was to be independent and self-governing. The Strasburg Chamber of Commerce discussed the matter at several sittings. In default of permission to establish for the provinces of Alsace and Lorraine an independent bank, modeled upon the charter of the Bank of Wurtemburg and authorized to issue notes payable in francs, it was determined to ask for the establishment of branches of the Bank of Prussia. A delegate was sent to Berlin to submit the first of these propositions to Prince Bismarck; but on his arrival the question had already been determined by the Prussian Government, and, naturally, upon a basis opposed to the dreams of provincial autonomy. Alsace-Lorraine was provided with branches of the Bank of Prussia (law of February 26, 1872). On July 26, 1871, representatives of the Bank of Prussia had opened their doors at Strasburg and at Mulhausen; on August 21st, at Metz.

Were the form of organization and the charter of the Bank of Prussia such as to promise an effective substitute for the services rendered by the Bank of France? Were the advantages equally great? By the organic Constitution of October 5, 1846, the State not only took part in the management of the Bank of Prussia and shared its profits, as is the case to-day with the Bank of Germany, but it was an actual shareholder to the extent of 1,900,000 thalers, while the individual shareholders had paid in 20,000,000 thalers. The right of issue was unlimited, provided one-third of it was covered. The Bank had under its control the money of wards and funds in the custody of the courts, for which the State was responsible. The Bank of Prussia had only 3,780,000 thalers in public funds, in addition to a reserve of 6,000,000, whereas before 1870 the Bank of France had very nearly 113,000,000 francs in rentes. The influence of the State was preponderant. The stockholders, or their representatives, were entitled to be informed of the doings of the Bank, and to give their advice, but they had no decisive part in its management. The employees were servants of the State, though they were paid by the Bank. The actual management was in the hands of a directory, consisting of a president and five members. In addition to these, there was a Central Committee, elected by the two hundred largest stockholders; this committee exercised a general supervision, but the continuous special supervision was in the hands of three deputies chosen from it. The head of the Bank was the Minister of Commerce, and his decision was final in case of a difference of opinion between the directory and the shareholders’ representatives. He it was upon whom the responsibility rested in the last instance. The branches were governed by two officers, usually chosen for life, and a manager, who was at the same time the legal adviser of the institution. These three drew up each year a list of the credits to be opened, which was submitted for ratification to the directors in Berlin. The shareholders were represented by a Provincial Committee of six to ten members, each holding at least three shares, and chosen from two lists drawn up respectively by the manager of the Bank and the Central Committee. The Provincial Committee met once a month. The directors were interested in the proper management of the Bank by a certain percentage of the profits. This sum was invested each year in public funds. They received the principal on leaving the service, and meanwhile they were entitled to the interest. They were forbidden to own shares in the Bank.

The various departments of the establishment were practically the same as in the Bank of France. We have already said that the system of book credits in Germany condemns to idleness a certain amount of capital, which in France is kept in circulation by the custom of drawing bills. The average value (per piece) of bills of exchange has been in certain years as follows:

Confiding in the wise administration of its directors, the Bank of Prussia, summoned to replace an institution highly and justly popular, did not modify its usual customs, notwithstanding the larger circulation in Alsace. No embarrassing or complicated formalities for it; no certificate of solvency required from one presenting bills of exchange at its counters; no discount committee meeting three times a week to pass upon the purchase of bills. The bearer presents himself at the wicket; the bill is examined by the two directors; and, if they consider it good, the money is paid immediately. Moreover, the Bank of Prussia bought bills drawn upon foreigners. Loans were made upon the precious metals, personal property, and merchandise. The warehouse receipt was unknown to the German law. Thus, then, there were fewer formalities than under the French system. The intervention of a representative of the stockholders was not deemed necessary; the opening of a credit account was determined solely by the two functionaries placed at the head of the branch, to the extent of their instructions, given at the beginning of the year.

The branches at Strasburg, Mulhausen, and Metz were endowed with the same powers as those already in existence, namely: The discount of bills drawn upon places in which there was an office, agency, or representative of the Bank; the purchase of bills of exchange on Hamburg, certain cities in Southern Germany, London, Amsterdam, and Brussels; loans on the precious metals, and on securities; payments at Berlin, or at any of the branches; collections, and the sale and purchase of securities.*

With the German invasion and conquest, German money, the thaler and the silver groschen, had come into the country. One of the earliest measures of the generals had been to establish the comparative value of the thaler and the franc. An order of the Governor-General, dated November 8, 1870, directed that in all payments the creditor should be compelled to accept the thaler as the equivalent of 3 fr. 75, and the franc as the equivalent of 8 groschen.* The thaler had a legal circulation, and was a sufficient tender upon this basis of exchange with French money. In these circumstances, the Bank of Prussia authorized the discount of bills on Metz, Strasburg, and Mulhausen, expressed in francs, on condition that the bill should also bear upon its face the sum expressed in thalers or in groschen at this fixed rate of exchange. Besides, as the country was still subject to the Code of Commerce, the branch banks were authorized to discount not only bills of exchange, including bills drawn to order, but also paper not requiring acceptance. Bills of exchange calling for thalers could be paid in francs (gold or silver), but they could not be paid in notes of the Bank of France, which thereby suffered a loss. Subsidiary coins need not be accepted except to the extent of fifty francs; sous only to the amount of one franc.

At first the branches confined themselves to purchases of bills on London, Amsterdam, and Brussels; the forced circulation existing in Russia and Austria caused them to refuse bills drawn in roubles and florins. For the same reason, they declined to accept paper drawn upon Paris, Lyons, and other French cities until after the month of September, 1871, when forced circulation had been abolished in Alsace-Lorraine, and when the leading merchants of Mulhausen demanded that such paper be accepted. After this date, the Bank of Prussia authorized the purchase of bills drawn on France, taking as a basis of exchange the official rate of the Berlin Bourse. So long as the short rate on Paris remained below seventy-nine, little advantage was taken of this privilege.

Moved by a desire to gain the good will of the commercial classes, and to establish closer relations between Germany and the conquered provinces, the Bank of Prussia took pains to deal liberally in the matter of credits, and, provided the signatures were good, to exceed the sum which the Bank of France had been willing to allow. The Bank attempted the same liberal policy in making loans upon securities. That this benevolence might not be merely nominal, in the absence of German securities, which had no existence in that country, the Bank accepted in pledge three per cent. rentes and the stock and bonds of the chief French railroads, placing the maximum loan at sixty per cent. of the nominal value. These favorable terms remained in force only one year; but subsequently the maximum was even raised for the shares of the Northern, the Paris-Lyons, and the Orleans railroads. The business of accounts current was much more restricted at the Bank of Prussia than at the Bank of France. The former accordingly made every exertion to offer to its clients in Alsace-Lorraine the same advantages they had formerly enjoyed.

The payment of the war indemnity by France to Germany had caused fluctuations in the rate of exchange. Paper on Berlin was in demand and increased in price; the same was true of thalers, while exchange on Paris and the value of twenty-franc pieces were current at a discount. The twenty-franc piece had maintained itself at a high rate throughout the war; but on September 12, 1871, the Napoleon was quoted in Berlin at five thalers eight groschen, and Paris short exchange at 77¾ (for 300 francs), whereas on July 5th the latter quotation had been 80. On October 24th it had fallen to 77⅙; on December 16th to 77,* to rise gradually to 80 on January 20, 1872. Following the second large loan (4136 millions of francs) in July, 1872, exchange on Paris had once more drifted downward. In 1873, the extreme rates were 78⅔ on May 30th, and 80¼ on December 13th. To the same period belong the abandonment by Germany of the double standard, the adoption of the gold standard, and the fall in the market price of silver bullion. At the time when the Bank of Prussia established itself in Alsace-Lorraine, it was not foreseen that any harm would result from the permission given it to accept French gold or silver at the fixed rate of 80 thalers for 300 francs. But the fluctuations in the rate of exchange just noted placed the Bank in a dangerous situation, and exposed it to loss as soon as exchange had fallen to 77¾ thalers, and that at a time when the amount of French money in the two provinces was increasing. Speculation found it remunerative to buy French pieces where they were to be had at a low price, and to present them at the counters of the Bank in Strasburg, Mulhausen, or Metz, where they were accepted at the rate of 80 thalers for 300 francs.† German money-brokers would draw upon Alsace-Lorraine, the bills would be discounted, and when they fell due the drawee would pay them in five-franc pieces. The obligation of the Bank to accept such large sums in five-franc pieces imposed upon it, in addition to the risks of exchange, a heavy expense for transportation. Discounting became very active, the business world making the most of a situation that allowed it to exchange at par thalers for French money. The Bank of Prussia undertook to protect itself against these losses by refusing to discount bills savoring of arbitrage, but that was a matter not easy to determine. Its most efficacious remedy consisted in restricting, as far as possible, the issue of its bills and in making payments in francs, except when cashing its own notes. Alsace-Lorraine was overflowing with French money; the more especially as the South German governments had received in five-franc pieces part of the sum coming to them from the war indemnity, and had made haste to send them into Alsace-Lorraine. In 1873, with the constant and rapid amelioration of the situation in France, exchange on Paris rose, and beginning with 1874, there was a very natural efflux of French money toward its home country. The field was thus left free for the bills of the Bank of Prussia and for thalers and silver groschen, until they were replaced by marks. But the franc was still a legal tender; books and accounts were kept (as they are for the most part even now) in terms of French money.*

The German occupation had found the bill of the Bank of France endowed with a forced circulation by virtue of the law of August, 1870. After the annexation, the question arose whether this law had become obsolete. Opinions differed. The public treasuries refused to accept bills of the Bank of France, to which decisions of the tribunals of commerce (Strasburg, October, 1871) had imputed a legal-tender power. The Bank of Prussia appealed to its charter as an excuse for refusing them, being obliged by this document to receive nothing save its own notes. There was great exasperation among the people. They supported their contention by Article 143 of the Code of Commerce, which provided that any bill of exchange might be paid in the money named upon it; and they held that, in view of the forced circulation of French bills, they were entitled to pay with them. An attempt was made to explain the altered circumstances to them; but many persons from whom the Bank had refused to accept payment in notes of the Bank of France calmly allowed their drafts to go to protest. There was no doubt of their good faith, but the results were disastrous. In the months of August and September, public sentiment at Strasburg and Mulhausen was openly hostile to the Bank of Prussia; which, however, encountered less opposition at Metz. The law of September 28, 1871, which went into effect on October 14th, expressly abolished the forced circulation of the notes of the Bank of France. In order to furnish protection against Treasury notes issued during the war, a law of January 7, 1872, forbade payment in any paper money except German, a temporary exception being made in favor of notes of the Bank of France for fifty francs and over. The result of the law of September 28, 1871, was to cause French bills gradually to fall below par. Immediately there sprang up an arbitrage business, having for its object the purchase of these notes in Alsace-Lorraine.† Investments of Alsace-Lorraine capital in France also absorbed large sums, and gradually the notes disappeared from circulation.

On January 1, 1872, occurred the final incorporation of Alsace-Lorraine with the German Zollverein, with all the consequences arising from customs and other fiscal laws. The transition was not effected without weighing heavily upon commerce and industry, suddenly deprived of their ancient outlets and compelled to create new ones. At the time of this incorporation of the two provinces, all the German laws became effective in them, including the German Code of Commerce, which differed in some respects from the French Code. In one respect especially, there was a very marked difference; the Bank of Prussia was not allowed, for the future, to discount either bills drawn to order or drafts not requiring acceptance, imperfect bills of exchange which the German law did not recognize. Nevertheless, in small commercial transactions, the bill drawn to order had taken firm root under the French régime, and it has held its ground notwithstanding its exclusion from the privilege of discount. German manufacturers, money-brokers, and commercial houses make use of the bill of exchange drawn in legal form. But, on account of this strict requirement as to form, the Bank of Prussia lost a part of the discount business which the Bank of France had enjoyed, and that paper found its way into the hands of private banks or bankers.

The Bank of Prussia was in operation in Alsace-Lorraine from 1871 to 1875. The abnormal condition of affairs under which it was established, the disappearance of the branches of the Bank of France, the general need of credit, assured to it at the beginning a large amount of business. In 1872, the three branches bought bills of exchange aggregating 171 millions of marks; in 1873, 201 millions; in 1874, 189 millions; in 1875, 153 millions. The profits were 668,000 marks in 1872, 821,000 marks in 1873, 505,000 marks in 1874, and 403,000 marks in 1875. In its earlier years, the Bank of Prussia had practically no competition; but this monopoly was brief.

In 1872 and 1873, Germany fell a prey to the wildest speculation, which resulted in a severe and prolonged period of depression. This Alsace-Lorraine escaped. In 1875, the Bank of Prussia disappeared. It was replaced by the Bank of Germany, which was organized under the tutelage of the Empire and upon a larger basis, and which became to a fuller extent the central reservoir of monetary, note, and credit circulation among the German States. The offices of the Bank of Germany (the Reichsbank) are divided into head offices (Reichsbank-Hauptstellen) and ordinary offices (Reichsbank-Stellen), and into simple branches and agencies. Each of these administrative subdivisions has its own special line of business; some merely loan upon securities, while others not only make such loans, but also buy bills of exchange and do a full banking business.

The branch at Strasburg became a head office, and those at Mulhausen and Metz became ordinary offices, on January 1, 1876. On the same date, the mark became the official money of the Empire, and from October 1, 1875, French silver and copper pieces lost their legal-tender quality. Nevertheless, bills are still drawn and circulate in Alsace-Lorraine expressed in francs; money-brokers have continued their former habit of keeping their accounts in francs and marks, using the fixed rate of 100 francs to 80 marks, which is favorable to them. All this paper expressed in francs escapes the Bank of Germany. In addition to this, that bank is subjected to the competition of local banks, those of southern Germany especially, which discount paper at less than the official rate, and accept bills drawn for a longer period than three months. Such was especially the custom of those banks having a right of issue, which discriminated according to the signatures upon the paper, and did not confine themselves to one rate of interest. The Bank of Germany lodged a protest with the Federal Council, but that body was unable to find any provision of law to protect the complainant. There was nothing better for it to do, therefore, than to imitate its rivals and discount paper at less than the official rate, as the only means of keeping its capital fully employed. This reform dates from January, 1880; thanks to it, the Bank exercises a greater influence over the money market, with which it is in closer touch. Moreover, as soon as exchange becomes unfavorable to Germany, and a drain of gold is threatened, the Bank stops taking paper below the official rate, and even raises that rate. The competition of private banks and bankers with the central institution is very active, especially in the collection of bills of exchange. The Bank of Germany is thus deprived of the means of supervising credit transactions and the circulation of commercial paper. It strives, nevertheless, to attract to itself short-time drafts by reducing the commission upon drafts for small amounts, which is especially favorable to small tradesmen.

The sum total of the bills discounted by the three branches in Alsace-Lorraine was 133 millions of marks in 1877; 126 millions in 1878; 152 millions in 1881; 171 millions in 1883; 143 millions in 1886, and 175 millions in 1889. Thus there is a considerable variation in the size of the figures, a variation corresponding with the state of the markets and of general business throughout the Empire. It is difficult to secure statistical information regarding the extent of the competition which the Bank of Germany has to meet. It is stated, however, that the branches in Alsace-Lorraine discounted in 1888, 86,935 bills of exchange aggregating 168,362,200 marks, and that they collected 33,985 bills aggregating 7,631,300 marks, while five large independent banks handled 1,371,502 bills of exchange representing 735,881,300 marks. In this latter total, however, are included bills drawn on foreigners. M. von Lumm estimates at forty per cent. the proportion of bills not bankable at the Bank of Germany. These bills must be handled by these independent banks, which have a paid-up capital of twenty-six millions of marks, and by the sixty-seven banks and bankers of less importance.

In spite of their forcible separation from the mother country, the bankers and the people have maintained the closest relations with her. Many bills of exchange drawn in francs and payable at Paris or some other French city or town are sent into France for discount when the rate of interest there is favorable to this course. The average amount of the bills discounted by the Bank of Germany at Strasburg is greater than that of those discounted by independent banks in the proportion of about four to one. Germans are very proud of the rapid increase in the business of accounts current, cheques, and payments by book entry at the Imperial Bank. It has covered the country with a veritable net, within the meshes of which it gathers all unemployed funds, brings them together in its treasuries, and makes them the instruments of a continuous transfer of property, thus economizing the use of metallic money and its own notes. Beyond an amount fixed, once for all, its note circulation, not covered by metallic money, is subject to a tax of five per cent. per year. In ordinary times, therefore, when the discount rate is below five per cent., the Bank seeks to avoid the necessity of increasing the circulation of its notes, and for this reason it has every motive to encourage the opening of accounts current and the use of cheques.* Transactions relating to accounts current are carried on exclusively by means of cheques furnished by the Bank. To make a transfer from one account to another, whether at the same or another branch of the Bank, the depositor makes use of red cheques, similar to the book-entry slips used by the Bank of France, cheques made payable directly to the beneficiary, and not transferable; these must be presented at the counters of the Bank before half-past four in the afternoon. The withdrawal of funds is accomplished by means of special white cheques, and the Bank collects upon these withdrawals one-fifth per thousand. It undertakes to see that bills sent in by the owner of an account current are accepted at the Bank itself or at a branch, at the option of the owner. The sums deposited to the credit of accounts current are handled by the Bank without charge, but it pays no interest upon them. Following the example of English banks, it requires that a certain amount shall always be kept on deposit, the exact sum depending upon the importance of the account.

The money-brokers of Alsace-Lorraine, accustomed to this method of doing business as a result of their relations with the Bank of France, immediately carried their patronage to the Bank of Germany; but the latter wished especially to have accounts current opened by the commercial and industrial classes, who, however, were much slower to avail themselves of its services. The Bank is employed to collect bills of exchange for very small amounts, even as low as five or six marks, which subjects it to considerable expense, and compels it to charge a commission of twenty pfennigs upon any bill returned unpaid. It was the special ambition of the Bank to become cashier-general, relieving the public of the necessity of keeping any considerable sums on hand. It was equally ambitious to become the banker of the State, of the general and local authorities, civil and military. In England and Belgium, the national bank is cashier for the Government. In Germany, the Bank is compelled to gratuitously accept payments for the Empire, and to make up such to the amount of the Empire’s credit, and it must grant the same privilege to the various States. It must handle gratuitously the money of the Empire and keep account of all payments made or received in its behalf. The business of the main treasury of the Empire is managed by it, and the Treasury itself is connected with that of the Bank. The Federal governments may equally avail themselves of the facilities of the Reichsbank; but the minimum of collections and payments made for their account is fixed at 10,000 marks. It is well known that the gratuitous management of its treasury is not the sole benefit which the Imperial Government secures from the constitution of the Bank; to that there must be added certain special dues and a participation in the profits.

In Alsace-Lorraine, the Bank of Germany has maintained close relations with the principal treasury of the province (Landes-Hauptkasse) in Strasburg, since 1890,* with the chief treasury of the railroads belonging to the Empire, and with the Post-office Department (postal orders drawn in favor of depositors having accounts current are credited directly to them by the Bank, and are not paid in specie). In 1887, the Minister of War directed, as an experiment, that accounts current should be opened by the various military treasuries in order to lessen the amount of funds to be handled in actual money and to decrease the responsibilities of the officers. It seems that the results thus far have been encouraging, and much more so in Alsace-Lorraine than in other parts of the Empire.

The independent banks have not remained idle. They cultivate assiduously the branch of the business relating to deposits and cheques. If they cannot offer to the public facilities for transferring money gratuitously from any part of the Empire to any other, they yet furnish to the depositor an opportunity to draw interest upon his deposit, paying as a rule one per cent. From this, it results that the sums in accounts current in the large independent banks of Alsace-Lorraine are very much greater than those in the Bank of Germany. The General Alsatian Banking Company had, in 1883, 885 accounts subject to cheque, whereas to-day the branches of the Imperial Bank have only 286 depositors with accounts current. Loans upon securities have not hitherto been a source of much profit for the branches; the reason being that the public of Alsace-Lorraine lack confidence in German funds and securities. When the public have any money to invest they buy foreign funds, French rentes, upon which the Bank makes no loans; besides, they are less given to speculation than the people beyond the Rhine.

The forcible incorporation of Alsace-Lorraine with Germany has resulted in a considerable modification of the organization of banking. So long as Alsace-Lorraine was French, private banking houses, backed by the unlimited liability of their owners, had practically the whole field to themselves, and the number of stock corporations had been very small. But uncertainty as to the future, resulting from the conquest, the emigration of a part of the inhabitants, the very natural desire among men of wealth to keep their capital in a form as convertible as possible—these are the factors which brought about the adoption of various forms of association, including corporations, to carry on undertakings that formerly had prospered in the hands of individuals, or to establish new enterprises intended to meet the requirements of commerce and industry. M. Engel Dollfus has an interesting chapter upon this phase of the history in his account of the industry of Mulhausen and its economic evolution between 1870 and 1881. With the good sense and equipoise habitual with them, the citizens of Alsace-Lorraine have been shrewd enough to escape the follies and losses of stock-jobbing, of founding corporations solely for the purpose of issuing stock and securing the profits to be realized from fluctuations in its price. This transformation into stock companies has resulted from changes brought about by annexation. It has arisen in response to the necessities of a new situation so grievous for the conquered. The special object of the change was to facilitate the settlement of estates. In case of death, the heirs of the deceased find it very easy to divide the shares among them. Thus, dealings in the stocks are rare. They are sold in the presence of a notary or at the bank; few of them are quoted at Basle or Frankfort.

It is deserving of remark that the natives of Alsace-Lorraine have been able to preserve their superiority and maintain their supremacy, and that branches of independent German banks have not succeeded in acclimating themselves, or in taking root among them. Three failures have occurred successively by the Bank of South Germany, the Union Bank of Berlin, and the Provinzial Disconto Gessellschaft, all of which have been compelled to close their doors and wind up the affairs of the branches they had established in Strasburg. The merchant or manufacturer in the two provinces preferred to continue his relations with his former banker, or with banks established by his fellow-citizens, rather than to ally himself with Germans, newcomers into his land, ignorant alike of its usages and traditions, whom he would have been compelled to initiate, to some extent at least, into the privacies of his business affairs.

In 1871, four old banking houses of Strasburg combined to form the Bank of Alsace-Lorraine, with a capital of 12,000,000 francs.* In 1872, the chief manufacturers of Mulhausen transformed the house of M. A. Schlumberger Ehinger into a corporation under the name of the Bank of Mulhausen, with a capital of 12,000,000 francs. Alsatian capital, in order to replace the Crédit Foncier of France, established in 1872, at Strasburg, the Société de Crédit Foncier et Communal d’Alsace-Lorraine, chartered by imperial decree. A few months later the Bank of Alsace-Lorraine established a branch at Metz, and in 1874, a second at Mulhausen. The fusion of two banking houses existing since 1852, Ch. Staehling and L. Valentin & Co., resulted in the establishment of a limited liability company. All of these corporations are still in existence. While these new banks were springing up some old houses disappeared (Lamey & Co., Coulaux Sutterlin, Bastien & Co., Grouvel & Co.). But some houses of importance have continued under the names of individuals, one of the most important being that of August Nanheimer, at Colmar. Among the establishments antedating annexation may be named the Mulhausen Bank of Discount (1848); the General Banking Company of Alsace-Lorraine at Strasburg, Colmar, and Mulhausen, which had been a branch of the General Banking Company of Paris, but which had severed its connection therewith and been re-established on an independent basis; and, finally, the Discount Bank of Mayer & Co., at Metz (1856). The Bank of Discount of Colmar (1848) failed disastrously in 1884, as the result of too liberal credits and general bad management. This is the only failure to be recorded as occurring among the banking and credit establishments during a period of twenty years.

In 1852, everything was ready for the establishment of the Crédit Foncier of the department of the Lower Rhine at Strasburg, with a capital of 2,000,000 francs, when the law of December 10, 1852, intervened to substitute, instead of local mortgage banks, a central and privileged institution, the Crédit Foncier of France. Under the Empire, the Alsatians demanded the decentralization of mortgage credits. About 1866 or 1867, the agricultural convention of the Mulhausen district had suggested the idea of a mortgage and agricultural bank at Mulhausen. It was found that a powerful institution having its headquarters at Paris could not adequately supply the demand for credit in that district. In the absence of a local institution certain notaries acted as intermediaries to secure the money of individuals for farm-owners who wished to borrow, under which arrangement small holders were compelled, by many of the lenders, to pay usurious rates of interest.

As we have said above, the German conquest had deprived Alsace-Lorraine of such assistance as it had received from the operations of the Crédit Foncier of France. Here was a gap to be filled up. Accordingly, a group of Alsatian capitalists and bankers, with the assistance of some German and Swiss bankers, founded in 1872 the Société de Crédit Foncier et Communal d’Alsace-Lorraine, conforming it much more closely to the type of the great establishment which had disappeared than to that of the mortgage banks of Germany. The nominal capital was fixed at 12,000,000 francs, divided into 24,000 shares, with the privilege of increasing it to 24,000,000 francs. The powers of the corporation are very extensive, being modeled very largely upon those given by the charter of the Crédit Foncier of France. The minimum of loans is fixed at 375 francs. The amount loaned is not to exceed two-thirds of the estimated value of country property, nor fifty per cent. of the value of improved property. The company is authorized also to make loans to the communes, to clubs, to societies for the improvement of agriculture, and to corporations. It may issue mortgage and communal bonds, the sum total of the former being limited to twenty times the amount of the paid-up capital of the company. All the bonds it issues must first be covered by mortgage security. The supervision and control are in the hands of a Government official, who has his office at the company’s headquarters. The company is authorized to receive deposits, which help to maintain the business of its banking department, properly so called (discounts, loans upon securities, etc.). As regards registry of its mortgages and executions against delinquent debtors, the corporation has rights and privileges very much the same as those of the French Crédit Foncier. Some years passed before the public fell into the habit of applying to the company for loans; but from the very beginning its bonds were in demand as an investment, and as early as 1879 its 4½ per cents. were quoted at 103. An imperial decree of 1876 gave permission to communes and to public institutions to invest their money in mortgage or communal bonds issued by the company. But, as the sum total of its mortgage loans was only 10,000,000 marks, in 1880 a meeting of the stockholders authorized it to extend its operations to include the Grandduchy of Baden, Bavaria, Wurtemburg, Hesse, and the province of Nassau; the result being that, in 1889, its mortgage loans amounted to 37,500,000, serving as security for 35,000,000 of bonds. The corporation conducts its business with great care, insomuch that the number of forced sales it is compelled to make of the property of delinquent debtors averages only ten a year. The value of unsold property on its hands was 197,000 marks in 1884, and this had been reduced to 184,000 marks by 1888.

Up to 1886 the Société de Crédit Foncier et Communal was intrusted with the receipt and temporary investment of Government deposits. A law of 1872 had transferred to the provincial treasury of Alsace-Lorraine the rights and obligations of the French Treasury—that is, of the Consignation and Deposit Office, relatively to the receipt, management, and repayment of securities furnished by Government employees, money in the custody of the courts and administrative officers, unemployed funds of local authorities, savings-banks, etc. The president of the provincial treasury had been authorized to enter into a contract with some banking house under which the latter would manage these funds, paying a fixed sum for the privilege. On November 15, 1872, President Moller entered into a ten years’ agreement with the Société de Crédit Foncier et Communal and turned over to it the sum of 17,022,000 francs, to be kept separate and managed independently of the company’s mortgage dealings and under the direct supervision of a State commissioner. The interest to be paid by the corporation was fixed at 3 per cent. upon all sums turned in by public institutions, 4 per cent. upon money belonging to savings-banks, and 4½ per cent. on deposits made by mutual benefit societies (1875). The corporation was liable, to the extent of its capital, for all Government deposits.

The care and investment of such large sums, for the prompt repayment of which provision had to be made, compelled the corporation to perfect the banking features of its business, in order to secure an adequate return for its trouble. For this return it depended upon the discounting of bills and dealings in the highest class of securities, French and German. At the close of 1885, against 55,000,000 deposited by the Government and public institutions, it had on hand 22,500,000 in bills of exchange and 24,000,000 in securities. Beginning with 1879, the tax receipts were turned immediately over to the corporation and a right was given to the Imperial Government to overdraw its account temporarily. The result was that the company was subjected to the necessity of providing for very large withdrawals upon a moment’s notice. The general decline of interest rates in Europe, the prosperity of the country, and other causes resulted in a very rapid increase in savings-banks deposits, for which the company was bound to pay interest at the rate of four per cent. (In 1873 these deposits aggregated 8,000,000 marks; 18,000,000 in 1876; 26,000,000 in 1880; 43,000,000 in 1885, when about 78 per cent. of the sum total of public moneys was on deposit with the company). The management of these sums was very expensive and imposed a heavy burden upon the shareholders. So, in 1885, the company expressed dissatisfaction with its contract, which had been renewed in 1882. A modification in the terms of the agreement resulted. There was a change in the conditions under which savings-banks deposits were received, and the latter were compelled to reduce from 3½ to 3¼ per cent. the interest paid to their depositors. The Société continues its management of deposits made by the State and by public institutions; but the maximum amount on which it is compelled to pay 3 per cent. is fixed at 15,000,000, and this amount forms an ordinary account current, the sum to the credit of which must not fall below 10,000,000 marks. The payments which the company formerly made on Government account have been turned over, except in Strasburg, to the Post-office and the Imperial Bank. One result of the new contract has been a diminution in some branches of the company’s business. Its bills and acceptances and its securities are fewer, but it now has the advantage of being always assured of a deposit of 10,000,000 marks on State account.*

There are seventy-two banks and bankers in Alsace-Lorraine, sixteen being in Strasburg, seven in Mulhausen, four in Colmar, and eight in Metz—that is to say, thirty-five in the four large cities; the others are scattered throughout the provinces.

Nine stock companies are engaged in the banking business, with a nominal capital of 51,800,000 marks (29,500,000 being paid in). We should not be very wide of the mark, probably, in estimating at 100,000,000 the responsible capital of independent bankers.

We have already called attention to the fact that in Alsace-Lorraine books and accounts are kept both in francs and marks; we may add that a large proportion of the bills of exchange drawn in those provinces are written in French. Out of 2510 bills held by the branch of the Bank of Germany at Strasburg on January 24, 1890, no less than 1405, or fifty-six per cent., were in French (not in francs, however, for in that case they would have been excluded from discount by the Bank). Thus we see how, even in this matter, the native element holds out against assimilation with the German. It is a thorn in the flesh which the Germans beyond the Rhine would gladly pluck out, but this is a wish much easier to cherish than to realize. Again, the sympathies of the people show themselves very plainly in their investments, inasmuch as they always seek for this purpose either local securities or such as are bought and sold in France. This explains why the crisis of 1882 was more seriously felt in Alsace-Lorraine than that of 1873; the earlier affected Germany particularly, while the more recent was especially severe at Paris.

Arthur Raffalovich.

Banking in Canada,

BY

BYRON E. WALKER,

general manager of the canadian bank of commerce; president of the canadian bankers’ association, 1894-1895, vice-president of the canadian institute; fellow of the geological society of london.

NEW YORK,

1896.

[* ] The substance of this admirable Essay originally appeared in the “Revue des Deux Mondes.” In the form in which it is here presented, the brochure has been extended and amended by M. Raffalovich.—Editor.

[* ] “Die Entwickelung des Bankwesens In Elsass Lothringen seit der Annexion,” von Dr. K. von Lumm. Jena, 1891.

[* ] The purchase of securities is an important item in Alsace-Lorraine, for the newcomers into the country prefer to transact their dealings in these with the Reichsbank, especially as the native bankers have little acquaintance with German securities.

[* ] 4 thalers = 7 florins = 15 francs.

[* ] The 2776 million loan was made on July 27, 1871.

[† ] An arbitrage broker, for example, would turn in 8000 thalers in five-franc pieces at the rate of 3.75 at the branch of the Bank at Strasburg, and have them transferred to a Berlin banker. These 30,000 francs in French silver at the rate of 77¾ were worth only 7775 thalers; there remained, therefore, a profit of about 222 thalers on the transaction.

[* ] Small tradesmen at first refused to keep their accounts in marks, but they have become accustomed to this course since it has been obligatory that the prices ticketed upon goods in the shops should be in marks. They begin to see that it is puerile to reckon the mark at 1 fr. 25.

[† ] These provinces took an important part in the subscription to the five per cent. French loan.

[* ] To obtain the opening of an account current it is necessary merely to address a formal demand to the directors, upon which they pass, and upon their approval the depositor receives a copy of the rules and a pass-book to contain a statement of the sums paid in and drawn out, as well as an entry of the credits arising from the discount or collection of bills. The Bank accepts deposits in specie from persons having no accounts current to the credit of those who have such.

[* ] In Alsace-Lorraine, the following had accounts current on December 31, 1890. 2 civil authorities, 35 military authorities, 44 individuals, 141 industrial establishments and commercial houses, 37 money-brokers, 27 sutlers, making 286 in all. The deposits and payments upon accounts current were 318 millions of marks in 1876, and 1467 millions in 1889, whereas for the whole Empire the increase was from 16,611 millions to 75,676 millions. The proportion then was about the same.

[* ] They were the houses of Ed. Klose & Co., L. Grouvel & Co., Léon Blum Auscher, and F. Bastien & Co., which had been intrusted with the payment of arrearages of French rentes and pensions for Government account.

[* ] On December 31, 1891, the Crédit Foncier held bills and acceptances to the amount of 6,000,000 marks, it had also 7,000,000 marks in public securities—loans to the Empire and the German States, and city bonds.