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• Banking In Germany.
• Chapter I.: Non-issuing Credit Institutions.
• Chapter II.: German Banks of Issue.
• History of Banking In Austria-hungary.
• Chapter I.: The Austrian National Bank.
• Chapter II.: Austrian Joint-stock Banks and Banking Associations.
• Chapter III.: Hungarian Joint-stock Banks and Private Credit Institutions.
• Appendix to Banking In Germany and Austria-hungary.
• II.: Statistics of Banking In Austria-hungary.
• Banking In the Netherlands.
• Introduction.
• Chapter I.: Era of Exchange Banks.
• Chapter II.: Period From 1814. Modern Dutch Banking.
• Chapter III.: Period 1814-1863. the Netherlands Bank.
• Chapter IV.: The Netherlands Bank, 1864 to 1895.
• Chapter V.: Banks of Issue In the Dutch Colonies.
• Chapter VI.: “cashiers,” Joint-stock Banks, and Private Bankers.
• Banking In the Scandinavian Nations.
• Part I.: Banking In Denmark.
• Chapter I.: History Previous to the National Bank.
• Chapter II.: The National Bank During the First Half of the Nineteenth Century.
• Chapter III.: Private Banks.
• Part II.: Banking In Sweden.
• Part III.: Banking In Norway.
• Banking and Money In Japan.
• Part I.: The Banking System.
• Chapter I.: Common Banks.
• Chapter II.: The National Banks.
• Chapter III.: The Yokohama Specie Bank. ( Shiokinginko. )
• Chapter IV.: The Bank of Japan. ( Nippon Ginko )
• Chapter V.: Land Mortgage Banks.
• Part II.: The Currency of Japan.
• Chapter I.: The Old Coinage System.
• Chapter II.: The New Coinage Period.
• Chapter III.: The Paper Currency.
• Chapter IV.: Readjustment of the Public Debt.
• Chapter V.: The Future Money Standard.
• Appendices.
• Appendix D.: National Debt In Japan. (from the “british Economic Association Journal” of June, 1895.)
• Banking, Currency and Land Tenure In the Chinese Empire.
• I.: China’s Currencies.
• II.: Chinese Banking: Ancient and Modern.
• III.: Land Tenure and Taxation In China.

HISTORY OF BANKING IN AUSTRIA-HUNGARY.

CHAPTER I.

THE AUSTRIAN NATIONAL BANK.

SECTION I.

ORIGIN OF THE BANK.

THE privileged bank of issue which, under this name, centralizes and monopolizes the circulation of bank notes in Austria-Hungary was founded in 1816. Its original title was “Austrian National Bank,” and its domicile was in Vienna. The State was at that time obliged to use compulsory paper tender, much inflated on account of military necessities; and but for this accident the Austrian Bank might have enjoyed easier lines than either the Banks of England and France or the German Imperial Bank, since it was the exclusive bank of issue in the whole country. Thus, though its general constitution resembled that of the Banks of England and France, it possessed an advantage over the two former banks from its very origin—that is to say, perfect monopoly and uniformity of note circulation, which long experience has shown to be the best and the most advantageous to the public. This was also proved by the particular testimony of the French bank investigating committee in 1863. Germany has eight banks of issue besides the Imperial Bank; there are still more in Great Britain, co-existing with the Bank of England; whereas nine banks of issue were operating in France until 1848, concurrently with the Bank of France. But in Austria-Hungary the privileged Austrian Bank was a monopoly, as a matter of course, for all issues of notes.

Far from causing embarrassment or occasioning losses to the public, this uniform arrangement rather contributed to strengthen the Bank’s credit and heighten its responsibility. It is true that the Austrian National Bank was repeatedly compelled to suspend payments in coin, and use obligatory paper currency; but for this the Bank administration was not to blame. The trouble proceeded from embarrassments of the Imperial Government, which either made abnormal draughts on the Bank in critical emergencies, or else, waiving its promise, emitted State paper currency as obligatory legal tender, and so rendered it impossible for the Bank to fulfill prescribed requirements in the matter of redeeming notes in coin. If we study the Bank’s independent action, we shall find that, even in great crises and in times of dire political peril, it remained firm as a secure anchor while everything else was in commotion, and served as a mainstay to demoralized trade. The good offices of the Bank led to the public conviction, upon the dual reorganization of the Monarchy in 1867 and in spite of Hungary’s eagerness for independence, that it would enhance the credit interests of both States to maintain such a single institution; and this is feasibly effected through the unity of the Bank’s administration. It is of more than merely historical interest to review the motives which influenced the founders of the Austrian National Bank, as these motives are expressed in the Imperial patent of June 1, 1816, from which we select the following passages:

“The mighty convulsions which have shaken Europe in the course of the past five and twenty years have also involved us, from the beginning of our reign, in a series of heavy wars, to the jeopardy of our stability and monarchial independence, including whatever is most precious to rulers and peoples. We neither could nor should have spared our people the omission of any effort or sacrifice. * * * From this time forth be there never again a creation of new paper currency having obligatory value or compulsory circulation; nor any augmentation of the present issue. Should extraordinary events occur, causing outlays beyond the limit of the usual financial resources which the State commands, then let the Exchequer take thought and provide means for meeting such abnormal charges by broaching new springs of wealth, or by sounding other depths of relief, and in no case enforce the circulation of obligatory paper money. The redemption of the paper currency is incumbent on a privileged national bank, to which the right of redemption is herewith conveyed.”

RENEWALS OF THE BANK’S CHARTER.

The charter was renewed in 1841 and 1862, in each instance after a revision of the appertaining statutes. In 1856, a new department was created for transactions in hypothecated securities, or land mortgages. When the charter expired in 1877, ten years after the dual reconstruction of the Monarchy, the Bank was reorganized under the new name of Austro-Hungarian Bank, and by the request of Hungary, Buda-Pesth became a second headquarters of the nation’s banking business. These changes were ratified by the law of June 17, 1878. Apart from such external modifications as were made necessary by the reorganization itself, there were no essential changes in the tenor of the Bank Act. As the statutes were again revised upon renewal of the political treaty of 1888, and as we shall consider their contents further on, we may confine our attention at this point to a few fundamental features of the Bank’s operations during the first two decades of the dual Government, especially noting the manifold efforts of the Bank to restore specie payments, its policy during and after the crisis of 1873, and the synchronous phenomenal increase of its gold reserve. We must first return to times when, pending the joint exertions of Government and Bank toward the restoration of specie payments, the State and the Bank, summoned to its aid, were thrown out of their normal conditions.

The patent of July 1, 1841, extended the Bank’s charter to the last of December, 1866. The revolution of 1848, and the consequent war of 1849, with imperative Government orders on the Bank for its assistance, were strains which shook its previously solid foundations. The wealthy classes were seized with a sudden panic in 1848, which especially manifested itself through a distrust of credit. Even the notes of the substantial Prussian Bank were for a time accepted only at a premium, and for a term of several weeks Prussian exchequer bills were positively refused in South Germany. Great exports of coin were on their way to London; and this movement also soon reached such proportions in Austria-Hungary that the Government, in a disastrous moment, prohibited all export of gold and silver from its dominions. The immediate consequence was, that gold and silver were locked up, in increasing amounts, and silver being the money standard, it presently commanded a premium of one and one-half per cent. In April, 1848, it was at a premium of eleven per cent., and by the end of the year twelve per cent. The dearth of small currency became so great that people sought to relieve their wants by cutting up bank notes and using private issues of small paper money. The premium on silver in 1849 fluctuated between seven and twenty-two per cent.; between twelve and thirty-three per cent. in 1850; from thirty-three to twenty per cent. in 1851; ten to twenty-four per cent. in 1852; three to sixteen per cent. in 1853; sixteen to thirty-nine per cent. in 1854, and twenty-eight to nine per cent. in 1855. After a considerable decline, in the period from 1856 to 1858, when the premium fell to two per cent., there was a sudden rise again to thirty-nine and forty per cent. in the spring of 1859, as a consequence of the proclamation of war by Napoleon III., in his new year’s speech of the same year.

Even before the outbreak of this war, the Government had been obliged to exhaust its credit and seek extraordinary assistance during the momentous Crimean War. The Monarchy’s credit had been drained by the loan of six hundred million florins during the occupation of the Danubian principalities, along with the secret and forced increase of this loan to eleven hundred million florins, resulting in the tragical fate of Finance Minister Baron von Bruck, who committed suicide and fell a lamentable sacrifice to the fruitless financiering of that age.

THE AUSTRIAN SILVER STANDARD.

In 1857, the Vienna Convention standard was replaced by the Austrian standard. The original regulation whereby bank notes had been made and issued in sums of five, ten, twenty-five, fifty, one hundred, five hundred, and one thousand florins was modified by the Imperial ordinance of 1858 prescribing that, on and after November 1, 1858, only those notes should be legitimate which bore the Austrian standard values of ten, one hundred, and one thousand florins. At least one-third of the legal notes in circulation must be covered by standard silver coin or bullion, though in certain circumstances gold coin or bullion might be employed, with the consent of the Finance Minister; and the remainder should be protected by legally discounted paper or secured loans. After the close of 1858, it was decreed that all outstanding notes of the Vienna Convention standard should be speedily withdrawn within a maximum limit of one hundred million florins, and notes of one, two, and five florins be altogether canceled by December 31, 1859. At the same time, the Austrian National Bank was authorized to issue one-florin Austrian standard notes to the amount of one hundred million florins, in proportion as it retired the one, two, and five florin notes of the Vienna Convention standard. The statute requiring protection of bank notes by coin, etc., did not apply to the new one-florin notes, but these were to be used, up to the amount of one hundred million florins, as a separate and sufficient fund for covering State property conveyed to the Bank. In all other respects, the one-florin Austrian standard notes should be legal tender on the same basis as the notes for ten, one hundred, and one thousand florins. The notes were all alike affected by the obligatory Legal-Tender Act, which was binding after June 2, 1848; but the act was also then declared operative only until January 2, 1859, by which date specie payments should be resumed.

SUSPENSION OF SPECIE PAYMENTS IN 1859.

However, the subsequent outbreak of war frustrated the eagerly expected plans of reform not only for Austria-Hungary, but also for half the peoples of Europe. In the early course of the war, and at the close of April, 1859, the promise of a restoration of specie payments was disannulled for the time being by the State itself. The Imperial ordinance of April 29, 1859, provided for defraying the necessary and extraordinary increase of expenses by the levy of a loan to the amount of two hundred million florins in five per cent. bonds, and empowered the Finance Minister, in proportion to the demands of the situation, to negotiate the loan of these bonds at the National Bank at two-thirds of their nominal value. The same ordinance authorized the Bank to issue, for this purpose, Austrian standard notes for five florins, governed by the same regulations as the other bank notes. Except on occasional suspension of specie payments, all these notes, of the several denominations one florin, five, ten, one hundred, and one thousand florins, Austrian standard, may be redeemed at the Bank’s headquarters in Vienna in standard silver coin. Notes of ten, one hundred, and one thousand florins might be issued in amounts not exceeding three times the coin reserve; notes of five florins to the amount of one hundred and thirty million florins; and the one-florin notes to the amount of one hundred million florins. The one and the five florin notes need not be covered in coin, since the former are pledged by State property and the latter by bonds.

SECTION II.

WORKING ARRANGEMENTS BETWEEN THE BANK AND THE STATE.

THE STATE’S DEBT TO THE BANK.

WE must now glance at the origin of the State’s obligations to the Bank. The oldest of such obligations, the so-called “primitive” or funded debt, originated in the redemption of Vienna standard paper currency, conformably to the agreement of March 3, 1820; which subsequently underwent many modifications. The Bank redeemed with its own notes a total amount of 443,899,092 florins of Vienna standard paper currency, which in Austrian standard money would amount to 186,437,601 florins. In compensation, it received State endowments amounting to 73,500,000 florins, Austrian standard; the remaining 112,937,601 florins devolved upon its own resources. The State acknowledged the ensuing claims of the Bank by four per cent. State bonds to the amount of sixty-three million florins, and 49,937,601 florins in bonds without interest. Further security was furnished to the Bank through so-called mortgage bonds amounting to 161,339,251 florins, Austrian standard, which were publicly quoted at seventy per cent.

The extinction of these bonds was to have been compassed by annual installments dating from January 1, 1821; but by a contract dated November 18, 1822, the time was postponed until 1837. Meanwhile, the State made other compensatory payments. From 1837 forward, the annual installments were paid without interruption; and in 1860 the Bank’s claim had been reduced to 43,074,606 florins, Austrian standard. For this amount, the Bank held round sums of 20,500,000 florins in four per cent. State bonds, 22,500,000 florins in bonds without interest, and 61,500,000 florins in five per cent. mortgage bonds. By the contract, then, the round sums of 20,500,000 florins in interest-bearing bonds, and 22,500,000 florins in bonds without interest, or a total of forty-three million florins, was to be canceled from 1861 to 1870. Besides these items, the State had gradually contracted from 1822 forward, a debt of 91,422,477 florins, Austrian standard, for which State lands were offered as security.

FINANCING BETWEEN BANK AND STATE.

After 1822, the Bank had commonly discounted money orders of the central State Exchequer, which were meant to bring about a more expeditious use of State currency circulating in remote provinces, in case of transactions with the capital. Agreements, in this branch of business, were renewed from year to year. From an original limit of six million florins, and notwithstanding partial repayments, this business had reached the sum of fifty million florins by 1848. The original interest of five per cent. was reduced to four per cent. in 1823. and to three per cent. in 1834. In 1842 the Exchequer began to issue further three per cent. State Treasury certificates, which should not exceed an amount of five million florins; but they reached a total of 10,900,000 florins in 1848, and at the close of 1849 were taken up in a so-called two per cent. consolidated debt. The events of 1848 compelled the Government to make a still heavier draught on the credit of the National Bank. It was purposed to offer a mortgage of forty million florins as a means for procuring gold and silver from abroad, whereby to strengthen the coin reserve of the Bank. The plan miscarried on account of the general unrest in the spring of 1848. But in April, 1848, a substitute plan was taken up; namely, the issue of thirty million florins in partial mortgage bonds which were secured by the State salt mines at Gmunden, and which availed to meet the most urgent of the existing necessities. On these new bonds the Bank advanced twenty million florins at four per cent. interest, and in the same year assisted the Government to raise two new loans, one of six million florins and the other of fourteen million florins, both at five per cent., in Exchequer certificates. The Bank furthermore granted a credit of twenty million florins without interest, and received by way of security the Government shares in the Vienna-Gloggnitz Railroad, and mortgage bonds of the State Northern line. At the same time the Government bound itself to pay the Bank a round sum of four million florins for defraying half the cost of procuring silver in 1848, but the Bank later renounced this claim.

At the beginning of 1849, extraordinary State exigencies were met by the issue of three per cent. certificates in denominations from one thousand florins down to five florins, which were accepted in payments at the Exchequer and at the Bank’s counters. By the middle of the same year they had become obligatory legal tender; and at the close of the year they had accumulated in the Bank to an amount of 44,500,000 florins. About this time the Government also began to issue certificates on the Hungarian revenues, in denominations from one florin upward, which, in turn, became obligatory legal tender except in Lombardy and Venetia, or the “Lombardo-Venetian Kingdom.” To quote from the memorable Imperial patent of June 28, 1849: “The violent shocks to which the political fabric has been subjected for more than a year, and the necessity of meeting the extraordinary expenses involved in fighting formidable foes at home and abroad, have rendered unusual measures indispensable; nor was it possible to effectuate the same in such extremely difficult circumstances without recourse to credit. The Austrian National Bank has therefore ably contrived to perform highly helpful service in the interests of the State, amidst conditions which must have paralyzed all other instruments of aid; and we would not withhold this expression of our satisfaction.” The Imperial patent decreed: (1) that the National Bank should not be prohibited from covering the Government demands with a more extensive issue of notes, and (2) that any sums not needed by the State for current expenses, whether such sums proceeded from the loan about to be negotiated, or were represented by newly issued three per cent. obligatory legal-tender State Exchequer certificates, or accrued from the Sardinian war indemnity, should be conveyed to the National Bank toward canceling the State’s obligations.

CONSOLIDATION OF THE STATE DEBT.

This led to an agreement between the Government and the Bank under date of December 6, 1849, according to which all the sundry claims of the Bank on the State should be consolidated into a round sum of ninety-seven million florins. Within the first six months of the following year announcement was made that the three per cent. certificates should be retired against an issue, to be administered by the Bank, of Imperial Exchequer certificates, in denominations of one hundred, five hundred, and one thousand florins; and in December, 1850, there was ordered a further issue of Imperial Exchequer certificates, in denominations of one florin, two, five, ten, and fifty florins, to be likewise used as obligatory legal tender. In April, 1851, there was an issue of mortgaged certificates to the amount of thirty million florins. Thus followed loan upon loan, year after year, until by the patent of July 5, 1854, a subscription of three hundred million to five hundred million florins was advertised, by means of which the earlier loans should be paid off. At the same time the Financial Ministry ruled that the total debt of the State to the Bank should be reduced to eighty million florins by August 24, 1858. We have already indicated that the difficulties of the situation were not yet overpast, and that after the outbreak of war in 1859, though specie payments had been undertaken from the beginning of September, 1858, until the end of April, 1859, they were then again suspended.

STATUS OF THE STATE DEBT.

For the forty-odd years from the founding of the Bank to 1860, the status of the State’s debt to the Bank was as follows, stated in florins: 1818, 10,000,000; 1823, 47,000,000; 1827, 98,000,000; 1838, 131,000,000; 1850, 150,000,000; 1857, 203,000,000; 1859, 300,000,000; 1860, 257,000,000.

For nearly thirty years the Austrian National Bank had maintained an unhesitating practice of redeeming its notes. Grave political events, commercial crises, the French revolutions of July, 1830, and February, 1848; the uprising in Poland, and Oriental entanglements, had indeed exerted an adverse influence on the Bank’s coin reserve; but however unfavorable the relations between coin reserve and the note circulation often were, they had never quite come to fatal extremities.

SECTION III.

THE BANK AND FINANCIAL EVENTS, 1850 TO 1876.

TROUBLES FOLLOWING THE REVOLUTION OF FEBRUARY, 1848.

THE condition of stability and sound credit, due to good administration of the Bank’s business, was somewhat unsettled in consequence of the February revolution in 1848. Within three months from that outbreak the coin reserve decreased by more than forty-three million florins. A panicky terror seized everybody, and the crowd grew daily bigger which thronged the Bank’s counters. On May 21, 1848, the Bank directors announced that, by sanction of the Government, all payments in coin would be limited to twenty-five florins, and that, in order to facilitate small transactions, there would shortly be an issue of one and two florin bank notes. It was characteristic of the times that this important announcement first came from the Bank, and that the State ordinance prescribing obligatory legal tender was dated May 22d, a day later than the Bank’s proclamation. The Imperial patent was delayed till June 2d. The exchange of notes for coin was restricted, but not wholly intermitted; though the coin reserve decreased by an amount of nearly one hundred million florins from 1848 to 1855, through redemption of notes in behalf of the State, municipal governments, corporations, and private business.

INSTITUTION OF A MORTGAGE DEPARTMENT.

In 1849 and 1850, the coin reserve was reinforced by the purchase of precious metals to an amount of twenty-eight million florins, at an expense of 3,200,000 florins to the Bank; and a much larger addition to the coin reserve was effected in 1855 by the issue of 50,000 shares for the establishment of a mortgage department of the Bank. This brought in a premium for the Bank amounting to six million florins. The note circulation was also increased relatively to the coin reserve on occasion of large advances to the State, and special grants of credit which the Bank was obliged to extend to private firms with a view toward obviating, in a great many instances, the mischievous consequences of the disturbances of 1848. In this way no less than eighteen million florins were granted on extraordinary credit to commercial houses, industrial enterprises, communities, and other corporations in 1848 and 1849. Four million florins of this amount went to the endowment fund of the Vienna Relief Committee, and two millions to the assistance of needy trades-people.

BRANCH BANKS AND LOAN OFFICES.

In the following decade, like advances were made to the sum of thirty-seven million florins. In the same period the first branch banks were organized, in the following chronological order: Prague, Buda-Pesth, Lintz, Lemberg, Brünn, Trieste, Olmütz, Troppau, Kronstadt, Gratz, Klagenfurt, Cracow, Laibach, Fiume, Debreczen, Temesvär, Reichenberg, and Innsbruck (in 1857). The institution of branches dealing in loans on statutory securities was begun in 1854. The loan business of the main Bank in Vienna reached a continually greater magnitude from 1849 forward. Occasions for such increase were the augmentation of the State’s debt, the enfranchisement of landed property, and the difficulties incidental to negotiations of this kind. In 1857, nearly fifty-three million florins were loaned out in this way by the Bank in Vienna alone, of which 10,500,000 were employed in case of large estates.

RESUMPTION OF SPECIE PAYMENTS FAILS.

The Bank had made every preparation to resume specie payments in the autumn of 1858. The premium on silver had fallen to two per cent., and as payments in coin were actually begun in September, 1858, the premium declined to one and one-eighth per cent. The note circulation then amounted to a round sum of 389,000,000 florins, the coin reserve to 110,000,000 florins, and bills payable in coin to seventeen million florins. The hope was therefore justified that the premium on silver would totally cease. Then, as before stated, came ominous war clouds—first, the menacing new year’s address of Napoleon III., and next his actual declaration of war. The premium on silver suddenly rose to thirty-one per cent. in April, 1859, and to forty per cent. in May, the note circulation also rising to 429,000,000 florins; whereas the coin reserve sank to ninety million florins, and the sum of bills payable in coin increased to twenty million florins. Notwithstanding the speedy conclusion of peace, which occasioned a drop to sixteen per cent. in the premium on silver, the note circulation still rose to 466,000,000 florins; the coin reserve declined to seventy-eight million florins, and bills payable in coin ranged around twenty million florins. Such was the course of affairs till 1865, when, by careful management, the Bank again succeeded in bringing the silver premium down to two per cent. But again all efforts to keep the notes at par were rendered fruitless by the impending German war. By the law of May 5, 1866, the one and five florin bank notes were adopted by the Exchequer and declared to be State currency. The National Bank was obliged immediately to transfer the total equivalent of these notes to the State in bank notes of the higher denominations.

A NEW STATE LOAN OF 200,000,000 FLORINS.

By the law of July 7, 1866, concerning the creation of a credit of 200,000,000 florins, the National Bank was obliged to transfer to the State sixty million florins in bank notes, upon compensation for costs of manufacture, which loan should be repaid in bank notes, with the salt mines of Wieliczka for security. On the ground of irresistible political necessity, further issues of State notes were provided by the law of August 25, 1866, in order to meet extraordinary expenses of war and its costly consequences. The circulation of State notes was then so amalgamated with that of the partial mortgage bonds of Imperial salt mines—which bonds were a sort of floating State debt—that the total amount of circulating paper chargeable to the State should not exceed 400,000,000 florins. The maximum circulation of salt mine partial mortgage bonds alone was limited to 100,000,000 florins. Under pressure of these regulations, the premium on silver jumped from six to twenty-five per cent. (in May, 1866, it was six per cent.), and continued at twenty-five per cent., with but slight deviations, till the end of 1871. Then it fell to fifteen per cent.; the bank note circulation decreased to 317,000,000 florins; the coin reserve was 143,000,000 florins, and there were bills payable in coin to the sum of eight million florins. The State paper currency had meanwhile reached a circulation of 374,000,000 florins; and thus the aggregate paper circulation of State and Bank amounted to 691,000,000 florins, backed by only 151,000,000 florins in coin; certainly, far short of the legal one-third.

REDUCTION OF SHARE LIABILITIES AND SPECULATIVE TRANSACTIONS.

In order to indemnify the Bank for its sacrifices, at least in part, before the State should be able to make full restitution, the law of November 13, 1868, proposed certain measures, of which we would especially note the reduction of its liabilities to stockholders from 110,250,000 florins to ninety million florins; with corresponding statutory changes respecting the Department of Mortgaged Credit, such as the receiving of interest-bearing deposits, alteration in the terms of interest on the loan of eighty million florins, and extension of the loan business through contango bargains at the Bourse. The Bank used the latter facility very cautiously. The loan business at its maximum volume for 1861 (May 5th) amounted to 65,770,000 florins, distributed as follows:

If we now bear in mind that from 1855 to 1858 the loans in Vienna alone had averaged seventy-four million florins, we shall have to admit that the reproach upon the Bank on account of its contango operations was by no means justified. When the Bank first engaged in contango operations, the common complaint was heard that it had made far too narrow terms for itself, and had shown excessive anxiety, whereas it should have proceeded liberally and boldly. There was no voice of remonstrance against over-activity in contangoes until the Bank had given up that whole line of business. Premonitions of the inordinate speculations which ushered in the crisis of 1873 were already sensible. We quote from a report of the Agricultural Committee of the Austrian Imperial House of Deputies: “The development of the railway system in the Austro-Hungarian Monarchy was as yet hardly begun in the first half of the decade—1860 to 1870. Not until after the war of 1866 was there a beginning of progress in that direction. Stimulated on the one hand by the increased and inflated circulation of paper currency, and, on the other, by the remarkably abundant harvests of 1867 and 1868, which occasioned large and unprecedented exports of grain abroad and brought in supplies of foreign capital, and still further advanced by the wholesome reorganization of State finances in 1868, when, for the first time, the Austrian Government withdrew from the position of money-seeker in the great public market, the newly awakened spirit of enterprise devoted itself with a zeal no less beneficial than worthy to the construction of new railway lines within the Austrian dominions, on a scale so magnificent as to be truly revolutionary.”

THE CRISIS OF 1873.

The feverish over-haste in railway enterprises and the stock-gambling in bank shares and other securities were attended with unfortunate consequences, which first became manifest when the Bank withdrew from the contango business. The item of bills was growing at a pace beyond precedent, and in order to meet the ensuing public demands, the National Bank resolved, in 1872, to retire fifteen million florins in railway priority bonds from the reserve fund and sell the bonds. By the close of 1872 there was an addition of ninety-four million florins to the discount and loan transactions, for which capital was furnished both by the reserve fund and the mortgage department, and also by increased circulation of notes to an amount of over seventy-one million florins. The maximum of bills and loan transactions occurred in 1873 (the crisis of that year declared itself in Vienna on May 12th); also the maximum circulation of bank notes, protected by the required portion of silver. On the other hand, there were State notes in circulation to the amount of 378,000,000 florins, and the total circulation of bank notes and State notes, together, had risen to 725,000,000 florins. The Bank no less promptly proceeded to relieve the commercial community when the crisis came than it had previously given warning by a timely raising of discount rates, in anticipation of the worst. As we have earlier mentioned, the Bank served as a firm anchor of salvation. The wisdom of this management has been demonstrated by the results of a like policy followed for many years by the Bank of England.

INCREASE OF DISCOUNTS.

While the capital employed for loans had decreased in the decade from 1862 to 1872 by twenty-five million florins, on account of the Bank’s retirement from the contango business, discounts had increased by more than 100,000,000 florins. Whereas the total discount business for 1863 was only 367,000,000 florins, the same item for 1872 was above 755,000,000 florins; a round increase of 106 per cent. In 1871, the Austrian National Bank had a bills portfolio more than thirty-four per cent. of that of all the other Austrian and Hungarian credit institutions, savings-banks, and insurance companies or associations combined; in 1872, thirty-five per cent.; thirty-seven and eight-tenths per cent. in 1873, and thirty per cent. in 1874. This comparison is the more significant when we consider the vast capital controlled by the other credit institutions; remembering also that the Bank is obliged to keep its large coin reserve locked up, whereas in this respect other institutions are allowed free discretion. We stated in an earlier connection that the National Bank used a part of its mortgage funds toward an extension of its operations in discounting bills of exchange.

MORTGAGE BONDS.

When the mortgage credit department was organized, the statutes (Section 10) had prescribed that mortgage loans should be granted in the form of letters of mortgage to be realized by the debtors themselves. But since this would necessarily involve loss of time and additional expense to the borrowers, the Bank was also authorized to pay out mortgage loans in cash. According to Section 46 of the statutes, letters of mortgage may not mature within less than twelve months, except on approval of a shorter term by the Ministry of Finance. For this reason the Bank made no considerable application of the statute authorizing the payment of letters of mortgage in cash; and the trouble consequently devolving upon mortgage debtors rendered the mortgage department of the Bank rather unpopular. Many other mortgage banks, both in Austria and in Hungary, were therefore instituted, which ensured cash payments of mortgage loans. At first, the National Bank had allowed this in case of one-year mortgage bonds; later, for six-year bonds; and lastly, for twelve-year bonds. On maturity these letters of mortgage must be retired by the National Bank with bank notes. The debtors incurred this double disadvantage, that the negotiation of the bonds usually cost them so much time and expense that they were unprepared to pay the loans when due; whereas private mortgage banks imposed, as a rule, far easier conditions.

SUSPENSION OF THE BANK ACT.

After the outbreak of the crisis of 1873, the Government felt constrained to suspend the rights conveyed by the Bank’s charter. On the very morrow of the crash an Imperial ordinance decreed the suspension of Section 14 of the statutes of 1863, concerning the protection of note circulation by coin reserve, and this ordinance remained in force till October 11, 1874. In a communication dated May 13, 1873—that is, on the same date as the Imperial decree—the Finance Minister assured the Bank that these extraordinary measures, which, as a matter of course, had been adopted only upon pressure of extreme necessity, should strictly cease as soon as the necessity ceased, and that their whole purpose was to obviate the shattering of confidence among solvent and substantial merchants and financiers. So the Bank’s credit replaced private credit, which had been badly damaged by over-speculation; and, thanks to the prudence of the Bank directors, the Bank was fortified against all shocks. Nevertheless, it was charged with being needlessly stingy in granting loans, especially by certain straitened business people of Hungary. At this time the Bank accomplished a plan which for sharpness and audacity of conception and cleverness of execution must win for its originator, First Secretary Wilhelm Baron von Lucam, an ever-honorable position in banking history.

THE NEW GOLD RESERVE.

We have hitherto seen that the administration of the Bank, from its earliest foundation, was based on solid principles; that for thirty years the Bank met all its cash obligations; and that it never deviated from statutory regulations except on Government orders, in perilous emergencies of war or panic, when there appeared to be no other help for the State than to draw on the resources of the Bank, which, in financial respects, were superior to those of the Government. This being the case, the Bank directors felt themselves obliged, so far as lay in their power, to bring about an improvement in the matter of circulation. Owing to the large issue of State notes, the Bank was much obstructed in its purpose of restoring specie payments. Since, however, the law of July 7, 1866, expressly declared that the Bank should have the right to resume specie payments by no later than one year after the conclusion of peace, by which time its most recent advances to the State were expected to be repaid, the Bank declared its policy unchanged, in a memorial of the First Secretary for 1876, affirming that, first and last, the National Bank would devote its fullest attention to the necessity of resuming specie payments. An occasion was furnished by Austria’s withdrawal from the German Monetary Union in 1867. At the draft of the terms of adjustment between Austria and Hungary in that same year, the question of adopting a gold standard was freely considered, and consistently with this consideration, the law of March 9, 1870, provided for the coinage of new gold pieces of four and eight florins, to circulate side by side with the old ducats. Shortly afterward, that shifting in the relative values of the precious metals began the effect of which we still observe today, and which the First Secretary closely watched. From May to December, 1871, the price of silver in London unexpectedly rose from 603/16d. to 60⅞d. per standard ounce; and, after a subsequent rise to 61⅛d. in the first half of 1872, it then again declined in September, 1872, to 601/16d. per ounce. Various reasons account for the continual decline of silver from that time forth; notably the gigantic increase in the silver production of Nevada, the adoption of a gold standard by the German Empire, and the suspension of the coinage of silver thalers by the States of the Latin Union.

REMARKABLE SALES OF SILVER.

That brief, temporary rise in the price of silver was an opportunity which the Austrian Bank was quick to seize. In fact, the Bank sold the great bulk of silver that lay treasured in its basement vaults for an equivalent amount of gold before there was any talk of a gold premium. The news of a rise in silver in the London market electrified First Bank-Secretary Baron von Lucam, and, as business director, he decided to take prompt advantage of this turn in the market by selling silver from the Bank. At the instigation of Von Lucam, an act of March 18, 1872, had circumspectly altered the statutes of 1863 so far as to provide that in future the Bank might maintain gold coin and bullion as well as silver in its coin reserve. As regards the particular transaction which we are now reviewing, Von Lucam divulged his plan to the Bank governor, Von Pipitz, who straightway approved it, remarking that he would immediately call a meeting of the board of directors, nowadays known as the General Counsellors (Generalrath), that he might obtain their acceptance. To this Von Lucam objected that such proceedings would shipwreck the whole plan, since there were bankers and financial arbitrators on the board, who would use the intelligence to fatten their own interests. There could be no hope for the scheme unless it were kept secret between the governor and the First Secretary, and on this condition, the secretary would bear the full responsibilities of the entire transaction. So the governor at last consented, and the First Secretary at once bestirred himself to effect his conversions by selling silver as comprehensively as possible; also in such several sums and with such discreet latitude as to times of payment as were likely to escape the vigilant notice of dealers in the precious metals, or of financial arbitrators. The Bank effected its silver sales in London, Paris, Amsterdam, Brussels, and Berlin without affording the first inkling to the great banking houses, dealers in gold and silver, financial arbitrators, or even to the Administrative Council of the National Bank, of what was going on. Thus jealously was the secret observed between the governor and the First Secretary, and the few officers with whom it must inevitably be shared in order to perfect the plan. These officers were the keeper of the coin, the bookkeeper, and one corresponding clerk.

The operations had continued about four years, and nearly eighty million florins in gold had been accumulated, before the first rumor thereof reached the Vienna Bourse. At the next meeting of the Bank directors, a certain member of the board who had been elected because of his expert knowledge in monetary matters, and at the suggestion of Von Lucam himself, who desired to have an efficient substitute in case of his own illness or absence, gave utterance to the Bourse rumors. We need not withhold this member’s name; he was the late Mr. Schaff, dealer in precious metals. He then propounded the question: “Is it true that the Bank is selling silver, and if so, why has the board of directors not been notified?” The First Secretary made answer that the Honorable member could best appreciate the reason and account for the silence from the standpoint of his own trade. A communication of the transaction would not have been kept confidential, and the whole enterprise would have been foiled. This was so palpable, he continued, that from the very moment the secret was out, the operations must cease. So it proved, in fact; and on the very next day, the Bank was obliged to suspend the sales on account of changes in the London market. The affair had progressed from the close of 1870 till the close of 1874. In 1875, there was a diminution in the supply of ready money, due to changes in the market for commercial paper; and but for the untimely interruption above related, the Bank, which at that time had a coin reserve of 134,000,000 florins, might have increased its gold purchases to a sum of 120,000,000 florins. And as it mostly sold silver at the old rates, without reference to the new law just going into effect concerning an alternative gold standard, it might have earned a gold premium of over twenty-five million florins, whereas its present premium on the coin reserve amounts to only 13,500,000 florins. Yet even the latter gain was a great achievement, which raised the Bank in the esteem of financial experts and commercial magnates throughout Europe. No less renowned an organ than the “Revue des Deux Mondes,” in an article by the eminent economist, Michel Chevalier, in the issue for August 1, 1876, expressed the following tribute: “We deem ourselves much superior to Austria, but Austria has administered her Bank far more cleverly than we have managed the Bank of France.”

SECTION IV.

REORGANIZATION OF THE BANK.

ATTITUDE OF THE HUNGARIANS.

IN consideration of the extraordinary results which followed the sagacious and bold operations of Von Lucam, it might have been supposed that he would be rewarded with unusual honors. His plan had most profitably served not only the Bank, but the whole Austrian realm. But the renewal of the State contract and of the National Bank’s charter had the unexpected sequel that the man who had won the admiration of his fellow-experts in all Europe, and whose peer for directing the Bank could not be found, was removed from his high office. The main reason was his firm adherence to the correct and solid principles which he had ever applied in the management of discounts and interest. For this he was especially unpopular in Hungary, where, as a general rule, a large part of the population is addicted to a wider extension of credit, and makes heavier draughts on credit institutions, than Von Lucam’s policy would have allowed. In Hungary, too, there is a strongly cherished political sentiment in favor of an independent bank of issue. Upon renewal of the State contract with the Bank, in 1878, this political bias contrived to accomplish at least thus much, that the name “Austrian National Bank” was replaced by “Austro-Hungarian Bank,” and a second board of Bank directors was appointed for Hungary, with headquarters at Buda-Pesth, and an organization altogether similar to that of the Bank in Vienna. The new head Bank in Hungary is equipped with a working capital almost as large as that of the old Bank, although the disbursements of Hungary, in the common Imperial budget, are only one-third and the Austrian portion two-thirds. An unsalaried deputy-governor is elected for the headquarters in both Vienna and Buda-Pesth, and the joint administration is under a governor, who draws an annual salary of twenty thousand florins. The deputy-governors, instead of a fixed salary, draw extra pay (special fees). The actual, prime direction of affairs devolves upon the First Secretary, whose annual salary is twelve thousand florins.

UNMERITED REMOVAL OF VON LUCAM.

When the new Bank Act of 1878 went into effect, the strenuous opposition to Von Lucam in Hungary succeeded in removing this inflexible man from office. The liberally salaried position of Bank governor, which he rightfully deserved for his twofold service to Bank and State, was carried over him and bestowed on a man of inferior ability—the former sinecure director of the Austrian Land Credit Institution. Von Lucam was offered the deputy-governor’s post in Vienna, which unsalaried office he might not at all have been warranted in accepting, since he had always despised using his genius and administrative experience for private ends, had not the Bank decently retired him with the life-long grant of his previous salary as a richly deserved pension. Shortly afterward, the man to whom ceaseless work had become a second nature, finding it impossible at the zenith of his bodily and mental powers to play fifth wheel to a wagon, withdrew from official service. In his memorial of 1876 on the Hungarian question, Von Lucam expressed himself as follows:

So the protection of bank notes, says Von Lucam, was, on the whole, exceptionally strong in those very years when demands on the Bank were unusually heavy. The coin reserve was in itself somewhat weak; but this comparative deficiency was offset by a greater volume of discounted bills. The less available, or less promptly available, resources from loans afford a more passive protection. Other assets than those just mentioned have not been practically needed for covering the notes, within the past four years. The most active protection is generally furnished by coin and bullion, commercial securities, and discounted bills. The thought which guided the National Bank in this most momentous problem for every bank of issue was not based on a merely theoretical assumption; it is the same in principle as that which governs all the most important banks of the Continent. In the department of bills of exchange, the Bank followed the strict practice which obtains in Belgium and Germany; namely, that bills be received only from business people, merchants, or stable manufacturers, and never be discounted for the creation of capital, even though offered by banks and mercantile firms. As far back as May 7, 1863, the National Bank reminded its branches that only such bills might be discounted as could be realized in cash within short terms and beyond reasonable doubt. On the contrary, bills which are designed to procure capital or afford investments for industrial or mechanical enterprises, and which are therefore liable to be carried past maturity, have no proper place in the Bank’s portfolio, however solid the parties may be who back them. Prussian finances are proud to point a moral from the old Prussian Bank, whose bills, even during the Napoleonic wars, were commonly liquidated more punctually than mortgage loans or the interest thereon. In comparison with the Prussian Bank and the Bank of France, the discounted effects of the Austrian Bank averaged higher in amount, in terms of maturity, and in rates of interest.

BRANCH BANKS.

It is a matter of observation that the total business of the Austrian Bank is not so large as that of the banks of Western Europe; and the same disparity equally applies to the branch offices, which were not very freely patronized by the business public at the start. In 1874, the Prussian Bank, then merging into the Imperial Bank, had forty-nine principal bureaus and eighty-nine accessory bureaus for transactions in bills, and one hundred and sixty-six for the loan business; whereas the Austrian National Bank at that time had only twenty-four branches, since then increased to thirty-four, though the total number is seventy-nine, if the supplementary branches are counted.*

THE BANK’S RATE OF INTEREST.

In a country mainly devoted to agriculture and stock-raising, and not abounding in circulating currency, nor possessing highly developed mechanical industries, it is quite natural that interest should be higher than in manufacturing countries. Apart from this consideration, a fertile young soil affords better chances of realizing fat returns; and hence it is easier for Hungary to pay high interest than for Austria; and easier for Austria than for Germany. We find that the rent of lands in Hungary, averaging six per cent., is more easily paid than the lower rents in Western Austria and Germany. In the latter countries, lands renting at even only four per cent. no longer yield a clear living. Leaving out of account the great reduction of interest in Western Europe during the past twenty years, it may be noted that the rate of interest at the Austrian National Bank before its reorganization as the Austro-Hungarian Bank was an average of one-third per cent. higher than that of the Prussian Bank, seven-tenths per cent. higher than that of the Bank of France, and eight-tenths per cent. higher than that of the Bank of England. However, the Austrian Bank has followed the usage of the Bank of France in maintaining the utmost possible constancy of interest rates, and adopts modifications according to the trend of the international money market only at long intervals.

The year 1848 may be regarded as a turning-point in the history of the Austrian National Bank, since obligatory legal tender was then decreed; which, with an intermission of a few months in 1858 and 1859, has prevailed even to the present day. Other notable occurrences were the institution of the mortgage department in 1856, and the issue of State notes in 1866. But the chief event was the grant of the Bank’s fourth charter in 1868, inaugurating the gradual retirement of legal-tender paper currency and a return toward specie payments; as well as the partly designed, partly accidental, transition to a gold standard. On the renewal of the State compact between Austria and Hungary in 1878, the Bank’s charter was also subjected to a radical revision, in keeping with the political situation; being adapted, as before described, to the dual nature of the Government. We defer producing extracts from the revised statutes until we may recite the last legislative action in connection with a further revision in 1888.

THE SILVER CRISIS.

The year 1878 was a time of important resolutions by various governments. The price of silver then began to fall by sudden jumps, and those States which had a silver or a bimetallic standard became apprehensive and instituted prudential measures. The Austro-Hungarian Government resolved to stop the coinage of silver for private parties, and the act was enforced from 1879 forward. The most significant consequences of this step were soon seen in the relative rise of silver florins in comparison with silver bullion; and even bank notes and State notes were quoted higher than silver florins. This favorable reaction would have come about still sooner had the dual Government carried things to their logical completion instead of stopping half-way; but whereas the coinage of silver florins for private parties was suspended, those for State uses were more abundant than ever.* In the period 1868-78 the State silver coinage amounted to 102,825,176 florins; and in the briefer period 1879-85, to 126,721,655 florins. Experts vigorously denounced the increased State coinage of silver, and their censure may have had some weight in connection with the constantly rising production of the silver mines; at all events, the sum of silver coinage has been appreciably reduced in recent years by Austria-Hungary.

When the Government continued the coinage of State silver florins on a large scale, it was generally believed that this was done to benefit the Public Exchequer, since there was a slight profit to the State and railway treasuries on their payments of interest, silver annuities, and silver priority shares abroad, when silver was cheap; but the true reason was more plausibly economic. That is to say, Austria owns a very old and productive silver mine at Przibram, in Bohemia, which has been extended to an enormous depth.* However, at the present low price of silver, even so productive a mine is worked at a loss; and the loss is not covered, as it was expected to be, by State coinage. It would have been more profitable to sell the bullion in the London market. Now, in any case, the State must provide for the silver miners at Przibram and at the Carpathian mines of Hungary as soon as a gold standard has been established; and also it must take organic measures to remedy the deficits and losses of many years’ unprofitable mining. The mining population will have to be trained to a new industry, or transferred to the 200 gold mines of Hungary, which are so defectively worked as to yield little above expenses. The characteristic market rise in bank notes and State notes was proportional to the decline of silver; and there is as yet no limit in sight for the latter downward movement, with the present ceaseless overproduction. Under these circumstances, the Austro-Hungarian Government chose the right time for proposing, by the law of 1892, a return to specie payments and the ultimate introduction of a gold standard.

SECTION V.

THE CONSOLIDATION ACT OF 1878.

UNION OF THE AUSTRIAN AND HUNGARIAN BANKS.

WHEN the Minister of Finance conveyed to the Bank the new statutes of 1878, as approved by the legislative houses, together with the documentary ratification of the State debt of 80,000,000 florins clear of interest, the approval of the shareholders was also voted at their general meeting. The new act still strictly aimed at uniformity of bank note circulation in every part of the Austro-Hungarian dominions, besides recognizing the dual nature of the Government by the organization of a common bank of issue on the same basis in each State, without political preference for either. The notes were printed in German on one side, in Hungarian on the other; and the business is likewise transacted bilingually. The German designation of the Bank is Oesterreichische-Ungarische Bank, and of the Hungarian, Osztrák-Magyar Bank. “The kingdoms and provinces represented in the Imperial Diet” and the “Lands of the Hungarian Crown” constitute the working territory of the Bank. In the two capitals, Vienna and Buda-Pesth, there are Bank headquarters, with like departments of business.

The Bank is obliged to institute branches in either Austria or Hungary, when the combined Ministry of either State and the General Bank Counsellors agree that local circumstances demand a new bank. The dissolution of existing banks is not lawful in either State except by consent of the State Ministry of Finance. There can be neither increase nor diminution of the capital stock without the sanction of the legislative body of both divisions of the Monarchy. None but Austrian and Hungarian citizens are allowed to hold membership in the General Assembly of the Bank. The Bank governor is appointed and sworn in by the Emperor, upon recommendation of the Finance Ministers of both States. The deputy-governor in each State is chosen by the General Counsellors from a set of three candidates, and this selection is then submitted to the Emperor for approval. The selection of General Counsellors from the General Bank Assembly is also referred to the Emperor for final ratification. In Vienna and at Buda-Pesth there are boards of managers, whose province it is to apportion the endowment fund among the various Bank establishments within their respective jurisdictions; to determine individual grants of credit, and appoint Bank inspectors. Each board of managers consists of a deputy-governor, as chairman, and of eight directors residing in Vienna or at Buda-Pesth, as the case may be; nor can any but Austrian or Hungarian citizens belong to these boards. Two directors on each board are chosen by the General Bank Assembly, upon recommendation of the managing boards; the rest are chosen by the General Counsellors. The former pairs of directors, as also the deputy-governors, are at the same time General Counsellors. Each State Government appoints a commissioner and his authorized substitute, who become the agents through whom each State administration receives conclusive assurance that the Bank is operated in strict accord with the statutes; and these commissioners have identical qualifications and the same powers in each State. Any difference of opinion between the Bank and the Government concerning the statutory validity of bank operations is decided by one of the supreme courts of justice in Vienna or Buda-Pesth. Grants of credit in either State are subject to identical regulations. All doubtful questions in this matter must be referred to the Finance Departments. All communications from the General Counsellors must be published in official journals at Vienna and Buda-Pesth, in both German and Hungarian. The Bank is obliged to redeem its notes on demand in current coin at headquarters in Vienna and Buda-Pesth. Complaints against the Bank and its branches in Austria must be carried before the Vienna Board of Trade, and in Hungary such complaints must be referred to the Board of Trade and Court of Accounts in Buda-Pesth. These tribunals are also qualified to decree the extinction of Bank records. Dissolution of the Bank before the lapse of its charter may be voted only by both parliaments.

The new Bank Act became operative on July 1, 1878. Until the General Counsellors of the reorganized Bank were officially installed, the directors of the old Bank continued business under the old title. On August 30, 1878, the directors of the Austrian National Bank summoned the shareholders to take part in organizing the General Assembly of the Austro-Hungarian Bank, and to hand in the shares. This Assembly convened on September 30, 1878, with the newly appointed governor, Aloysius Moser, as chairman, and the statutory election of General Counsellors was duly conducted. The new régime went into effect on October 30, 1878, and the old Austrian National Bank tranquilly departed after an honorable career of sixty-two years. The new reorganization was entirely completed in every department by January 9, 1879.

BUSINESS OPERATIONS.

Incisive though the changes were which took place in the outward organization of the Bank, the dispositions concerning business methods and practice were not materially altered. The Bank, without laying new foundations, could build higher and wider on the old, historical principles, and aspire toward the perfection of a policy already tested in serious crises. The third memorial of the Bank, on its administration for the period 1878-85, remarks that the former difficulties with Hungary, on account of that State’s refusal to recognize the Government loan of 80,000,000 florins, contracted without Hungary’s consent, had become quite simplified by the new Bank Act. Under the old, unsettled status of the Bank in Hungary, its powers had been maimed; but the new Austro-Hungarian Bank was enabled to devote its full attention to strictly economic business, and even in Hungary conquer broader fields of usefulness, now that its legality was confirmed and freely recognized. Whereas the old Bank had only the limited number of twenty-five branches—much restricted, moreover, in their affairs of discount and credit—the new administration, as early as 1879, began to extend the banking system in the Crown lands by marking off bank districts for the facilities of personal credit. Beginning with July 1, 1879, the business districts of all banking centres were extended beyond the narrow circumference of their cash collection areas to the outlying towns and county seats, according to the geographical configuration of the country and local conditions of trade, so that even persons or firms at a distance from banking centres, though within the range of a sub-district, could enjoy facilities of discount, raising loans, or other banking operations. In short, the Austro-Hungarian Bank has become practically accessible to business circles throughout the Empire. The bank districts were bounded with reference to the geographical positions of the existing and contemplated bank bureaus. Of fifteen new branches, five were located in Austria and ten in Hungary. In the distribution of the total forty branches, some regard was also observed for the precincts of the various chambers of commerce. Certain special utility districts were, furthermore, constituted, embracing domains or mercantile areas of either Crown.

We subjoin a list of the bank districts:

The following statement affords an analysis of the outstanding credits of the two national banks on July 1, 1885, indicating the points at which the credits are issued, their number and the range of their amounts:

ACCESSORY BRANCHES.—CORRESPONDENTS.

Since the location of banks might not be determined exclusively by geographical boundaries, but must be partly settled by such questions as density of population and volume of business, sixteen accessory branches were organized in Austria and thirteen in the lands of the Hungarian Crown, making the total number of banks and branches sixty-nine in 1885. The system was also still further developed by the agency of correspondents, authorized in compliance with the solicitations of certain substantial firms in the provinces, not situated within easy reach of a bank. By the year 1885, the administration in Vienna had granted this favor to 262 provincial firms, and the administration in Buda-Pesth to 469. With these added facilities, the Bank organization appeared to be sufficient for existing business needs.

THE BANK DIRECTORY.

Through this extended organization, not only were all parts of the country provided with banking facilities, but a wider and more systematic service of information was at the same time procured respecting every phase of mercantile and industrial activity, by means of frequent messengers and explicit local reports. The Bank was thus enabled to learn the standing of many firms and companies whose affairs had not hitherto been sufficiently well known. In particular, a directory was published which included every registered firm in the realm; and also a periodical, official review of Austro-Hungarian trade, compiled from authoritative sources and edited by the First Secretary’s department of the Austro-Hungarian Bank. This appears three times a month, and gives condensed, well-digested, critically estimated summaries of material derived from eighteen provincial papers. The task of judging bills presented for discount is thus lightened; besides which the statutes require that only those bills should be discounted which were backed by two firms, one of which must be registered according to the form prescribed by the laws of trade.

The Bank’s third memorial emphasized the necessity of uniform rates in case of external bills and local bills. The old Bank, for many years past, had imposed a higher rate of interest on outside bills, though perfectly secured, than on local bills; but this distinction was wisely and very justly abolished by the ruling of March 10, 1879 (a measure which private discount banks were prompt to imitate). It was a most reasonable desideratum that the banking facilities should not only be accessible to all, but on equal terms for all; whereas from 1853, when external bills were first received for discount, until 1879, they were charged one-half per cent. more than local bills.

PRINCIPLES OBSERVED IN GRANTING CREDIT.

Under the old organization, the Bank officers who served with secondary functions on the committee of Bank censors had only an advisory voice in the censorial proceedings; but under the new organization the Bank officers might even preside at the meetings of the committee, and also exercise veto power in questions of accepting doubtful bills of exchange. This reform has proved wholly advantageous to the Bank. One of the vital traditions and practical usages which came down to the new Bank from the old was that none but such commercial effects should be handled as might be certainly converted into cash within brief terms of maturity. In other words, the Bank must strictly deal on the basis of a cash-paying institution, and neglect no duty which appertains to a solvent bank. Finally, a department of personal credit was organized and constantly developed. Discount regulations were based both on the Bank Act and on laws of trade. A bill proposed for discount is viewed from two standpoints; first, its security, as determined by the solvency of its indorsers, and second by its business origin.

By security is understood that bills will be paid in cash when they mature. In general, a bill, in order to be acceptable, must have originated in some recognized public business, and must represent its equivalent value in merchandise, consignments, transferred claims for securities furnished, or cash payments. In any case the transactions concerned must belong to some business capable of ensuring cash payment on maturity of the bill or within a reasonably short period of grace. In contradistinction from bills of exchange proper are the credit or money-seeking bills; nor may the latter be quite excluded where a bank operates in a country mainly devoted to agriculture. At the same time it is not the province of a bank of issue to grant protracted credit to land-owners. What must be absolutely avoided, however, is to grant accommodation bills, or “kites.” An essential guide for a bank of issue, in the matter of discounts, is afforded by the “Credit Lists,” in which current estimates are given of the potential solvency of every firm in the sundry banking districts. This maximum reckoning is the book-credit, which is granted only in occasional instances. It differs from the Bank censors’ credit, in that the latter is determined by the censorial committee. The dual boards of Bank directors annually regulate the amounts to which firms, companies, and individuals may be credited in case bills of exchange come in with their signatures attached. In such assessments, and in the larger commercial centres, no firms are entered which control less than 10,000 florins in the way of available resources. The number of smaller firms is too great to admit of separate assessments, and the committee reserves discretional powers toward the granting of loans on a lower scale than 10,000 florins security. It by no means follows that credit will be actually granted to the full figure of the assessment; for the committee always reserves the right to diminish the actual grant if circumstances make this advisable.

LOANS.

The fundamental dispositions touching loans rest with the General Counsellors, and not with the Bank directors. A list of articles is formulated on which loans may be granted (see Appendix), and a maximum limit is fixed within which loans may be apportioned according to the exchange value of the accompanying security. In fine, the General Counsellors prescribe the limitations and regulations of the entire loan business. In exceptional cases the banks must be guided by the following considerations: The object of the loan business is to furnish people of means with readily available money in case of sudden need, without compelling them to sacrifice their goods. There is economic justification for such business when the advances offered on pledged securities return in a short time to the Bank; on the contrary, loans of long maturity are excluded from the business of a bank of issue. The designation of those papers of value which are acceptable as pledges, and the proportional extent of the loans, as determined by rates of exchange; are communicated to the banks from time to time through headquarters in Vienna. These rules are necessarily general, and, in particular instances, the banks must themselves decide whether the pledge in question is of current value and easy of realization. Where “grace” is allowed, the banks must see to it that the advanced funds be not unduly detained for want of prompt notice, nor otherwise too long tied up. Loans too long protracted, and especially those of large amount, may be either wholly or partly recalled, and the grace be withheld.

APPROPRIATIONS OF WORKING RESOURCES.

The Bank’s capital stock of 90,000,000 florins being tethered to the State loan of 80,000,000 florins, the only funds practically available for purposes of credit are the 200,000,000 florins not legally required for protecting bank notes with coin. All notes issued in excess of this limit are subject to a tax of five per cent. The General Counsellors must also reserve the right of diverting a portion of the free funds toward State endowments if either division of the Monarchy be in pressing need thereof. At the new organization it was therefore ordained that a constant sum of 50,000,000 florins be assigned to the headquarters in Buda-Pesth for the discount and loan business of the Hungarian banks; and this allowance may be increased if urgent reasons so demand. The available 200,000,000 florins were divided as follows, on January 1, 1879: Constant endowment of headquarters in Vienna, 125,000,000 florins; in Buda-Pesth, 50,000,000 florins; reserved by General Counsellors, 25,000,000 florins. The General Counsellors voted that only twenty-five per cent. of these available funds should be used for loans; and that any surplus from the loan business should be employed in discounts. The same arrangement has been renewed from year to year. Increase of these funds is binding in both parts of the Empire. The maximum for headquarters in Vienna was 154,000,000 florins on December 30, 1884; and at Buda-Pesth, 66,000,000 florins on October 11, 1884. The combined maximum was 216,000,000 florins December 30, 1884.

DISCOUNTS.

From 1878 to 1885, five new banking centres were organized in Austria, ten in Hungary. For this reason as well as because of a general increase in financial business, the Bank was obliged to draw more and more heavily on its reserve fund. The new Hungarian branches alone reported a total of 13,000,000 florins for discounts at the end of 1885. The aggregate sum of discounts for the given period rose from 109,000,000 to 168,000,000 florins, though there was a decrease in 1885 to 136,400,000 florins. The portion of the Austrian banks had fallen off by 6.7 per cent., and that of the Hungarian banks had made a corresponding gain. We append a table of figures for the separate years, in millions of florins:

The Bank has noted the fact that from 1876 to 1885, the average maturity of bills decreased from 64 to 55 days. This both indicates a greater relative supply of money and the particular circumstance that bills were frequently presented from five to ten days before coming due. The Bank administration showed a decided tendency to treat small bills, provided they conformed to the regulations, exactly like large ones. While the total volume of discount business increased, the average amount of each bill decreased, at nearly all the Bank bureaus. The subjoined table will illustrate these remarks.

After the Bank had accommodated 19,245 business people and firms with credit, complaints about discrimination became so importunate that a Bank statement was published on January 7, 1886, showing the number of firms, associations, and individuals included in the acceptance lists at that date to be 47,316. Among these were 498 foreign firms, 21,677 Austrian firms, and 25,141 Hungarian.

LOANS—KINDS OF SECURITY ACCEPTED.

Loans on marketable securities reached their minimum status on August 15, 1881, when they stood at 16,600,000 florins, and their maximum on October 31, 1882, at 36,800,000 florins. Various additional facilities were introduced about that time. In 1879 a uniform list of receivable effects was drawn up, and the previous local distinctions and limitations were abolished. The list of securities acceptable at all the banks alike embraced 224 varieties at the close of 1885; namely, 59 State, provincial, and municipal stocks, 45 bonds, 73 priority debentures, 13 first bonds, and 34 joint-stock shares. Moreover, correspondent firms were authorized to negotiate loans through correspondence. In 1882, the proportion in which loans might be granted with reference to the nominal value of securities was raised from eighty to eighty-five per cent. on mortgage bonds, and from seventy to seventy-five per cent. on stocks and debentures. At the same time advance payment of interest was introduced, and post-payment was collected when the loan was redeemed or prolonged. Since 1883 all the banks have been warranted to make advances upon certificates of deposit issued from headquarters in Vienna or in Buda-Pesth; such certificates denoting that securities have been deposited for custody or administration. Interest on loans is usually one per cent. higher than the discount rate for bills of exchange.

MINOR ITEMS OF BUSINESS.

The discounting of securities and coupons maturing within ninety-two days was permitted for all the banks in 1879, and the practice was extended to a larger category of papers. Since 1880 all the banks have accepted coupons due, but not more than one year overdue, for immediate cash payment, in case of all the securities recognized by the Bank; and such payment is according to the expressed value of the coupons. We subjoin a table of coupons redeemed from 1880 to 1885:

Since 1882 all the banks have managed coupons on commission, in so far as collection of the same is feasible, according to the Bank standard. Since 1885 the Bank has exercised discretional powers respecting new securities, as also concerning partial payments on outstanding paper. Since 1881 all the banks have been authorized to buy and sell on the Bank’s account both Austro-Hungarian gold ducats and gold pieces of the denominations francs and marks. Since 1882 the banks have undertaken commissions for procuring foreign money orders. The transactions in money orders for the period of the fourth Bank charter were as follows:

Next follows a statement of Bank accounts for headquarters in Vienna. The sums represent total receipts and payments, inclusive of amounts brought forward:

Beginning with 1879, headquarters in Buda-Pesth received valuable papers for custody; and from 1881 at Vienna and 1884 at Buda-Pesth, such securities were also received for purposes of management in behalf of owners. The latter business increased very rapidly, as the following data will show:

The transactions in bills on commission and in collections show the following extensive development from 1878 to 1885:

THE MORTGAGE DEPARTMENT.

The organization of mortgage credit was nearly a century later in Austria-Hungary than in Prussia, and the Austrian Bank had no mortgage department before 1856. Soon afterward a number of independent mortgage banks were instituted in the several provinces, with headquarters in Vienna, Buda-Pesth, Prague, and Lemberg. In some of the provinces, provincial land mortgage banks were founded, which are active competitors of the Austro-Hungarian Bank, and are not called upon to pay dividends. In certain regions—like Tyrol, for instance—the Austro-Hungarian Bank has no chance of a footing in the mortgage business, because the savings-banks and the administrators of church lands, with a view to influencing the peasantry, rather discourage mortgage traffic. The Bank’s mortgage operations in Austria are confined to eleven provinces out of the seventeen. The Hungarian business is a great deal more active, as the table on opposite page shows.

We have seen that the reserve fund was sometimes drawn upon for transactions in loans on securities; and from 1856 it also served for mortgage loans. Mortgage bonds were first issued at four and a half per cent., and then at four per cent. (their present rate). Interest on mortgage loans is increased from one-half to one per cent. in order to meet the costs of amortization; for all the loans must be paid back by annual installments. Originally, mortgage bonds within two-thirds of their nominal amount might be used as protection for bank notes; but when the statutes were revised in 1876, and the request was expressed that the Bank should give up its mortgage business and the latter be separately and independently organized, the bonds were no longer available for that purpose. The mortgage department then became so distinct that neither loans nor the purchase of mortgage bonds might be negotiated through bank notes. It was

observed, in practice, that the number of loans on small properties gradually increased as compared with loans on vast estates. It is a matter for special congratulation that arrears of both principal and interest are on the decline. Their maximum extent, at the close of 1881, was only 163/100 per cent. of the total sum of mortgage loans, and only 75/100 per cent. at the close of 1885. Terms of grace are granted to debtors who so desire, for payment of both interest and principal; but should the final grace be overstepped, the Bank may apply its rights of execution. The proceeds from such sales of distress are not of portentous magnitude. The issue and allotment as well as the buying and selling of mortgage bonds is a rapidly growing phase of the Bank’s business. When the four and a half per cent. bonds rose above par, four per cent. bonds were issued, which at first stayed somewhat below par, but are now on a par basis.

THE BANK’S WORKING CAPITAL.

The working resources of the Bank are derived from chiefly two sources—the capital stock of 90,000,000 florins, together with the reserve fund of 18,000,000 florins, and the bank notes, whose contingent limitation is 200,000,000 florins. Of the capital stock (as we have remarked before), 80,000,000 florins are tied up in a State loan, free of interest; and the remaining 10,000,000 florins are invested in the real estate reverting from transactions in mortgaged credit, previously redeemed or duly purchased mortgage bonds, outstanding and matured bills of exchange, etc. From the capital stock, therefore, the Bank practically derives no means at all for bank business proper. The Bank therefore has no other means at its disposal than the contingent fund of 200,000,000 florins, representing notes which are not necessarily covered by coin.

According to banking operations in England and North America, deposits should also constitute a very material part of a bank’s working funds; but in Austria-Hungary they are only quite sparingly used for this purpose. The explanation is twofold: on the one hand, ready capital is less abundant in Austria-Hungary; and again, there is frequent opportunity for passive investments in the cheap and fruitful soil. Moreover, the contingent of 200,000,000 florins has seldom been exhausted, having been overdrawn only in one or two instances to the amount of 6,000,000 to 7,000,000 florins. When this happens, the tax on over-issue of notes intervenes. The note circulation at the close of 1877 was 282,000,000 florins; 363,000,000 in 1885, while at the same time the coin reserve was constantly improving. For a circulation of 614,000,000 florins in bank notes on November 2, 1895, the Bank had a coin reserve of 363,000,000 florins, of which 234,000,000 florins were in gold and in bills payable in gold (227,000,000 florins in gold alone). The taxable overplus of note circulation amounted to a round sum of 33,000,000 florins; though, except for the State notes, the Bank would have been on a sound basis of perfect cash solvency. Of the State notes, 200,000,000 florins were withdrawn and canceled by the new law, and 125,000,000 florins have been thus far redeemed. But we anticipate our order of narration. In the eleven years from 1876 to 1887, the total endowed funds were so apportioned between Vienna and Buda-Pesth that an annual average of 60,000,000 to 86,000,000 florins fell to Vienna, and 32,000,000 to 40,000,000 florins to Buda-Pesth. Since the revised statutes of 1888, the portion of Buda-Pesth has been relatively higher.

SECTION VI.

CONSTITUTIONAL PROVISIONS GOVERNING THE AUSTRO-HUNGARIAN BANK.

UPON renewal of the State compact between Austria and Hungary in 1878, the Bank’s charter was extended for ten years, with the understanding that neither part of the Monarchy should exercise its constitutional right of erecting independent banks of issue between July 1, 1878, and December 31, 1887; but that for the given period, the Austrian National Bank should independently serve both States, under the designation of Austro-Hungarian Bank. Several organic reforms were introduced with this purpose in view. New headquarters were established at Buda-Pesth without reference to the provision which determined that the Bank’s headquarters were in Vienna. For transactions in discounts and loans, an endowed fund of 50,000,000 florins was voted to Buda-Pesth for exclusive use in Hungary. In case of urgent need, and by ordinance of the General Counsellors, drafts may be made on the Bank’s general reserve. Five new branches were organized in Austria and three in Hungary in 1878 and 1879. The State loan of 80,000,000 florins, clear of interest, is to be gradually extinguished by means of the net profits of both divisions of the Bank; and should this fail to be accomplished before the charter expires, the debt shall be discharged in fifty equal annual installments, without interest, by Austria, toward which Hungary would contribute thirty per cent. The net proceeds of business, above seven per cent., are divided between the Bank and the dual Government. The statutes of 1887 being only externally, and not intrinsically, different from those of 1878, we shall treat the subject in a general and cursory way; with this reservation, that a law was passed on June 12, 1890, which authorized the Bank to discount warrants issued by public warehouses.

The capital stock consists of 90,000,000 florins, subscribed in 150,000 shares, of 600 florins each. The shares must be kept intact; and no shareholder is bound by more than his individual subscription. On the other hand, the aggregate liability of the Bank is covered by the total stock. For the punctual payment of interest and principal on mortgage bonds, the mortgage claims are accountable, and also the other movable and immovable Bank resources. Untransferable shares are entered in a separate book. Transferable shares may be filled out with any name the Bank approves, provided the transfer be plainly indorsed or signed in the name of the new holder. Untransferable shares may, however, change hands in case they have been legally acquired, and the holder furnishes public, legal, or judicial evidence of his rights. Permission for transfer must be sought with the General Counsellors, and be accompanied by the appertaining evidence. Untransferable shares are those which (a) are the property of minors; (b) or of corporations, communities, or trusts; (c) those which are legally attached for debt; (d) or whose free disposition is otherwise restricted, whether by process of law or through some arrangement premised by the Bank. Attachments are noted in the book of shares. Uncollected dividends, after the lapse of three years, accrue to the reserve fund.

The Bank’s Administration.—None but Austrian or Hungarian citizens may take part in the general meeting of shareholders; and they must hold as many as twenty shares per capita. Extraordinary sessions may be called by written request of forty shareholders, within a term of sixty days. Disqualified for attending the general sessions are persons deprived of the full rights of citizenship, those fallen in bankruptcy, or under any legal castigation. The presence of one hundred members constitutes a working quorum. No member may send a substitute in his place. The General Assembly elects the General Counsellors, eight of whom shall be direct members of the Assembly; and two, in each case, shall be selected from candidates proposed by the Superior Directors in Vienna and Buda-Pesth. The General Assembly, further, elects five auditors and deputies to consider statutory changes, and increase or decrease of capital stock. The General Counsellors include the governor, two deputy-governors, and twelve advisers. The governor, upon unanimous recommendation of the General Assembly, is appointed by the Emperor. The governor’s annual salary is 20,000 florins, paid out of the Bank’s resources; and he has the freedom of residence in the Bank building at Vienna. The board of General Counsellors, with the Bank governor as chairman, represents the Bank officially and extrajudicially, and controls all matters not specially vested in the General Assembly. In fine, the General Counsellors constitute the firm of the Austrian Bank. Signatures are valid if made by the governor, a deputy-governor, or a General Counsellor, and attested by the First Secretary or his deputy. Headquarters in Vienna and Buda-Pesth, from time to time, determine in what proportions the sums at their disposal for discounts and loans shall be distributed among the several banks; and set maximum limits for the credit that may be advanced to firms or individuals. Members of the administration in Vienna must be Austrian citizens, and those at Buda-Pesth Hungarian citizens. Each of the local administrations is presided over by one of the deputy-governors. The General Counsellors, recommended by the General Assembly, are also members of the Superior Administration; and these recommended counsellors need not exclusively be members of the General Assembly, but non-members are likewise eligible in so far as their individual means would qualify them to become members of the Assembly. The directors are not salaried. They meet once a week, as a rule, and on a day named by the presiding deputy-governor. The ultimate direction of all branches of business devolves upon the First Secretary, under supervision of the General Counsellors. The final appointment of officials and employees rests with the General Counsellors, who also decide in cases of dismissal. Bank officers are bound to observe secrecy in matters of business. Each Government appoints a commissioner and a deputy-commissioner as Government agents for dealing with the Bank and making sure that the Bank administration is obedient to the statutes.

Business Regulations.—(a) The Austro-Hungarian Bank is empowered to discount bills, marketable effects, and coupons, or make further negotiation thereof; (b) to grant loans on collateral security; (c) to receive deposits for custody, and, to a certain degree, for management in behalf of the depositor; (d) to receive moneys under bond; and also (e) to receive moneys, bills, and marketable effects of short maturity in accounts current, or Bank accounts; (f) to issue money orders on all its bureaus; (g) to do business on commission; (h) to make payment on papers acceptable for security, and on their coupons when due; (i) to procure and also to sell gold and silver coin or bullion, and foreign bills of exchange; (k) to grant letters of mortgage conformably to the statutes of the department of mortgaged credit, now incorporated with the general Bank statutes; (l) to buy and convey the Bank’s own mortgage bonds.

The Austro-Hungarian Bank in both parts of the Empire is exempt from the operation of laws limiting the rate of interest. Payments to the Bank are valid only when made in bank notes or in legal specie.

Discount Operations.—The Bank is authorized to discount bills of exchange, both its own and others, provided they be payable in Austrian currency and mature within three months, inside the realm. Acceptable bills must be indorsed by three, and in no case less than two, signatures of substantial and recognized vouchers. Small bills are not excluded.

Loans.—The Bank is authorized to grant loans on security for a maximum term of three months. The following are acceptable kinds of security: (1) Gold and silver in Austrian, Hungarian, or foreign coin or bullion. (2) Papers of value which appear in the official lists of Austro-Hungarian money markets, to wit: (a) Austrian or Hungarian State securities; (b) Austrian or Hungarian provincial bonds; (c) bonds issued, with Government approval, by communities or other corporations under Government control and entitled to make assessments, or by credit institutions employed by such corporations; (d) mortgage bonds of the Austro-Hungarian Bank, and of other mortgage credit institutions of the Austro-Hungarian Monarchy; like-wise, legal Austrian or Hungarian certificates for the lawful administration of minors’ funds or other trusts; (e) shares fully paid in of Austrian or Hungarian transportation companies or industrial enterprises in actual operation; (f) priority bonds of the like companies and enterprises. (3) Bills of exchange maturing within six months at the latest, and in other respects conforming to previous regulations for bills of exchange. The General Counsellors fix the conditions of loans on gold and silver and on bills; also determining what particular securities shall be accepted, and in what proportion to the market quotations loans may be allowed, or to what maximum amount. These dispositions are in force at all the Bank’s bureaus, in both parts of the Empire. The borrower is at liberty to pay back his loan before maturity; but he may not, in that event, recover interest already paid to the Bank.

Deposits, Accounts Current, Small Notes, etc.—The Bank is obliged to take charge of deposits bearing interest; and it admits accounts current. It further undertakes collections on commission; and may issue small notes of no lower denomination than ten florins, two-fifths of whose total amount must be protected with gold or silver coin or bullion, and the remainder by the usual statutory means. These notes enjoy the exclusive privilege of passing at their full nominal value in case of all payments called for in Austrian currency, both at public counters and in private transactions within the country.

Regulations of the Austrian and Hungarian tribunals of commerce are not applicable to the Bank in case they be at variance with the Bank statutes; nor was the Bank obliged to register itself in conformity to the laws of trade.

Redemption of its Notes.—The provision whereby the Bank is obliged to redeem its notes in silver coin or bullion at the rate of forty-five florins per mint pound of fine silver, was so far extended by the law of August 2, 1892, that the Bank, at headquarters in Vienna and Buda-Pesth, is now obliged to redeem notes in legal gold coin as well, or in gold bullion, at their full nominal value according to the Imperial standard. The Bank is authorized to have gold bullion assayed and tested by experts of the Bank’s choice, at the sellers’ expense; and furthermore, to deduct the prescribed Government royalty.

Distribution of Profits.—Of the annual proceeds from business and invested funds, the shareholders are entitled to five per cent. on their paid subscriptions, after all expenses have been cleared. Eight per cent. of the surplus goes to the reserve fund, two per cent. to the pension fund, and from the residue the shareholders’ dividends may be increased to seven per cent. Any further surplus is equally divided between the shareholders and the dual Government, Austria receiving seventy per cent., Hungary thirty per cent., of the Government portion. Business reports must be published four times a month.

REGULATIONS OF THE MORTGAGE DEPARTMENT.

Upon reorganization of the Bank, the mortgage department was also overhauled, with certain statutory changes, of which we present the following summary: The main direction of the mortgage business is vested in the General Counsellors, who appoint the principal officers, fix the rate of interest, and other conditions with respect to loans, settlement of mortgage claims, and interest on the bonds. In certain circumstances, however, the advice of trustworthy outside specialists is obtained, at the discretion of the General Counsellors. The Government Bank Commissioners also inspect the mortgage department. The Bank’s general rights are supplemented, with reference to this department, in the following particulars: The Bank is exempt from all legal limitations of interest and from other conditions affecting loans. Of this, its books furnish ample evidence. No mortgage loan may be granted unless covered by twice its value in real estate; moreover, the Bank may assume loans already binding, provided there be full conveyance of all the appertaining rights. The committee of General Counsellors, upon consultation with the confidential outside specialists, estimates the value of the mortgage which is to secure the loan. Among means helpful for ascertaining the value of landed property may be mentioned legal assessments, revenues yielded in a series of years, contracts of lease or sale, divisions of inheritance, land-registry reports, the hundredth ground tax, and local prices and rent rates of land. The Bank is also empowered to collect the value of the proffered mortgage. In his bond the borrower must pledge himself: (a) To pay the interest and amortization rates semi-annually in advance; (b) in case of delayed interest, to pay forbearance dues; (c) on paying the second half-year’s charges, to satisfy the Bank that the fire insurance rates have been paid; (d) to undertake no alteration of the bond through subdivision or any like performance. The loan is not advanced until all conditions are fulfilled, and the borrower must especially make sure that his loan is properly classified. Even then, the payment may be refused in the following contingencies: (a) If the mortgage has declined in value since the loan was contracted; (b) when the borrower fails to collect his loan within thirty days; (c) when he has died; (d) when he has become insolvent; (e) when the mortgage is subject to legal auction.

Conditions and Limitations of Mortgage Bonds.—The Bank is authorized to issue bonds to the amount of 150,000,000 florins, though the total issue of bonds may not at any time exceed the total amount of current mortgage claims. Should mortgage loans be paid back in cash before they legally mature, the Bank is entitled to redeem the equivalent amount of mortgage bonds. The bonds are made out to the bearer, and accompanied by semiannual interest coupons. They are issued in specific amounts determined by the General Counsellors, but not under a minimum amount of 100 florins for a single bond. The mortgage bonds of the Austro-Hungarian Bank may be invested in both parts of the Empire, as a legitimate sort of productive capital, whether controlled by communities or other public corporations; and they may also be used as security for money of minors, private trusts, deposits, military marriages, and serve sundry other purposes of business and security, provided none of these transactions require cash payments. The bonds may be sold at the Bourse, and advertised in the official market reports. The latter dispositions afford a certain degree of compensation for the restriction which prevents the Bank from advancing cash or notes on its mortgage bonds; though even when the Bank offers to sell the bonds at the Bourse on the borrowers’ account, it remains at a disadvantage in comparison with the private mortgage banks, which may at once negotiate the loan in cash and so save the borrower time and expense.

SECTION VII.

STEPS TOWARD RESUMPTION OF SPECIE PAYMENTS.

CURRENCY REFORMS.

THE money revolution attending the enormous increase in the production of gold and silver at all sources of supply, together with the radical measures adopted by the Austrian and Hungarian exchequers, which have emerged from a condition of chronic deficit into one of surplus, and induced the statesmen of both governments to prepare the way for restoring specie payments. To this end, examining committees of experts were summoned to Vienna and Buda-Pesth, who, by a large majority, declared themselves in favor of currency reforms, and the transition to a gold standard. Legislative bills elaborated in the same spirit were voted with high majorities by both parliaments. Thus the great work was begun, but the co-operation of the Bank was necessary to the real task of execution; and this would involve new contracts and new statutes to be discussed and projected without delay by State and Bank authorities. Meanwhile, all preliminary steps have been taken. The Vienna mint has been equipped with the latest English machinery for expeditious coinage of the new gold, silver, nickel, and copper currency, and the Hungarian mint has been likewise energetic. The official reports affirm that the work of coining shall be completed by the autumn of 1896. Introductory measures promptly followed, as regards qualifying the Bank for the actual resumption of specie payments.

COINAGE CHANGES.

The principal factor of the currency reforms is provided in Article 4 of the law passed on August 11, 1892. This calls for coinage of national gold pieces of ten and twenty crowns; 147.6 twenty-crown pieces and 295.2 ten-crown pieces to be stamped from one kilogramme of mint standard gold; that is to say, 164 twenty-crown pieces and 328 ten-crown pieces to a kilogramme of fine gold. The national gold coins are alloyed in the proportion of 900,000 parts of fine gold to 100,000 parts of copper. So there are 2592 crowns to a kilogramme of mint gold, and 3280 crowns to a kilogramme of fine gold. Independently of the transition to a gold standard, the dual Government, in deference to the general notion that a small unit of currency favored a reduction of prices, had proposed, in the legislative bill, to abandon the denomination of florins, and adopt as the unit of currency the half of a florin, under the designation crown. The small kreutzers should also be halved, and half-kreutzers be circulated under the name of heller; 100 hellers making an Austrian crown. In brief, the florin shall be simply halved; and the silver florin will be replaced by two silver crowns. While the old silver and small coins continue in circulation for a time, the new crowns are gradually displacing florins, and nickel twenty-heller pieces displace the old ten-kreutzer silver pieces, which were thickly alloyed with copper. The big four-kreutzer copper coins are supplanted by nickel ten-heller pieces; and bronze hellers and two-heller pieces replace their copper predecessors. Silver crowns are alloyed at 835,000 parts of silver to 165,000 parts of copper. One kilogramme of mint silver yields 201 crowns; hence a silver crown weighs very nearly five grammes. One-crown pieces are coined only for the State; and the same is true of gold coins, except that twenty-crown pieces may be also coined for private individuals, in so far as the mint can do this without encroaching on its Government business. The coinage royalty shall not exceed three-tenths of one per cent. of the coin value. In future, no more four and eight florin gold pieces are to be coined; though the coinage of ducats is maintained because of their circulation in the Orient.

While the currency bill was pending, the Author submitted an open letter to the members of the Legislature, protesting against the halving of florins as a waste of time and a measure in itself superfluous. He also protested against the retirement of five-florin State notes, unless they were replaced by bank notes of like denomination, since the smaller, ten-crown gold coins wear away too rapidly, as appears from the experience of France, Great Britain, and the United States; and silver change consisting of twenty-crown gold pieces, too hugely stuffs the pockets. The adoption of crowns in place of silver florins was a mere fiddling to popular prejudice. As for the reduction of prices France has the small unit of francs and Great Britain the large unit of a pound sterling; yet bread is cheaper in London than in Paris. In connection with this matter, a member of the Austrian Examining Committee pointed out the fact that, on the former transition from the Vienna Convention standard to the Austrian standard, namely, from a larger to a smaller unit of currency, prices positively rose. The truth is, generalizations on this topic are worthless. In questions of universal variations in prices, we must distinguish between wholesale and retail, between transactions at great market centres and the penny dealings of the popular throng. We must consider both aggregate and separate sales of bread, meat, vegetables, grocery wares, drinks, etc. It may, indeed, happen in case of a transition from an old standard not easily reckoned in terms of the new, that Messieurs the innkeepers and traders will seek to clear a small profit of exchange; and this circumstance encourages the popular prejudice in favor of a small unit. But we are not at the like disadvantage in Austria, for, on passing from florins to crowns, the decimal system is retained, and the only operation required is to multiply by two; or divide by two, as the case may be. The old half-kreutzer will circulate under the new name, heller, without change of value. In regard to wholesale prices, which are regulated by the universal market, intense international competition is a safeguard against any defraudation in the event of currency reforms. Leaving out of account the slight fluctuations in rates of exchange and discount which follow the international movements of gold, the cost of a given amount of wheat, coal, petroleum, sugar, tobacco, or wine is not measured by a pound sterling, twenty-five francs, or five dollars; and the small unit of the Latin Monetary Union ensures not the least advantage over the Englishman’s pound sterling—twenty-five times the Latin unit. But such arguments made no impression on the parliamentary bodies; and the adoption of crowns was decreed along with the retirement of five-florin State notes. However, the opposition of the Chambers of Commerce has been so far effective that the Government proposes to authorize an issue of five-florin bank notes.

The difficult question of adjusting the ratio between silver and gold in changing the standard was settled by an easy compromise. The coinage of silver for private individuals had raised the price of paper florins sixteen to eighteen per cent. above that of the silver florins. Had the Government then wholly ignored the decline of silver, as was the fashion in States with a double standard, where silver thalers were accepted on a par with gold, the change of standards would have been seriously prejudicial to debtors. Equitable justice therefore occasioned a compromise by which both sides had to grant certain concessions. It was ordained that 100 crowns should be reckoned equal to forty-two florins in gold; that is, gold florins of the four-florin and eight-florin denominations. The silver value should be that of the standard silver florins prior to the great decline of 1872.

THE PROCUREMENT OF GOLD FOR RESUMPTION.

The ratification of these currency reforms called forth some complaints from creditors; but the changes found surprising favor with the population at large, and even the banking houses of Vienna and Buda-Pesth made patriotic efforts, sometimes to their own loss, to supply the Austro-Hungarian Bank with gold. The Finance Ministers of both States, in conjunction with a syndicate of bankers, operated the gold purchases and the appertaining conversions with such skill and felicity that for the most part only American gold coins, which were crowded out by the United States silver bill, and gold bullion from various gold-producing countries, were procured. The gold reserves of the great European banks were left intact; and not infrequently they stood higher in the German Imperial Bank and the Bank of England than the note circulation. Latterly, the gold reserve of the Bank of England was 19,000,000 pounds sterling. The same spirit which high financiers had manifested toward the new currency reforms also began to declare itself through speculations at the Stock Exchange.

The two Finance Ministers’ guarded purpose of achieving unity of plans, and their tact and confidence in the explanation and vindication of their methods, had not only dispelled many doubts on the part of the public, but had also inspired all circles of the produce and stock exchanges, capitalists, and brokers alike with confident anticipations of a successful realization of the proposed reforms.

RISE IN AUSTRIAN SECURITIES.

After both governments had been for a long time accumulating gold reserves, and the Bank’s gold store of 80,000,000 florins had promptly increased by 40,000,000 florins in the autumn of 1892, there also began such a rise and activity in Austro-Hungarian securities as had not been witnessed in a quarter of a century; though their steady upward movement had been perceptible since 1890. In consequence of two nearly contemporary causes, which were the disappearance of State deficits in Austria-Hungary and the outbreak of the Argentine crisis, and also by reason of the failure of Messrs. Baring Brothers, English and German capital began to move in larger and larger proportions toward Austria for investment in Austro-Hungarian funds. These offered the double advantage of security and a high rate of interest; for while the prevailing rate of interest in Western Europe has declined within the past twenty years to about three per cent., as appears from the discount rates of the Banks of England, France, Germany, Holland, and Belgium; likewise from the conversions of British and Portuguese consols, North American bonds and the French rentes, Austro-Hungarian funds continued to yield four to four and a half per cent. The improvement which was steadily perceptible in Austro-Hungarian investments from 1890 forward received a new impulse in 1892; and the extraordinary activity of the market rise may be illustrated by the following examples. From the middle of 1889 to the middle of 1892, note rentes advanced from 8340/100 to 9535/100, and to 9555/100 by 1893. Hungarian four per cent. gold rentes advanced in the first period from 10070/100 to 11085/100; and from the middle of 1892 to 1893, to 11610/100. Austrian four per cent. gold rentes, in the same periods, advanced from 10910/100 to 11275/100 and 11785/100.

THE SPECULATIVE REACTION.

From the middle of August, 1892, the advance was so swift that the cool observer was bound to feel anxious even before the end of that year. In a short time Vienna and Buda-Pesth had become the leading bourses of Europe. This could not last. A countermine must inevitably be sprung against such flourishing operations; and when there is occasion for counter-mining, Berlin employs the most reckless agents. But even without the interference of foreign speculators, the high price of Austrian securities must have tempted our foreign creditors, among whom none are more perfected in worldly thrift than the capitalists of the German Empire to seize the opportunity for profitable sales. In fact, this was done in course of the winter of 1892-93 to such a vast extent that we hesitate to report the unofficial figures, our efforts to obtain authentic data having been poorly rewarded. Certain it is that many millions’ worth of Austro-Hungarian securities came home in the first six or seven months of 1893 from sojourns in Germany, Belgium, and Holland. The securities were payable in gold, and the 40,000,000 florins in gold which the Bank had acquired by virtue of the statutory concession of August, 1892, must also be covered by gold notes abroad. At the same time, the Government was gradually calling in and turning over to the Austrian and Hungarian mints the long-accumulated gold reserve, most of which had been prudently distributed among secure banks both at home and abroad, in order to obviate a tightening of the international gold market. Hence, the rates of foreign exchange in Vienna and Buda-Pesth were bound to rise, and again bring about a formidable premium on gold. As a matter of fact, more than 100,000,000 florins in gold were conveyed abroad during this period. Such is the true and simple explanation of the unfavorable reaction of exchange in Austria-Hungary in the course of 1892 and 1893; albeit Bourse dealers and the newspapers, both in attacking and in defending the turn of events, befogged the question, which they called the “Financial Problem,” with many stupefying arguments. We lay small stress on the attacking side, whose charges were plainly referable to the strategy of Bourse manipulators, and in particular to the countermining game of Berlin. Those bogus Tartar dispatches were also too transparent. Even the usually serious and respectable Berlin “National Gazette” (“Berliner National-Zeitung”) announced that Austria was visited with the worst harvests of a whole decennium; though official reports had already certified that the crops were of medium quantity and of exceptionally fine quality. Simultaneously it was announced that Japan had stopped coining silver, and that in St. Petersburg the Russian Exchequer had declared silver roubles an ordinary market commodity, as much as to imply the abrogation of the silver standard. But news of this brand bore its own mark and moral. The policy of defence was not much better; its main argument being that the mercantile assets for 1892 had been 80,000,000 florins less than for 1891. However, this must be observed, that the exports for 1891 had exceeded the imports by 160,000,000 florins, or double the excess for 1892. Besides, comparisons of commercial situations must be instituted not months afterward, but during the very progress of events. On August 15, 1892, the Bank’s coin reserve was 249,000,000 florins, and 289,000,000 florins on October 23d. The note circulation had risen from 412,000,000 florins on August 15th to 492,000,000 florins by October 31st; bills of exchange, from 149,000,000 florins to 186,000,000 florins. Meanwhile, or from then till now, the rate of discount has constantly stood at four per cent. The Bank was not compelled to exhaust its untaxed circulation of notes; though by locking up the 40,000,000 florins of gold which it had procured within six weeks, it necessarily disturbed the money market, and was sharply censured by merchants and financiers. We all know how nervously susceptible are the conditions of trade; how troubled by the slightest unfavorable accident; and how prompt is the cry for help. The wealthy merchant or manufacturer who takes it quite amiss that Socialistic Democrats grow eloquent in appeals for State subsidy makes no scruple of calling on the State for protective duties or bespeaking the assistance of a privileged bank of issue. In this matter we have the most conspicuous modern example of national egoism in case of the great American Republic, with its high protective tariff and its silver bill. We do not incline to favor such tendencies, and though it may have been well for the Bank to secure its gold treasure, we hold that it should have been profitably invested until actually wanted at the mint. The testimony of both Finance Ministers goes to show that the Bank administration adhered too strictly to the principle of security. According to the Finance Minister of Hungary, the gold reserve of the Bank and the dual Government had reached the sum of 312,000,000 florins, whereas the mints were not prepared to coin the whole amount within a year. So the Bank might have kept the greater part of the 40,000,000 florins invested or deposited for a year at solid banks abroad, and thereby strengthened the international market, as well as reaped a fair margin of interest. It did, in fact, leave only 6,000,000 florins for this purpose.

SUSPENSION OF THE INDIA COINAGE.

The dread of a scarceness of gold was suddenly augmented in the summer of 1893 by two events, which, though long foreboded, still greatly agitated the silver market. These were the close of the India mint against the free coinage of silver, and the repeal of the silver bill of 1890 in the United States. The prompt and perfectly confident resolution displayed by the Indian Government in connection with the report of the parliamentary silver commission both checked the increased valuation of silver and alarmed silver magnates in all parts of the world. Whole cargoes of silver were on their way to India; but when the Indian Government refused to accept them for coinage, all the silver-producing States announced either an impending reduction of their output or the contemplated closing of their mines. The Indian Government partly followed the policy of the States of the Latin Union in 1878, and that of Austria-Hungary since 1879; only with greater consistency and practical conviction. The agreement to give fifteen Indian rupees for a gold sovereign clearly denotes the aim of introducing a gold standard. Consequences have thus far demonstrated that the project is not so difficult as many suppose. The very vastness of the country, and its population of nearly 300,000,000, which some regard as obstacles, really lighten the task. The great bulk of the population is so poor, and wages are so low, that even under a gold standard ordinary transactions might be compassed with base coin or small silver (“token money”). The mass of the people scarcely ever acquire enough cash to need a gold coin at all; and, after the introduction of a gold standard in India, the principal use of gold pieces would be limited to foreign trade. In their secondary capacity of merely representing gold values, the silver coins will not be affected by fluctuations of the silver market; and business will be generally more secure. We must also consider the circumstance that the Indian foreign trade usually exhibits higher exports than imports. In India, moreover, much gold is hoarded; as appears from the surplus of gold imports, which in the past thirty years have amounted to more than 120,000,000 pounds sterling. Now, if the native population should gain such confidence in State resources as to open the hidden treasures, and invest them in railways, steamships, irrigation, new plantations of tea, coffee, sugar, cotton, indigo, and wheat, or even in new manufactures, the Indian currency reforms could succeed without the necessity of application for gold in the international money market.

Views of this cast appear to have become uppermost among our own public, and people are beginning to dismiss anxiety on the score of our currency reforms. No doubt, their confidence is strengthened by the increasing yield of gold and the constant export of gold from the United States; not to mention the gradual steps which Russia has latterly been taking toward the transition to a gold standard. We have learned from trustworthy diplomatic sources that Russia has already accumulated a gold reserve of 700,000,000 florins, which are stored in the Imperial Bank cellars and in the State Treasury.* The two ordinances which, on the one hand, sanction the validity of bills payable in gold, and in turn put a tariff on Russian gold coins, distinctly indicate Russia’s purpose of steering toward a gold standard; but at the same time, it is purposed to guard the public from pitfalls of arbitration.

Meanwhile, the Austro-Hungarian Government has been active in furthering the new currency laws; and, at the date of this writing, has advanced to the Bank 125,000,000 florins in twenty-crown gold pieces for an equivalent amount of silver florins and bank notes, to provide for the withdrawal and cancellation of the like sum of State notes. First of all, 65,000,000 florins in one-florin State notes were retired and destroyed; their whole issue being now extinct. Next, five-florin to fifty-florin State notes were withdrawn to the amount of about 60,000,000 florins; though the retirement of five-florin notes was afterward suspended in deference to loud public remonstrance and protests from the chambers of commerce on account of the dearth of small notes. The latter want was not satisfied by the tencrown gold pieces; and there were no five-florin bank notes. Even the previous withdrawal of State notes had caused the gold premium to disappear, and gold was twice down to par before the last Bourse panic.

RELATIONS OF THE BANK TO THE STATE.

The currency reforms have so far progressed that the resulting financial superstructure will soon be ready for the crowning-stone. On renewal of the Bank’s charter, its relations to the dual Government are also established on a new basis. The present charter expires at the close of 1897; but since the co-operation of the Bank is indispensable to the resumption of specie payments, its understanding with the State must be adjusted before the charter actually lapses. The Bank administration timely remembered this necessity, and proposed its terms and conditions. But they were so onesided and altogether favorable to the shareholders that sharp opposition arose in Government circles and in the press, and effectual negotiation between the Bank and the Government delegates has not yet been begun; although the last official report of the Vienna mint announces that the new coinage will be completed by the end of 1896. That is to say, by that time the Bank is expected to be ready to fully resume specie payments.

In a memorial of Hon. Emil von Mecenseffy, First Secretary of the Austro-Hungarian Bank, touching the worth and value of the charter, the claims of the public are considered in their true light. Especially this plea is advocated, that the State’s debt to the Bank, which by force of the statutes of 1888 yields no interest, and is to be gradually extinguished by the dividends accuring to both States, shall be now paid once for all, in order to enable the Bank to meet its constitutional obligations of redeeming its notes in gold coin at all times without fail. The memorial emphasizes the importance of mutual concessions, as follows: “In the proceedings pertaining to a charter, the Austro-Hungarian Bank assumes and plainly expresses the intention of meeting the wants of high governments and parliaments, upon the future establishment of the Bank, with all the wealth of its experience, and in the most responsive manner. The Bank also entertains the conviction that the high governments and parliaments, on ratifying the terms of the future charter, will incline to take full account of the grave duties, burdens, and responsibilities which will devolve on the Bank under its essentially altered relations.”

It seems to us that in all transactions between the Bank and the Government until the present time, there has been too little of acute discrimination respecting the intrinsic functions of note circulation. The issue of notes is, in fact, one of the forms of credit which the public allows the Bank. When the public, that is to say, the total community, uses the Bank’s notes in making payments, it virtually credits the issuing institution, which is bound to make answerable compensation. The least return the State can claim for its concessions of such credit, by vesting the Bank with exclusive powers, is half the net proceeds; and this is done in practice by the German Imperial Bank. These things being so, the Bank will probably agree to a reasonable compromise. But apart from fundamental precepts, it is charged that throughout the period of obligatory legal tender, the Bank favored the interests of its shareholders rather than the weal of the State. On another side, the reproach was urged that the Bank had been mismanaged in the matter of Von Lucam’s wise gold policy, that it had not warmed up to the proper realization of his plans for adopting a gold standard, but had sought to injure the shareholders by clinging to the existing silver standard, and, in the same spirit, had impeded the free course of discounts. We have already seen that there was no foundation for the reproach about Von Lucam’s gold policy, which in his own day was checked by the indiscreet prying of General Counsellors. But any strictures about conniving at the retention of the silver standard and profiting by the compulsory legal tender apply quite as directly to the public and the Government, also to the press; for, according to the general opinion, the reaction in favor of a gold standard is something wholly recent. Be this as it may, there is a prevailing sentiment, in Hungary at least, that the State should exercise a greater influence on the discount policy of the Austro-Hungarian Bank.

PROPOSED RESTORATION OF BANK OF HUNGARY’S INDEPENDENCE.

The press was outspoken in behalf of a revision of the Bank Act along lines followed by the German Imperial Bank; and as in Hungary questions of economics easily assume a political bent, there is also an extreme radical party, zealous for the creation of an independent Hungarian bank of issue as one of that country’s national rights. At the same time, an intermediate opinion is voiced, which proposes that, in addition to the present Austro-Hungarian Bank, which might be advantageously reconstructed as an Imperial Austrian Bank on the model of the German Imperial Bank, there shall be an independent royal Hungarian bank of issue, under the direct control of the Hungarian Finance Minister, just as the Austrian Finance Minister should be the supreme governor of the Austrian Bank. The two banks should have nothing organically in common—only the issue of notes. Hungary’s finances being now as well-ordered as those of Austria, and the once chronic deficits of both States being now replaced by an annual surplus, the author* of the intermediate plan believes that a separate Hungarian bank would be no less solvent than an Imperial Austrian Bank. The present practice of printing the notes in German on one side and in Hungarian on the other could be retained with slight verbal modifications. Of course, both banks would have to redeem their notes in gold; and against this there should be no obstacle, in view of the huge increase of the international supply of gold and the circumstance that Vienna and Buda-Pesth are only five hours apart by railway; so that any extraordinary diminution of either bank’s coin reserve could be offset without delay by transfer of gold from the other bank. Under this double security, the notes of both banks would enjoy such confidence in both States that they could circulate without hindrance in all the Empire, and also, to a greater degree than at present, in foreign countries, the premium on gold being removed.

This proposition had found much support among the people of Hungary, where everything is welcome which looks toward national independence. For this very reason it was received with coldness or distrust in Austria, where everything must exert itself to strengthen the political dualism. But since even in Hungary there is an influential minority of statesmen and financiers which opposes political separation on grounds of economy, the possibility remains that an adjustment will be again decreed according to the present organization of the Bank. Hungarian merchants are very willing to admit that since the statutory revision of 1887, the Austro-Hungarian Bank, as directed by a Hungarian governor and a Hungarian First Secretary, has carefully promoted the cause of Hungarian credit.

To sum up the situation: First, the claim of Hungary as regards establishing an independent bank of issue is not contested, though Austria fears a certain propensity on the part of Hungary toward inflation of currency, to the prejudice of unfailing redemption in coin. Secondly, Hungarian statesmen and financiers are themselves somewhat anxious lest under an independent bank Hungarian credit might deteriorate for want of a sufficient volume of deposits, the population of Hungary not ensuring their increase through the same thrift as prevails among the Austrians. Thirdly, therefore, a compromise on the present basis is likely to be adopted, possibly with some new features borrowed from the constitution of the German Imperial Bank. This should be achieved in 1896, or at the latest in 1897; so that, when the new coinage is completed, there may be no impediment in the way of restoring specie payments.

Just as we are about to dispatch our manuscript, we learn from an orthodox source that both governments, in order to smooth all susceptibilities, have adopted the following modus procedendi: The Bank governor and both deputy-governors shall be appointed by his Imperial and Royal Majesty, the Emperor of Austria and King of Hungary. The board of General Counsellors shall consist of six Austrians and six Hungarians—twelve members in all. These shall be appointed, half by the General Assembly, half by the Governments. Deliberations upon changes in the rate of interest and upon other weighty questions shall take shape at the joint sessions, held alternately in Vienna and Buda-Pesth.

In an appendix to this treatise we shall present a series of statistical statements which bring out with much distinctness the effect of the new currency reforms in augmenting the gold reserve. The reader is referred to the data for 1892 and 1893.

THE BANK’S PROFITS IN 1895.

The General Counsellors of the Austro-Hungarian Bank determined the balance for 1895 in the first half of January, 1896. Net profits for 1895 amount to 7,081,219 florins, an increase of 441,695 florins over 1894. The shareholders first receive a dividend of five per cent. on their subscription, or a first dividend of 4,500,000 florins; then four per cent. of the residue, or 163,248 florins, is added to the pension fund; next, the dividend is increased to seven per cent.; and the final surplus, 677,970 florins, is equally divided between the Bank and the State—namely, the Bank receives 338,985 florins and the dual State the other half. The State further receives the note tax, which in 1895 amounted to 196,429 florins, payable out of the net profits. The total returns to the State were therefore 535,414 florins, which are employed in extinguishing the 80,000,000-florin debt, now reduced to 76,322,459 florins. So the shareholders received 338,985 florins in addition to the seven per cent. dividend, and 8985 florins were carried over to the new account. The General Counsellors fixed the final portion for the shareholders at forty-four florins and twenty kreutzers per share of 600 florins, or at 7367/1000 per cent., against forty-two florins and ninety kreutzers, or 715/100 per cent. for 1894. A partial payment of fifteen florins per share having been already furnished, the General Assembly will still have to approve twenty-nine florins and twenty kreutzers per share; and there is no doubt of their accepting the official balance.

CHAPTER II.

AUSTRIAN JOINT-STOCK BANKS AND BANKING ASSOCIATIONS.

THE VIENNA CLEARING-HOUSE.

IT was first attempted to handle the clearing-house business at Vienna on the plan of the like English and American institutions; but the attempt proved so slow and feeble in the way of results that a new organization was introduced, which deserves to be generally known. We refer to the Vienna Giro und Cassen-Verein.

Frequent complaints were formerly heard that the Vienna mercantile community made too little of the “bank account” department of the old Austrian National Bank. As late as 1873, only 1474 of the registered Vienna firms, out of a total number of 6100, had their folios in the various local banks. In 1864, when the Bank of England joined the London Clearing-House, a similar institution was founded in Vienna, at the instigation of the Austrian Credit Bank, and under the name Vienna Saldirungsverein (Balancing Association). This began business on December 1, 1864, in the so-called Saldosaale (Balance Hall, or Clearing-House). Four of the principal banks had announced to the mercantile community that they would daily adjust their claims at the new institution by the exchange of bills, cheques, money orders, etc.; and they invited the community to patronize the new enterprise by opening bank accounts with the banks of Vienna. The four leading banks were the Austrian National, the Austrian Credit Bank, the Lower Austrian Discount Company, and the Anglo Bank. At this stage, the proportion of settlements made in cash was as high as forty and a half per cent. At present, ten banks are associated with the Vienna Saldirungsverein, namely, the following six in addition to the four previously mentioned—the Union Bank, General Commercial Bank, Vienna Giro und Cassen-Verein, General Deposit Bank, Territorial Bank, and the Vienna Banking Association. All except the General Commercial Bank had “bank account” departments in 1887. The clearances from 1865 to 1873 were from 300 to 700 million florins per annum—two-thirds being made in paper and one-third in cash. The paper facilities are by no means utilized to the same degree as in London and New York, where cash clearances average only from four to five per cent. The transactions for 1887 were 551,472,661 florins; the total item for the Austro-Hungarian Bank being 135,000,000 florins. But the clearing-house business in Vienna received a new impulse by the founding of the Giro und Cassen-Verein, which (as appeared above) was also associated with the Saldirungsverein, and in 1887 turned over 143,324,082 florins. It is true that London was a century before us in this branch of business, and both elsewhere in Great Britain and in the United States there were clearing-houses many years before we thought of starting one in Austria; nor may it be expected that Vienna will ever reach the colossal results of London and New York. Nevertheless, the Vienna Giro und Cassen-Verein is just as intense in its activity and as perfectly equipped as the model clearing-houses of the United States and England. in the latter centres, the clerks of associated banks or firms meet at stated times and in specially appointed halls, to exchange cheques, bills, etc., and settle various claims; but all such business, and more besides, is managed by the Giro und Cassen-Verein alone. Its maximum annual transactions were 7,668,904,167 florins in 1881, 5,571,638,178 florins in 1882, and 8,112,396,442 florins in 1894. This is a moderate showing, even for the relative size of Vienna, when we consider London clearances, amounting to 6,000,000,000 pounds sterling; yet it is large in view of the circumstance that cheques are but imperfectly naturalized with us, whereas in London all payments of the middle and upper classes are made by cheques. Such differences of habit are explained by the difference of circulating mediums and of popular traditions. Notwithstanding occasionally depreciated currency, the Austrian circulating mediums are more convenient, especially for dealings between Vienna and the provinces, than those of England. The lowest denomination of English bank notes is five pounds, or ten times our lowest in Austria. Moreover, the Bank of England employs no further protection against counterfeits than to manufacture its own notes from its own water-marked paper; so that, there, both the Bank managers and the public are more distrustful of counterfeits than in Austria. The Bank of England holds all notes once returned from circulation—perforates and eventually destroys them. This affords an exact history of the duration of circulated notes. Indeed, the London banks, hotels, and public are so suspicious of counterfeits that one may hardly get a ten-pound note changed without introduction by somebody of known credit. We were ourselves obliged to call on the clerk of one of our merchant friends in the City in order to get change for a ten-pound note; and a five-pound note led us the long two hours’ chase from the Grosvenor Hotel, by Victoria Station, to the Bank of England, because the note had been issued by the branch bank at Southampton, and so excited the hotel cashier’s suspicion. No wonder that every well-to-do citizen of London keeps a bank account, and always carries his cheque-book with him, and but little extra cash. The formality of cheques, however, is decidedly more troublesome than the Austrian general use of bank notes; and the small five and ten florin notes also save the inconvenience of carrying considerable sums of silver. This practical usefulness of our currency, and the comparative helplessness of the English note circulation, explain our limited and backward adoption of cheques and the enormous multiplication of cheques in London. Lately, however, postoffice orders have become a quite popular form of currency, and they are generally accepted. The business facilities enjoyed by patrons of the Giro und Cassen-Verein are much wider than those offered by the English and American clearing-houses.

THE GIRO UND CASSEN-VEREIN.

The Vienna house not only receives deposits of money in accounts current, but also securities for deposit and bills of exchange for collection. The firms which deal with the Giro und Cassen-Verein are not obliged to handle the securities which they wish to buy or sell, but only to have the bargains transferred from one folio to the other. Besides buying and selling deposited securities, the Cassen-Verein also draws in coupons when due, and attends to time contracts. The Austrian Credit Bank and the Lower Austrian Discount Company pay two per cent. interest on deposits; but the Cassen-Verein, instead of paying interest, allows its patrons a percentage of the net profits in excess of six per cent., apportioned according to the size of their accounts. Even when the net profits come short of six per cent., and there is no surplus to be meted out, the Cassen-Verein’s patrons have this advantage, that all their business transfers are effected gratuitously. As a rule, the chief clearance business of nearly all the banks and banking houses is committed to the Cassen-Verein; they deal with it in accounts current, effect their mutual conveyances through its agency, and deposit with it their principal securities, inasmuch as the Cassen-Verein has extraordinary accommodations of security for this purpose. The transfer of securities, like that of money, being mostly effected by clearing-house paper, the banking houses need hardly half the clerical personnel required before the Giro und Cassen-Verein was founded. Many banking houses also keep reserve deposits at the Austro-Hungarian Bank. A great time-saving device has been adopted in the department of coupons, in the guise of an ingeniously constructed machine. This is fed with coupons in batches, and the slips are turned out perforated and automatically numbered. The trouble of stamping and numbering coupons by hand is thus avoided. They are delivered in bound parcels—100 parcels to a package—and the bearers receive accompanying cards, which give the numerical order and total amount of the coupons.

The structural arrangements of the palatial edifice which serves as the local habitation of the Giro und Cassen-Verein are admirable, and ensure perfect security to the deposits. Valuable papers are kept in two deep subterranean vaults, absolutely fire-proof, and lighted day and night by glass-insulated gas burners, high above reach, near the lofty ceiling. The light may be magnified or softened by turning the stop in a remote corner. Adjoining the vaults is a manipulating room, lighted from a deeply depressed courtyard. The windows are guarded by strong iron bars, and the whole basement can also be flooded with water in a very few minutes. The vaults are lined with great fire-proof safes, immured in the walls. An iron railway encircles the vaulted compartments. The surrounding corridor is nightly patrolled by two watchmen, who, through staunchly barred loop-holes, must look into the vaults every half-hour, to ascertain that nothing suspicious is brewing within, and they are obliged to attest their vigilant presence by touching an electric button. The instantaneous message is then communicated by a conducting-wire to a clock in the uppermost story, and this clock records the intelligence by dropping points on a great arch or conceptive dial, whose registrations are inspected every morning by the officer in charge. The telegraphic apparatus is further utilized. Fine wires are drawn across the space behind the iron bars, and any attempt to break through a door or window would be instantly signaled by the rupture of a wire. The electric bells in the rooms occupied by resident officials would loudly ring, and by pressing a button the basement could be straightway flooded. In view of the useful activity of the Cassen-Verein, which, as previously mentioned, undertakes more diversified operations than the English and American clearing-houses, it is not surprising that its transactions from the very start attained large proportions. It began business on July 1, 1872, and even in that first half-year the bank accounts amounted to 4,022,198 florins; cash accounts, to 2,681,520 florins, and the total sums turned over in the first half-year, to 2,296,598,351 florins.

By courtesy of Mr. Isidor Kanitz, director of the institution, we are enabled to give data for that and the succeeding years, as follows:

AUSTRIAN CREDIT BANK FOR TRADE AND INDUSTRY.

(Oesterreichische Credit-Anstalt für Handel und Gewerbe.)

The Austrian Credit Bank, founded in 1855, is nearly as old as the French crédit mobilier. The company is located in Vienna, with privileges of organizing branches and agencies at home and abroad. Within terms defined by the laws of trade, it may also interest itself as a limited partner in other firms. Branches may be erected for all or for only some of the operations designated in the statutes, and whatever be their functions, they have the same rights and obligations as the main organization. The charter was granted for ninety years, dating from 1855. In a few years after the original company was chartered, branches were created at Prague, Brunn, Lemberg, Buda-Pesth, Trieste, and Alexandria, though the latter was subsequently discontinued.

The company’s business departments may be classified as follows:

In addition to these comprehensive rights, the Credit Bank is also authorized to issue interest-bearing bonds of its own, whose total amount must always be secured by its proper resources, marketable effects, covered capital claims, and real estate. These bonds must not mature within less than one year, nor be issued in lower denominations than 100 florins. Their form must be submitted to the State for approval. The Credit Bank is authorized to issue certificates or warrants for the merchandise or raw materials on which it advances loans. The original capital stock was fixed at 100,000,000 florins, of which 60,000,000 florins were paid in. The result of twelve years’ operations showed that such a large capital was unnecessary, if the old experience held good, that a bank is a public receptacle for surplus capital, which it proceeds to distribute according to local needs. The Austrian Credit Bank soon became such a receiving and distributing centre, for its management was excellent. In 1868, it resolved to reduce its capital stock to 40,000,000 florins, in 250,000 shares at 160 florins each; and the step was defended as follows, in the business report for 1868.

“The Imperial edict dated May 20, 1868, sanctioned the resolution which was adopted at our general session of March 31, 1867, with reference to reducing our capital stock from 60,000,000 to 40,000,000 florins. To this end, we are authorized to buy in 50,000 joint-stock shares at their nominal value at the public Bourse; and then cancel the same, together with the 50,000 shares already bought in and held by the Bank. It was further ordained that these operations should be conducted in strict conformity to the regulations of the Commercial Code.”

The right of issuing new shares was reserved to the General Assembly of shareholders. Wide concessions were made to the founders of the institution, as in the event of an increase of capital stock above 60,000,000 florins they had the privilege of acquiring one-third of the added shares, while the other two-thirds should be held by the former shareholders. Despite these sweeping rights, or perhaps because of them, the institution rapidly gained vast influence, and suffered no loss of credit, even on occasion of several serious injuries by bad officials. Rather, the public confidence grew so great that the shares of the Credit Bank became the standard paper at the Bourses of Vienna and Buda-Pesth; and quite often even Berlin speculators based their operations on the status of Austrian Credit shares. The institution’s high status is also proved by the favor it receives when associated in raising State loans or effecting State conversions.

Data from the reports for 1894 will appear in the Appendix to this treatise.

The business development of the Austrian Credit Bank is especially important in the two features of State loans and discounts. As a syndicate firm for the floating of State loans, the institution has won an influential position, in line with the Rothschilds and the Berlin Discount Company, not to speak of other great banks in both Berlin and Vienna. By its judicious management, the great Hungarian loan of 400,000,000 florins was converted into four per cent. rentes, though only twenty years ago Hungary had to pay interest on the same at nine per cent.

The following table shows the dividends declared from 1856, the year after the institution was founded, to 1890, together with the price of shares:

LOWER AUSTRIAN DISCOUNT COMPANY.

This institution was founded in 1853, and next to the Austro-Hungarian Bank, it is the oldest discounting house in Austria. Its capital stock for the first few years consisted of 4,981,500 florins in 9963 shares of 500 florins each. The stock was increased to 5,000,000 florins in 1856, making 10,000 shares; and by another million florins in 1859, through the issue of 2000 new shares. It now consists of 9,800,000 florins, in 19,600 untransferable shares. The Discount Company supplied an urgent public want; and so sound has been its business régime that not even the embezzlement of 2,000,000 florins by one of its higher officials, about a decade ago, had power to undermine its credit. Business data will appear in the Appendix.

ANGLO-AUSTRIAN BANK.

This bank was organized in 1864, with a capital stock of 20,000,000 florins, of which only thirty per cent. was originally paid in. By the end of 1870, the paid-in stock was increased to 14,000,000 florins, and it now amounts to 18,000,000 florins in 150,000,000 shares of nominally 200 florins each, but effectually only 120 florins each. The Anglo Bank also issues mortgage bonds at four and a half per cent., which may be legally offered by way of security and invested in the way of private foundations, minors’ and other trusts, and as ordinary deposits. Statistical data of this bank may be found in the Appendix.

AUSTRIAN TERRITORIAL BANK.

This institution was founded mainly by French capital. It rendered special service by drawing French investors to take part in the fusion of the extensive Styrian mining companies. Those capitalists, however, were obliged to divert a large portion of their funds to Servia, in order to reap speedier profits. The Territorial Bank was established in 1880, at first with a capital of 80,000,000 florins; but as it soon appeared that so great a sum could not immediately find profitable occupation, the stock was reduced to 40,000,000 florins in gold, Austrian standard, fully subscribed and paid in. The Bank has very diversified interests in foreign railways, mines, and State loans. Its privileges and limitations are similar to those of the Austrian Credit Bank. See Appendix for data.

GENERAL AUSTRIAN MORTGAGE BANK.

This highly prosperous organization was started in 1864. At the first general meeting of shareholders, on April 24th, it was ascertained that 30,400 shares at 200 florins each had been paid in to the extent of forty per cent., and that there was no lack of customers. Indeed, the want of credit was so pressing that by the end of 1875, 11,189 applications for loans had come in, amounting to 54,532,700 florins; of which applications, 9277, amounting to 35,626,700 florins, had been rejected on statutory grounds; 1912 loans granted, amounting to 18,906,000 florins; but only 1648 of them realized, at an amount of 16,388,600 florins. The Bank’s charter was revised in 1881, with a term of ninety years. The business headquarters are in Vienna; and though the charter is limited to Austria, the actual operations also embrace Hungary.

The following rights and restrictions are provided:

The extraordinary activity which these liberal privileges encourage has not only never endangered the Bank’s stability, but has wholly contributed to its success. The net profits have averaged fourteen per cent. a year, save in the five years following the disasters of 1873. Before that time there had been dividends as high as 17, 20, 21, and 26 per cent. These remarkable profits are partly explained by the difference between the mortgage bonds and the mortgage loans, and partly by the directors’ management of bills of exchange at short sight. Much of the capital stock was subscribed in Paris, and this brought in a welcome supply of foreign funds, which were employed in agricultural improvements. The Bank requires mortgaged security three times the nominal value of its loans; and on this basis it had issued bonds to the amount of 15,600,000 florins, even by the close of 1865, in the first period of its operations. Outside its mortgage business it profitably devoted its working funds to the usual departments of banking; and the discount traffic reached a round sum of 54,000,000 florins; contango transactions, 30,000,000 florins, and the total cash transactions over 120,000,000 florins. Finally, the Bank might largely associate itself with great financial syndicates, and co-operate in the issue of State loans. At the beginning of 1887 the total item of loans was 143,000,000 florins, and the issue of mortgage bonds had risen to 138,000,000 florins.

For further facts, see Appendix; also, for the business report of 1894.

THE UNION BANK.

This bank was founded in 1870, with a capital stock of 12,000,000 florins. It was properly the amalgamation of four older banks. It has notably satisfied public wants in the way of opening a warehouse department, with capacious docks. In this connection it give an impetus to the legal issue of warrants. By 1887 more than 12,000,000 florins had been advanced on merchandise and warrants. The Bank has its own warehouse in Vienna; and, by the close of 1887, about 350,000 cwt. of goods lay stored therein, with an insurance value of over 3,000,000 florins. There are branches in Trieste and at Sarajevo, in Bosnia. It is widely concerned in syndicates and industrial enterprises.

For data, see Appendix.

VIENNA BANKING ASSOCIATION.

This was founded in 1869, with a nominal stock of 8,000,000 florins in 40,000 shares at 200 florins each, of which 40 per cent. was paid in; so that the effectual capital was 3,200,000 florins. In 1875, however, the effectual capital was increased to 12,000,000 florins. The Bank was thus put in a position to join a number of profitable syndicates.

For data, see Appendix.

GENERAL SURVEY OF OTHER AUSTRIAN BANKS.

The number of other discount, credit, and mortgage banks in Austria-Hungary is too great for us to attempt a complete review of their statutes and business operations; it must therefore suffice to give a sketch of them according to materials derived from sundry financial journals, and such statistical authorities as Mr. Ehrenberger and Dr. Rauchberg.

The years of over-speculation which led to the crisis of 1873 were serious times for banking in Austria-Hungary. Never had so many banks been founded in so short a time as were established at Vienna and Buda-Pesth in 1872 and 1873; nor did ever so many banks collapse shortly after their organization. Business which ought properly to have been managed by private persons was metamorphosed into the semblance of a bank; for instance, that of the stock-brokers, who were among the first to “break.” From data compiled by Mr. Ehrenberger, it appears that most of the banks founded prior to 1868, of which the principal ones had been started in the fifties, withstood the storm of 1873; whereas of the seventy banks founded at Vienna from 1868 to 1873, only eighteen were still operative in 1883, and of sixty-five provincial banks founded in the same year, only twenty-one were alive in 1883. We append an illustrative table showing the status of these institutions (expressed in millions and thousands):

With the exception of the Austrian Bank, only forty-seven banks may be regarded as still substantially solvent after 1883, geographically distributed as follows: Lower Austria, 15 (of which 14 belong to Vienna); Upper Austria, 2; Carniola, 1; Styria, 2; Coast Province, 2; Tyrol and Vorarlberg, 1; Bohemia, 12; Moravia, 2; Silesia, 1; Galicia, 4; Bukowina, 1; Dalmatia, 4. Twenty-nine of these banks engage in mercantile and industrial applications of credit, as well as in agricultural operations of the crédit mobilier; sixteen confine themselves to ordinary banking business; and others, including some of both the preceding classes, make most of their profits through large foundations, funding of loans, etc. In the period from 1869 to 1883, the movements in the capital stock, including that of the Austro-Hungarian Bank, were as follows:

Including the Austro-Hungarian Bank, we may classify the banks as follows, the amounts being represented in Austrian florins:

The balances for the separate years from 1870 to 1883 reveal unexampled fluctuations. Except in the case of the Austro-Hungarian Bank, the maximum total of liabilities occurred in 1872, at 1,466,000,000 florins, and the minimum, 784,000,000 florins, in 1877. The liabilities of Vienna banks decreased by fifty-four per cent.; those of the provincial banks by only twenty per cent. As business revived, liabilities rose again from 1878 forward; not appreciably, however, in the case of the Austro-Hungarian Bank. The following table shows the distribution of liabilities in percentages, exclusive of the Austro-Hungarian Bank:

The item of exchequer bills calls for special remark, as they require longer terms of notice than other interest-bearing deposits. On the side of assets, the least fluctuation appeared in the items of bills of exchange and mortgage loans. The latter departments represent the ordinary course of business, and are least influenced by speculations at the Bourse. Still, the bills portfolio could not altogether escape the effects of critical years; and from its maximum status of 337,000,000 florins in 1872, it declined to 259,000,000 florins in the six years following. A constant improvement set in at the close of 1878, and by 1883 the bills had again reached a maximum of 338,000,000 florins. Their subsequent movement varied somewhat according to turns of the market, but on the whole it was steadily and solidly upward. Loans show less uniformity, because they are also connected with contango operations, and these are more or less subject to chance. Loans dropped by a round fifty per cent. from their high status just before the critical period, in the course of the next nine years. We subjoin a classified table of assets in percentages, exclusive of the Austro-Hungarian Bank:

Next, we may distribute the assets among the respective banks as follows, including the Austro-Hungarian, stated in millions of florins and percentages:

The several headings of the assets columns below express the sundry departments of business; nearly all of which require special technical direction. That direction implies an adaptation to banks of the general economic principle known as division of labor. (We are at present quoting from Dr. Heinrich Rauchberg.)

The following statement gives the same items in percentages:

AUSTRIAN ASSOCIATIONS, OR CO-OPERATIVE SOCIETIES.

These institutions were legally organized toward the close of 1860. The Imperial Diet, in considering measures to be adopted, very carefully avoided the mistake of the German Empire, and gave no advantage to the rich over the poor. The matter of limited or unlimited liability was left optional with the organizing members. In practice, the societies are about equally divided. However, this remarkable fact was observed in the stormy years following the crisis of 1873, that the number of unlimited societies which fell into bankruptcy was much greater than that of bankrupt limited societies. There was the same reason for this as in England; namely, that in case of unlimited liability, the partners feel too much confidence in the directors and attach too little importance to cautious management. In Austria, co-operative societies have not attained wide development; there were too many older, powerful savings institutions, not to mention the new and admirable postal savings-banks, with their highly successful system of cheques. Lastly, there is the effectual competition of many local and provincial banks. The transactions of these societies are therefore very modest; their savings deposits are usually in sums less than 100 florins, and only in exceptional instances do the separate sums amount to 3000, 4000, or 7000 florins. Data furnished by the Austro-Hungarian financial year-book, “Compass,” are so meagre that we shall not attempt any tabulated statements.

SAVINGS-BANKS.

In the front rank of savings-banks appears the Postal Savings-Bank, which has by far the most perfect organization. Founded as recently as 1883, this institution soon spread into fourteen of the Crown lands; and when the department of cheques, or money orders, was added to its business, all classes of society patronized its bureaus. The number of its customers in 1894 was about 2,000,000, and their deposits amounted to more than 124,000,000 florins. There were over 1,000,000 depositors under twenty years of age, one-third of whom were children under ten years. Transactions in cheques and clearances amounted to 46,000,000 florins in 1884, 265,000,000 florins in 1885, and above 1,367,000,000 in 1894. The secret of this prodigious activity is quite simple, in that the whole transfer of payments is gratuitous. Every postal savings-bank money order, drawn by any depositor, is at once made payable in cash and receipted at any post-office in any part of the Empire, without cost of postage or other charges whatsoever.

For further data, see Appendix.

CHAPTER III.

HUNGARIAN JOINT-STOCK BANKS AND PRIVATE CREDIT INSTITUTIONS.

THE ERA OF PRIVATE BANKING.

PRIVATE banking in Hungary received its main impulse about the time of the crisis of 1873, when many joint-stock companies came into being. The Hungarian soil is a fruitful field for credit operations, for it is the most fertile in Europe, and the climate is mild. Moreover, land is cheap and wages are lower than in most of the Austrian provinces. Under such conditions, interest on movable capital is high, greatly varying also according to the different counties. Only ten years ago, the interest rates of savings-banks ranged from four and a half to twelve per cent.; and fifteen years ago, the State itself had to pay nine per cent. on loans at short sight. But such excessive rates have given way to the powerful financial revolutions of the past decade. The State now pays only four per cent. on its gold rentes; and the Austro-Hungarian Bank maintains a very constant interest rate of four and a half to five per cent. By the revised Bank Act of 1887, the appropriation to the Austro-Hungarian Bank for discounts in Hungary was materially increased, and the same bank’s Hungarian mortgage loans rose to 90,000,000 florins. Again, Hungary’s liberal concessions to foreign industrial enterprises, in the way of periodical abatement of taxes, customs, and State railway freights, offer potent inducements to outside capital. In 1882, there were 113 discount and commercial banks in Hungary and 289 co-operative banking societies, with rates of discount ranging from four to fourteen per cent., and of interest on loans from six to ten per cent. Interest-bearing deposits, for which certificates or bonds are issued, yielded from three and a half to four and a half per cent. We append a table showing the condition of the aggregate Hungarian joint-stock banks and credit institutions from 1873 to 1882, inclusive, stated in Austrian florins:

HUNGARIAN MORTGAGE BANKS.

In addition to the mortgage department of the Austro-Hungarian Bank, there were five independent mortgage credit institutions in Hungary in 1882. Certain Vienna mortgage banks also had considerable business with Hungary. The prevailing discount rate was from four to seven per cent.; the rate on dead-pledge loans, four and a half to seven per cent., and on mortgage loans, four and a half to eight per cent., besides the usual fees, or according as an amortization charge is stipulated or not. Mortgage banks pay from four to five per cent. on deposits. Three of these five Hungarian mortgage banks are located in Buda-Pesth, one is at Sopron, and the fifth at Hermannstadt, or Nagy-Szeben. We append their balances for 1876-1882:

HUNGARIAN CREDIT ORGANIZATIONS IN 1892.

To pass on ten years, in 1892 there were 203 discount and loan banks in Hungary; six mortgage credit banks; 660 co-operative banking societies, besides 101 in Croatia-Slavonia, and four banking establishments in the strongly Italian-savored port, Fiume. To all these we may add 505 savings-banks, which commonly engage in banking operations, receiving and placing deposits, investing in mortgage loans, making advances on securities, and discounting bills. Official returns show that at the close of 1892, and inclusive of the savings-banks, 1479 credit organizations in the Hungarian Kingdom owned a paid capital stock of 111,920,000 florins, of which 37,930,000 florins were in joint-stock shares; 50,360,000 florins in the general reserve fund; 17,020,000 florins constituted a special reserve; 940,000 florins a surety fund for creditors; and, in fine, the total controlled capital was 218,180,000 florins. The liabilities included 661,900,000 florins in savings deposits; 7,650,000 florins in deposits and cheques; 9,950,000 florins in outstanding acceptances; 160,700,000 florins in accounts current; 225,880,000 florins in mortgage bonds debit, and a profit balance of 22,970,000 florins. Liabilities all told amounted to 1,455,500,000 florins. Total profits came to ten and a half per cent. of the net capital. At the close of 1892, discounts amounted to 366,300,000 florins; surety bills, 7,400,000 florins; loans on securities, accepted bills, and mortgage loans, 446,700,000 florins; obligations, 188,590,000 florins; bank accounts, 120,400,000 florins; securities, inventory, and real estate, 28,900,000 florins; other claims and current items, 60,400,000 florins; cash, 25,530,000 florins; total assets, 1,455,500,000 florins (not so by the addition of all the reported items). In percentages on the savings deposits and interest due, discounts amounted to 507/10 per cent.; surety acceptances, 11/10 per cent.; loans, 11 per cent.; mortgage loans, 674/10 per cent.; obligations debit, 195/10 per cent.; securities, 195/10 per cent.

Our latest reports (see Appendix) include the balances for 1894. The most striking feature of affairs from 1885 to 1894 is the enlarged rôle of the Austro-Hungarian Bank in Hungary. Owing to the increased statutory provisions of 1887, discounts in the Hungarian department of the Austro-Hungarian Bank rose from a round sum of forty-five million florins to eighty million florins; and mortgage loans from sixty-two million florins to 108,000,000 florins. Of the latter total, twenty-one million florins were loaned on houses; eighty million florins on estates, and seven million florins on small properties.

At the close of 1894 the Austro-Hungarian Bank had twenty-one branches and eighty accessory branches in Hungary, besides the headquarters in Buda-Pesth. Of the Bank’s total transactions for 1894, amounting to 2,311,775,000 florins, 555,478,000 florins fell to Hungary; 1,756,297,000 florins to Austria. Its discounts were 433,070,000 florins in Hungary; 643,370,000 florins in Austria. Loans, 37,593,000 florins in Hungary; 117,185,000 florins in Austria.

From the financial year-book, “The Compass,” for 1896, we borrow the following data: At the close of 1894 there were 835 banking concerns in Hungary, and 782 of them published their balances. These 782 concerns represent a total of assets reaching 158,450,000 florins, and 124,740,000 florins of liabilities. The balances at the end of 1894 gave 33,710,000 florins net income, only seven banks showing a small loss. The net income was shared by seven mortgage banks with 11,770,000 florins; by ten Buda-Pesth banks and savings-banks with 24,470,000 florins, and 752 provincial institutions with 11,240,000 florins. In the average, each institution gets 750,000 florins, equal to 24.8 per cent. of the joint stock. Each provincial bank gets 14,948 florins, or 18.7 per cent. of the capital. The reserve fund had been increased in 1894 by 7,560,000 florins (or 49.89 per cent. of the joint-stock capital).

The total of the savings deposits and emitted bonds has reached 1,139,400,000 florins, an increase in 1894 of 76,400,000 florins. Amongst the 158,450,000 florins of assets above mentioned as belonging to 782 institutions are included 1.3 per cent. cash; 7.73 per cent. securities; 1.67 per cent. immovables; 0.05 per cent. inventory; 39 per cent. mortgage loans; 4.91 per cent. loans on securities; 1.27 per cent. obligations and effects; 26.57 per cent. bills of exchange; 11 per cent. diverse debtors; 0.6 per cent. current accounts; 5.4 per cent. investments in large industrial undertakings. Thirty-nine per cent. are therefore invested in mortgage loans and other emissions whose prompt liquidation is not easy.

The liabilities of 124,740,000 florins comprise 9.5 per cent. of capital; 4.72 per cent. reserve fund; 71.9 per cent. bonds and deposits; 0.39 per cent. pension fund; 5.6 per cent. creditors; 1.35 per cent. current accounts; 4.69 per cent. rediscount; 2.13 per cent. net income (or 22 per cent. of the shareholders’ capital). Croatia, which is not included in these figures, has fifty-five balance-sheets from fifty-five institutions, the total number being sixty-six. Those concerns report 60,920,000 florins of assets; 59,960,000 florins of liabilities; 960,000 florins net income, averaging 7.4 per cent. of the capital stock. Of these institutions, thirty banks and savings-banks are at Buda-Pesth, and show the following total balance in 1894: Assets—Cash, 8,890,000 florins; discounts, 99,430,000 florins; loans, 67,710,000 florins; mortgage loans, 424,230,000 florins; securities and effects, 72,140,000 florins; investments in industrial undertakings and banking concerns, 361,000 florins; in immovables, 7,440,000 florins; syndicates, 112,610,000 florins; inventory, 310,000 florins; transient items, 9,980,000 florins. Total, 885,940,000 florins. Liabilities—Joint stock, 90,440,000 florins; reserve fund, 45,060,000 florins; pension fund, 2,650,000 florins; acceptances, 6,520,000 florins; deposits, bonds, cheques, 644,290,000 florins; transient items, 11,570,000 florins; creditors, 62,940,000 florins; net income, 22,470,000 florins. Total, 885,940,000 florins.

HUNGARIAN GENERAL CREDIT BANK.

A detailed account of all the prominent Hungarian joint-stock banks would be too voluminous to present here; but we must make an exception in the case of the Hungarian General Credit Bank, which is a financial rival of the Austrian Credit Bank, and plays the same part in Buda-Pesth as the latter in Vienna. It was founded in 1867, and its charter was last revised in 1891. The capital stock at first stood nominally at 15,000,000 florins, in 75,000 shares, of which forty per cent. was paid in. This made an effectual stock of 6,000,000 florins; increased to 12,000,000 florins in 1872; reduced to 10,000,000 florins in 1877, and again increased, to 14,000,000 florins in 1890. Shares held by the Austrian Credit Bank to an amount of 3,000,000 florins were paid back; and the latter institution’s interests in the Hungarian Credit Bank were cut down to twenty-five per cent. after 1892. Other shareholders were allowed to hold two new shares to each of their former shares fully paid in. The purchase price of the new shares was 290 florins each, with the addition of five per cent. interest dating from January 1, 1891. The business development of this institution is outlined in tables reserved for the Appendix.

HUNGARIAN CO-OPERATIVE SOCIETIES.

In 1882, there were two hundred and eighty-nine co-operative societies, or “people’s banks,” in Hungary, whose rates of discount varied from six to twelve per cent., and of interest on loans from eight to ten per cent. They paid from four to six per cent. on deposits at short sight, and five to eight per cent. on those of longer dates. We append balances for the period 1877-82, the values being expressed in Austrian florins:

The status of 660 Hungarian co-operative societies was ascertained in 1892. Their assets ranged between 100 and 1200 florins each, and their dividends from 4 to 14 florins. Discounts ranged from 100 to 700 florins. Loans on pledges and securities varied from 100 to 1000 florins; mortgage loans, from 100 to 1100 florins. These facts singularly illustrate how, in Hungary, the poorest classes combine to protect and utilize their very small earnings, and experience seems to indicate that they manage this business with entirely satisfactory results.

HUNGARIAN SAVINGS-BANKS.

Savings-banks do a large business for the general public, especially in the rural country and in small towns; or in localities not directly reached by the Austro-Hungarian Bank, nor by private discount banks. Both with respect to the number of new bureaus and to the sum total of deposits, the savings-banks have shown constant growth. In 1882, there were 335 savings-banks in Hungary; which rated their discounts in proportion to the fertility of the soil and the density of population. The range was from four and a half to twelve per cent. and the prevailing average seven per cent. But since Hungary reorganized her budget, and also in consequence of the international market adjustments, the former high rates have declined; and the national currency reforms have had their effect. In a word, savngs-banks have been influenced greatly to their advantage by the universal improvement in financial methods. By 1894, the number of these banks in Hungary had increased to 505. The following table gives data for 1873-1882:

THE POST SAVINGS-BANK.

The Royal Hungarian Post Savings-Bank was instituted in 1886. It shows the following development:

From 1886 to 1893, 568,753 deposit books were given out (421,905 Hungarian, 96,222 Magyar-Teutonic, 20,437 Magyar-Croatian, 17,237 Magyar-Slovak, 7116 Magyar Roumanian, etc.), 334,622 books (58.8 per cent.) were balanced and canceled, while 234,131 remained open and in good order at the end of 1893. 67.5 per cent. of the deposits in 1893 were in sums under five florins. In the department of cheques, or orders, there were 2568 patrons at the close of 1893 (555 in Buda-Pesth, 1173 provincial, 94 Croatian, 728 Austrian, and 18 from other outside countries). 1751 firms or persons took part in the clearance business, which amounted to 51,062,838 florins, and comprised 45,572 transactions. Securities were bought to the amount of 4,876,730 florins. Annuity books were issued to the number of 996.

AUSTRO-HUNGARIAN INSURANCE COMPANIES.

In our sketch of Austro-Hungarian banking, we may not omit insurance companies; for these are wont to employ their surplus premiums in discounting bills and negotiating loans. Their business in the two States must be treated under one head, as they observe no sharply defined territorial divisions. In addition to the older insurance companies, some of which trace their origin back to the times of Charlemagne (for even then there were insurances against fire and theft)—that is, in addition to fire, life, marine, steam-boiler, plate-glass, cattle, hail, and accident insurance companies—there are also societies for the dower of marriageable daughters, the care of widows and orphans, for the military service, etc. There are forty-eight domestic insurance companies in Austria, thirteen in Hungary, and sixty-eight foreign companies in the whole Empire. Apart from the proper usefulness of these organizations in the way of insuring our population, they procure for us the extra economic advantage of increasing our business buildings. The law requires them all, foreign as well as native, to maintain their own administrative buildings; which condition has been fulfilled with notable magnificence by the New York insurance companies. In both Vienna and Buda-Pesth, they have reared veritable palaces.

Though no summarized accounts are at our command, we may fairly infer from the circumstance that so many companies find profitable occupation in it, that the insurance business is in a flourishing condition, and that losses are on the wane. Damages by fire have been greatly diminished through the excellent improvement of the Fire Department in Vienna.

[* ] Two hundred and eighty-four banks and branches in September, 1895.

[* ] Consult Table 37 of the Bank’s Memorial for 1886.

[* ] The mine was inversely, or conversely, represented at the Vienna Exposition of 1890 by a tower 150 metres high; but this was only one-fifth as high as the mine is deep.

[* ] The official statement of the Bank of Russia, including its agencies and branches, for August 15, 1895, shows the total sum of gold then held to have been R. 450,000,000.—Editor.

[* ] See “Notenbankfrage in Beziehung zur Währungsreform in Oesterrcick-Ungarn.” Frankfort-on-the Main, 1894. J. D. Sauerländer.