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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.

CHAPTER II.

THE NATIONAL BANKS.

SECTION I.

THEIR ORIGIN AND ORGANIZATION.

THE OLD BANK ACT.

AT the beginning of the new era (Meiji), the lack of an organized banking system was keenly felt by the people and by the Government, which suffered greatly from the confused state of its depreciated paper currency. In 1870, the Vice-Minister of Finance, Mr. Ito (now Marquis) went to the United States of America to investigate the banking system of that country. One result of this visit was his advice to adopt the system of national banks which he found there. Though some approved of the recommendation, many opposed it on the ground that the system was risky and unsuited to the needs of the country. Its opponents upheld the principle of a full gold reserve, and though the subject was hotly discussed, no practical result was reached. In 1871, a scheme of setting up a bank of issue with 7,000,000 yen capital was considered by the Tokio Chamber of Commerce. But the difficulty of getting the necessary funds frustrated the scheme. On his return in the same year, Mr. Ito urged the necessity and advantage of the American system, and his views were finally adopted. Out of this decision, in November, 1872, came the National Bank Act, being No. 349 of the laws of that year. This law is what is now designated as the old National Bank Act. Under it, banks were allowed to issue notes convertible in gold, holding Government bonds issued for the redemption of Government paper notes as the basis, to sixty per cent. of the capital, which was not to be less than 50,000 yen. This may be described as a compromise between the American and the gold reserve systems, fulfilling at the same time the purpose of redeeming the Government paper notes with the bond, and with this bond as the basis of banking, issuing convertible notes, which were to be finally converted into gold when the time for redemption of these bonds arrived. However, contrary to expectation, this many-sided and ingenious scheme ended in utter failure, and but four banks were formed under the act. Only 1,420,000 yen of bank notes were actually received by them, out of 15,000,000 yen which were printed in New York beforehand. The cause of this failure was the depreciation of paper notes in general, on account of the constant efflux of bullion due to the importation of goods and the over-issue of Government notes, as well as to the fact of the bank notes being immediately convertible into gold.* This latter facility operated so that the Second National Bank, located in Yokohama, the chief commercial port, could not issue even one yen of its notes. Consequently, the amount of bank notes in actual circulation, which stood at 1,356,979 yen in June, 1874, made a rapid descent to 62,456 yen in 1876, regardless of the exertions of the Government to keep up the volume of the circulation. With such a limited amount of currency and a very slender total of deposits, the only source of profit for the banks was the interest of six per cent., accruing from the Government bonds, while the market rate of interest was above ten per cent. The four existing banks presented a petition to the Government in March, 1875, to allow their notes to be convertible into Government notes only. This being equivalent to a return to the former state of non-convertibility, the Government hesitated, but in order to give relief to the petitioners, the Government issued its notes, which were inconvertible, to the amount of one-half of the issue of the Bank, a corresponding amount of bank notes being paid into the Exchequer. In 1876, the depreciation of paper money went from bad to worse† and the difficulty still increasing, the banks again petitioned the Government to exchange the remaining half of their notes for Government paper money. To this the Government acceded, and the scheme, so full of promise, fell through.

THE REVISION OF THE ACT.

It became clear that the result of the over-issue of the Government notes could not be corrected through the national banks, and still more clear that under such a banking system the need of the time could not be supplied. The necessity of revising the Bank Act was therefore demonstrated. There was one more important reason for the revision; and to explain this, we must go back to the issue of a Government loan to the amount of more than 174,000,000 yen to pay off feudal pensioners who gave up their hereditary rights in exchange for Government bonds.‡ How to keep up the price of these bonds, for the benefit of their owners, was a problem which the kind-hearted policy of the Government of that time recognized. An idea entered the head of Count Okuma, the Minister of Finance, which was embodied in the Revised National Bank Act, promulgated by Law No. 106, in August, 1876. According to this act, bank notes of 1, 2, 5, 10, 20, 50, 100, and 500 yen denominations being legal tender except for the payment of customs duty and interest on Government bonds, became convertible into Government paper money instead of into standard gold, and the newly issued pension bonds were used as a basis for these notes. Besides, the amount of the bonds to be deposited in the Treasury by the banks was increased from sixty to eighty per cent. of the capital, and the kind of bonds was made optional so long as it bore four per cent. interest. The most important change consisted in a gold reserve of forty per cent. of the capital (⅔ of the issue) being transformed into a paper money reserve of twenty per cent. of the capital (¼ of the issue). Thus the American system was at last adopted nearly in its entirety. The idea of metallic conversion was given up, and the fall in price of the bonds was somewhat retarded, the owners of the bonds becoming shareholders of national banks to the extent of seventy per cent. of the whole. This radical change made the banking business remunerative, and many new national banks sprung up, five being organized during 1876, twenty-three in 1877, ninety-eight in 1878, and twenty-seven in 1879, making, in all, 153.

THE FINAL REVISION OF THE ACT.

The organization of banks became so prevalent that in December, 1877, by Law No. 83, the Bank Act was amended, empowering the Minister of Finance to restrict, on the basis of population and taxation, the total amount of the issue of bank notes, which was fixed at 40,000,000 yen, as well as the number and capital of the national banks. Though this law was supplemented by a subsequent act, Law No. 5, of 1878, the main features remained the same. With the increase of note circulation, the depreciation of paper, the rise of prices, and the fall in value of Government bonds became more emphatic. In order to remedy these evils, especially to unify the paper currency, the Nippon Ginko (the Bank of Japan) was established in 1882, and a radical revision of the National Bank Act was carried out in 1883 by Law No. 14. The main points of the revision were:

1. The national banks are to cease to have the privilege of issuing notes at the expiration of their term of existence, which is to be after twenty years from the date of their obtaining their charter. After the end of the term they may continue to conduct the banking business simply and solely as a common bank, with the permission of the Secretary of the Treasury.

2. They must redeem their notes within their term of existence as national banks. In order to fulfill this obligation, they must create a fund consisting of the reserve (twenty per cent. of capital) already held by the banks and the annual reserve out of the profits to the amount of two and a half per cent. of the originally prescribed limit for the issue of paper notes. This fund is to be intrusted to the Bank of Japan, which is to purchase Government stocks, and with the accruing interest to redeem bank notes twice a year.

THE RISE AND FALL.

After the close of the civil war of 1877, the general rise of prices created a brisk state of trade, which reached its climax in 1880 and 1881. But in the latter year, Count Matsukata was placed in control of the Treasury, and his policy was to put the finances of the country on a firm and solid basis. The redemption of paper money was begun, prices and interest fell, trade seemed to be depressed, and many failures ensued. Even first-rate national banks had to take measures of precaution, the weaker ones had to lessen their capital to make good their losses; four national banks became bankrupt, five others being temporarily suspended during a short interval between 1882 and 1883, and ten banks being consolidated with more powerful banks between 1880 and 1885. But in 1886 redemption in specie commenced, and things became more settled, trade began to revive, and railway and other companies sprang into existence. In 1887, trade became active again, speculation in stocks grew apace, and many national banks increased their capital. Since then, nothing remarkable has taken place except a few failures, suspensions, and amalgamations.

RESTRICTIVE REGULATIONS.

The dividends of national banks are usually greater than those of other banks, because they reap a double benefit by lending out their notes and obtaining the interest on the bonds deposited as security for those notes in the Treasury. Against these special privileges and advantages, they are under the strict surveillance of law and Government control, and are subject to many other restrictions. First of all, they must pay the bank tax fixed at seven-tenths of one per cent. of the original note issue; their functions are restricted to making loans, receiving deposits, making transfers of money, and discounting bills. Though they can sell and purchase Government bonds, foreign coin, and bullion, as well as exchange coins, these cannot be made their chief business. Transactions in land, buildings, or other property, as well as in shares of joint-stock companies, are prohibited to them, except the property be for their own use, or in case of its falling temporarily into their hands on pledge or mortgage. Though the restriction on the rate of interest, which was fixed at ten per cent. in the Act of 1876, was removed, they have to conform to the Usury Act, and they cannot lend to one customer more than ten per cent. of their capital. Neither against bank notes nor their own stock can they make loans, and of their total deposits they must keep in hand twenty-five per cent. in order to meet a sudden demand. Except on regular holidays, the office must be opened from 9 a. m. to 3 p. m.; a general meeting of stockholders must be held twice a year; and for all important resolutions, Government recognition must be obtained, and monthly as well as half-yearly reports must be submitted to the Treasury. Above all, it is prohibited to national banks to enter into correspondence with foreign banks in or out of the country, or even with banks organized by Japanese citizens and located abroad, without permission of the Treasury. Permission must be requested beforehand for the payment of dividends, for the increase or decrease of capital, for changes in the by-laws of the bank, or for voluntary dissolution. Any speculative undertaking by the banking staff is strictly forbidden, as well as their borrowing from the bank beyond the sum fixed in the by-laws. The control of national banks is vested in the Third Bureau of the Treasury, which sends out its own officials at stated times to examine the actual working of the banks, and which sometimes delegates the power of inspection to the local prefect. The Secretary of the Treasury has the power to suspend the business of a bank in any of the following cases, and he can further order the dissolution of the bank:

• 1. Violation of the letter or spirit of the Bank Act.
• 2. Discovery of evidence that the bank cannot pay its debts.
• 3. A series of loans in excess of the capital.

In the case alike of voluntary winding up and official dissolution, the obligation to redeem the outstanding notes falls on the Government. This is met by selling the Government bonds invested in by the bank, and paying note-holders within a date fixed by departmental notice. These general provisions affect equally all the 133 national banks which now exist, though there are, of course, great differences in their actual working, and in the degree of public confidence which they possess.

THE EXISTING CONDITION.

The present state of the national banks may best be seen in the following tables, pages 429-435.

EXCEPTIONAL CASES.

In the case of the Second and the Fifteenth National Bank we find a few points of peculiarity. The former is distinguished by its issue of what is known as Yoginken (dollar certificates), and the latter by its loan to the Government of 15,000,000 yen during the civil war of 1877.

A.—

DOLLAR CERTIFICATES AND THE SECOND NATIONAL BANK

The privilege of issuing dollar certificates was first granted to the Yokohama Kawase Kwaisha in March, 1870, in order to satisfy a want felt by Yokohama traders, who, not being accustomed to the use of bills issued by foreign banks, were cheated by forged bills, and to whom the actual carrying about of dollars in their pockets was burdensome. The original certificates were made by the Tsushioshi (the Board of Trade). They were poor in design and material. Hence, through the medium of the Oriental Banking Corporation, the manufacture of 5, 10, 20, 50, 100, 500, and 1000 dollar certificates, to the amount of 1,500,000 dollars, was ordered from Perkin & Bacons, of London; the old bills were withdrawn after the arrival of the new ones from England. The plan was to issue the certificates to the full amount for dollars received from foreign banks in payment of bills presented to them by exporters. The Government exercised the utmost watchfulness over these transactions, insisting on seeing whether dollars were reserved as declared, and even going so far as to seal up all the reserve except 60,000 yen which was left to meet casual demands. Under the National Bank Act of 1872, the above-mentioned company transformed itself into the Second National Bank, and although the issue of notes except bank notes was prohibited by the act, the practical need felt among Yokohama traders made it impossible to do away at once with the dollar certificates. An act was passed in 1874, Law No. 100, to regulate them. By this act Government bonds or land certificates to the amount of one-third of the circulation had to be invested in the Treasury, and it was consequently ordered that the business of the certificate department should be clearly separated from the general banking business. Though these certificates circulated fairly well, and very few, as shown in the table on following pages, were actually presented for conversion, they became no longer admissible after the promulgation of the Convertible Bank Note Act (Law No. 18) in May, 1884, according to which the issue of the certificates was to cease within a year.

But as holders still remained at the expiration of the term, viz., May 26, 1885, it was by successive postponements extended till the close of 1890. The matter then came to its final conclusion, and the profit of more than 2000 yen accruing from non-presentation went to the benefit of the Second National Bank.

B.—

THE GOVERNMENT AS A BORROWER FROM THE FIFTEENTH NATIONAL BANK.

The case of the Fifteenth National Bank is peculiar from its being the means of collecting bonds owned by 480 Daimios, and lending the Government during the civil war of 1877 the sum of 15,000,000 yen at five per cent. for the term of twenty years. The finances then were in a very straitened condition, and in order to induce the Bank to lend the money, the Government granted exceptional relaxations of the Bank Act. The chief of these were as to keeping only five per cent. instead of twenty-five per cent., as the reserve against deposits, and issuing notes to ninety-three per cent. instead of eighty per cent. of the amount of capital. It was also agreed not to pay back the money until twenty years should elapse. This last proviso may seem somewhat peculiar,* but as the nobles could not find means to employ safely such a large sum of money, it was to their interest that repayment should be delayed. But after the suppression of the civil war, and with the revision of the National Bank Act in 1883, such exceptional treatment of this bank became needless. Therefore, out of 15,000,000 yen borrowed, the Government returned 5,000,000, and the requirement in regard to the reserve and the issue of notes was made similar to that of other banks. The withdrawal of special favors, however, was not accomplished without some sacrifices on the side of the Government. The rate of interest on the remaining 10,000,000 yen was raised to seven and a half per cent., a rate which was, however, justified by the state of the money market at that time. This bank remains the largest in its capital; it is the creditor of the Government, and last, but not least, its shareholders are nobles. These characteristics may lead to results not found in connection with other national banks. This will become clear as we proceed with the next topic.

SECTION II.

THE FUTURE OF NATIONAL BANKS.

THEIR PROLONGATION AND TRANSFORMATION.

A.—

EXPECTATION.

PREVIOUS to the reform of the National Bank Act in 1883, a draft estimate was shown to the parties concerned, pointing out that by 1897, the bank notes would be wholly redeemed with the interest accruing from the bonds purchased with the redemption fund, already mentioned. According to the original plan, in the case of a bank with a capital of 100,000 yen, the method of redemption was as follows: the Treasury issued to the bank 80,000 yen in Government bonds and 80,000 yen in bank notes; the bank at the same time establishing a reserve fund of 20,000 yen, and having the 80,000 yen of bank notes available for loan in the market. In this case, in order to redeem the notes issued, 80,000 yen in bonds would be sold, and the same amount of notes redeemed, so that the total amount of assets remaining in the hands of the bank would be 100,000 yen, composed of 20,000 yen reserve fund, originally created, and 80,000 yen of money received by the calling in of the loan of the 80,000 yen of bank notes first taken out.

Under the new redemption scheme, the process in the case of a bank with 100,000 yen capital would be the same through the four steps of the bond investment of 80,000 yen in the Treasury, the establishment of the 20,000 yen reserve fund, the issue of bank notes, and the loan of the same in the market. Then the new scheme diverges with the transfer of the reserve fund to the Bank of Japan, followed by an annual deposit out of profits of two and a half per cent. of the total issue of notes in cash. The next step is the purchase by the national bank of 80,000 yen of bonds, the interest on the bonds at the end of the bank’s term and its annual deposits amounting to 80,000 yen. The original issue of notes is then collected and redeemed, being taken out of the market and handed back to the Treasury. The reserve fund is then returned by the Bank of Japan to the national bank in question, and the latter also receives 80,000 yen in cash from those who borrowed its 80,000 yen of notes; so that the national bank, for its capital of 100,000 yen, gets, at the expiration of its term, in all 180,000 yen, consisting of 20,000 of reserve fund returned from the Bank of Japan, 80,000 in Government bonds returned from the Treasury, and 80,000 in money returned from the debtors in currency, other than the notes issued by the bank, thus making an extra profit of 80,000 yen, as compared with the original scheme. Taking the case of all the banks, the result was roughly estimated as shown below:

In addition to this surplus, there can be restored to the banks after redeeming the notes, over 10,000,000 yen of Government bonds bought with the reserve, leaving an increase of about half a million. The constituents of a and b are shown in Tables V and VI, and how the calculation failed may be seen from Table VII.

B—

REALIZATION.

Thus, by the gradual rise in the price of Government bonds,* the amount to be bought with the redemption fund decreased, causing the redemption of notes to lessen, as shown in Table VII. The conversion of bonds bearing interest of over six per cent., and the decrease of the rate of interest to five per cent., consequent on the carrying out of the Consolidated Loan Act,† produced a similar result, the former lessening the principal and the latter the interest of the redemption fund. Hence a decrease in the amount of notes expected to be redeemed, which, though anticipated, was quite contrary to the plan outlined in the foregoing Tables V and VI. This produced an uneasy feeling among bankers, and they petitioned the Treasury in 1890 to consider the matter.

C.—

FIRST FAILURE.

But nothing special was done by either of the parties concerned till the presentation of a bill to the Diet on May 15, 1894. Though short, it contained much substance, the chief points in it being:

• 1. National banks must cease to exist as such after the expiration of their term.
• 2. Those which dissolve at the end of their term of existence must conform to the method of winding up prescribed in the Commercial Code. Those desiring to transfer themselves into common banks can do so, without this process, maintaining their assets and liabilities as they are.
• 3. In the latter case, however, the permission of the Secretary of the Treasury must be obtained, and the decision must be concurred in by a majority of three-fourths of the shareholders six months previous to the close of the term.
• 4. In any case, the bank notes must be wholly redeemed within the term originally fixed.

These provisions were embodied in five clauses of the bill, and it was also provided at the same time that if the immediate collection of notes issued by any of the banks should be found impossible, from their being scattered all over the country, the bank must pay a sum equal to that of the unredeemed notes into the Treasury. If necessary, the Bank of Japan would advance the sum needed, without interest, retaining the bond to be returned from the Government on receipt of the amount, as the pledge. This latter service was not, however, any real sacrifice on the part of the Bank of Japan, since it could by law expand its issue of convertible notes based on bonds and bills to the full extent of the fund held for bank note redemption.* Thus the apparent loss arising from the rise in price of the bonds and the large remainder of unredeemed notes was almost nullified. With the fund delivered, the Treasury was to assume the obligation to redeem the remaining notes, which ceased to be currency, not after the end of the term of the individual bank, but after the end of the term of the last bank of the series, viz., the one hundred and fifty-second bank, whose term expires in December, 1899. But in order to relieve the holders of bank notes of any loss within the five years from this date, exchange into legal currency was allowed. This treatment of the bank notes as a whole, as if they were issued by one institution, has been maintained since the foundation of the bank note redemption fund by the Act of 1883. It was deemed a measure of practical necessity, and one required to facilitate actual redemption. The Government was to form a separate fund to redeem notes of banks whose term had expired. The bill was placed in the hands of a special committee of eighteen, by which it was approved, and it was reported to the House on the 28th of May. The bill passed the House of Commons almost unanimously, but while it was in the hands of a special committee of the Lords, the Diet was dissolved on the 31st of May, the bill being lost, much to the disappointment of bankers, because the day of the expiration of their charters was not far off.*

While everyone felt the necessity for the prompt passage of the bill, the outbreak of the Corean difficulty, and the war with China, made it impossible to bring it forward in the extra session held in Hiroshima toward the end of 1894.

D.—

SECOND FAILURE.

Previous to this, a movement had been on foot, though secretly, yet steadily, to prolong the term of existence of national banks as opposed to the policy pursued by the Government. The ground of argument was based on the following, among other reasons:

1. Being in the middle of war with China, it is inexpedient to make any changes in the existing banking system of the country.

2. The rise in price of Government bonds and the reduction of their rate of interest lessened the amount of note redemption, so that the profit expected by national banks cannot be reaped. But, on the contrary, they must supply the deficiency of the sum needed to redeem the notes.

3. The public still place more confidence in the national banks than in others; therefore, it is better to let them remain as they are for some years more.

4. The smooth transformation expected by the Government is unattainable, and the attempt to carry it out would create great disturbance in the money market.

At the root of these high-sounding, but rather superficial arguments, there was the selfish pecuniary interest involved in the postponement. There was a number of men of a conservative turn, whose interest it was to continue to be employees of national banks, and banks that did not care to be themselves examined, or to see the prestige of the Bank of Japan increased in any way, were brought together by a community of interest. Pamphlets were circulated, newspapers were made use of, meetings were held, electioneering and canvassing resorted to, and much influence exerted upon the members of the two Houses. Many members who did not oppose, nay, even advocated the Government bill before, changed front, and a bill to allow the prolongation of the term of the banks for ten more years, with the option of transformation, was supported by influential members of the Commons. This prompted the Government to introduce, on the 12th of January, the same old bill to transform national banks. The opposing camps were divided into Yenkiha, the prolongationists, and Keizokuha, the transformationists. The contest grew warm between them, the opponents of prolongation insisting:

• 1. Prolongation would postpone for years the assimilation of paper currency, and it would interfere with the exercise of the promised right of issue of notes by the Bank of Japan.
• 2. The plea for prolongation is quite groundless, because the rise of Government bonds was already foreseen at the time of the revision of the act in 1886. If any loss is to accrue, the sum needed to supply the deficiency will be lent free by the Bank of Japan.
• 3. Many common banks, without any special favors or privileges, have been organized, and among them there are not a few of superior standing to some of the national banks. The expectation of these banks, numbering then about seven hundred, to have a fair chance for competition, will be destroyed.
• 4. The Government bill is, comparatively speaking, the best, and where no internal strife exists, good banks are sure to continue their business as common banks. The transition would thus be much more smooth than it would be by the process of winding up. But this latter is inevitable if no special law is passed, and if things are left to the unanimous agreement of shareholders, a thing well-nigh impossible.
• 5. According to the present act, national banks cannot enter into correspondence with banks abroad. This is quite against the future expansion of business. The act is full of other restrictions, and it restrains the freedom of action so much needed in the banking business. Moreover, such privileges as it confers should not be granted in profusion, or for long periods.
• 6. At the close of the period of prolongation, we should meet with the same set of difficulties. If the problem is hard to solve, it is better to face it resolutely and at once.

The two opposing bills were committed together to a committee of eighteen, appointed by the Speaker of the House. The Government bill, i. e., the one providing for transformation, was affirmed, while the prolongation bill was negatived by the committee, after a long and heated discussion. But when they were reported to the House on January 28th, the former was lost by a majority of 117 against 137, while the latter passed by a majority of 132 against 104. On the announcement of the result of the first division, the opponents of the prolongation bill were disappointed and disgusted, and many of them left their seats, making the triumph of their enemy more complete on the next division. The prolongation bill went to the House of Lords. Here, as most of the members are nobles,* and are at the same time shareholders of the Fifteenth National Bank, whose staff were jealous upholders of prolongation, the passage of the bill was anticipated even by its opponents. A special committee of nine was appointed on February 2d, and after holding many meetings, the bill was disapproved and reported adversely to the Lords on the 13th of the same month.

The Government decided to oppose the bill to the last, even going so far as to take the responsibility of advising the Crown to veto it. However, by something like luck, yet really by the calling out of nominated members, it was negatived by a majority of 112 against 85 on the same day.

E.—

THE PROSPECT.

Thus the plans of prolongation and of transformation both fell to the ground. The war with China came to a close, after giving far less obstruction to trade than was at first feared. A revival of trade set in, especially after the payment of part of the war indemnity. An extension of the commercial field and of all industrial undertakings lessened the force of arguments once so earnestly urged by the prolongationists. Moreover, the First National Bank found it necessary to have the question settled at once, as the expiration of its term was near at hand. The chief director of that bank, Mr. Shibusawa, a man of long experience in the banking business, persuaded a majority of the national banks to petition the Treasury to bring forward the transformation bill at the earliest possible date in the coming session. Even those banks which did their utmost to press the prolongation bill kept silent, because they knew that the time was not propitious for the acceptance of their selfish and short-sighted views, and because it was really to their advantage to have the Government bill passed. At the same time, a change took place in the directorship of the Fifteenth National Bank, and the views held by large shareholders, such as Dukes Shimadzu and Mori, the Marquises Kuroda, Yamanouchi and others as to the expediency of dissolving the bank at the expiration of its term, seemed now to have got the ascendant, making it unnecessary to adhere to the prolongation bill. Some of the most active and powerful of the national banks went so far as to desire to be freed from the yoke of the cumbrous act, even before the expiration of their term, and expressed a wish for special legislation to enable them to transform themselves into common banks. Others, such as the Hundred and Nineteenth Bank, owned by the well-known Mitsubishi firm, set up at once a common bank, to which its business was really transferred, and into which the national bank was to be merged at the close of its term. Even if a different state of things had existed, the Government could not have been turned from its purpose to bring forward the transformation bill, with some slight improvement over the old one, which had twice failed in the Diet.

A bank with 100,000 yen capital, desiring to be transformed into a common bank, would have 80,000 yen notes outstanding under its national form, of which 20,000 yen would have been redeemed by the operation of the regular National Bank law. Of the balance of 60,000 yen, 30,000 yen would be redeemed by the 30,000 yen of Government bonds bought and pledged with the Bank of Japan, and a similar amount with Government bonds bought with the fund set apart from two and a half per cent. of annual profits. In case the national bank does not like to borrow, or it dissolves, the last deficiency of 30,000 is filled up by selling the bonds bought with the reserve. After the expiration of the bank’s term, the note will be redeemed by the Treasury, through the agency of the Bank of Japan, to which the actual dealing in public funds is now intrusted, as well as the custody of the redemption fund of the national banks. The ownership of unclaimed notes, which will be 5/1000, or about 20,000 yen, will be vested in the State. The transformation of most of the national banks will take place under the provisions of the act passed February 25, and formulated as law on March 7, 1896. They may fare better as common banks without any legal restrictions. In fact, these banks have enjoyed hardly any benefit to counter-balance the innumerable burdens and restrictions imposed on them. In becoming common banks, their business will not decrease, and possibly may increase, while those which are highly rated now will continue to be so after their transformation. Indeed, the progress made by national banks has been so great that, although at the beginning they had to be nursed and fostered by the Government, they can now do much better without any Government tutelage. The ugly disclosures apprehended by a correspondent of the “Economist” (August 10, 1895) may not take place except in a few cases, and the transition may be effected smoothly, completing the life of the national banks, and the assimilation of the paper currency. Many feel the need of more capital, and will prefer to amalgamate with other banks if the law permits it. Such amalgamation was accomplished very easily by the permission of the Treasury, before the Commercial Code came into force in 1883, in more than fifteen actual cases. But, according to the code, such changes by mere administrative consent have become inadmissible. Hence, the Government has prepared a bill to facilitate the amalgamation of banks without undergoing the regular course of dissolution. Some banks, like the First and the Fifty-Eighth, went so far as to establish branch offices in Corea; and some, as, for instance, the One Hundredth Bank, formed a correspondence with European banks, all with the special permission of the Minister of Finance. No doubt, a gradual extension of the field of action will take place, now that useless restrictions have been removed.

CLEARING-HOUSE AND BANKERS’ LEAGUE.

In 1879, a clearing-house was established in Osaka. This is the first and the largest in the country, because Osaka is in reality the commercial centre of the empire, and bills originating there take precedence over even those of Tokio. At this establishment, the bills not only of Osaka, but of other localities, are cleared. The expenses of the clearing-house are derived from three sources:

• 1. ⅓ borne equally by associated banks.
• 2. ⅓ borne by the bills cleared, according to number.
• 3. ⅓ borne by the bills cleared, according to amount.

The final account is settled by means of cheques. This clearing-house is under the management of the Osaka Bankers’ League and the committee of consultation in regard to discounts. The expenses of the league are defrayed out of the following funds: 1. By entrance money of 150 yen. 2. A reserve fund, each paying 200 yen, invested in Government bonds. 3. A monthly subscription from each bank of five yen. The main purpose of the league is to facilitate intercourse among the associates and to discuss matters of interest to all. There is, besides, a committee of arbitration to settle differences of views among the banks, as well as to provide for the publication of a monthly report. Admission to membership is granted by a three-fourths vote, and is limited to banks with at least half of their capital paid up and of a year’s standing. Any members doing a speculative business or violating the rules of the league are first warned, and if no reformation follows, they are expelled by a vote of three-fourths of those present at the meeting. Regular meetings are held twice a year, in January and July. Special meetings can be convened at the request of five banks, at which one of the directors or managers of each bank must be present. At present eighteen national banks and four common banks are included in the membership.

In Tokio there has existed since 1887 an association of bankers, and here the business of clearing was begun in 1880. It now exists as the Bankers’ League, and with the exceptions that an affirmative vote of only one-half is required for admission, and that the regular meetings are held in April and October, the regulation of the league is about the same as that of Osaka. Since 1891, the clearing-house balances have been settled by deposits made in the Bank of Japan, and in this respect the practice differs from that of Osaka. There is the further difference that the associate banks* must invest 10,000 yen in Government bonds. One-half of the expense is borne equally, and the other half is proportionately divided according to the amount cleared. The amount of bills cleared by these two clearing-houses is shown on page 450.

There are six Bankers’ Leagues in all, viz.:

These leagues are the mouthpieces of the associated national banks. For instance, the question of prolongation or transformation was settled by them, and they are thus a necessary institution for furthering the common interest of the banking world.

[* ] Refer to Appendices A and B.

[† ] Part II, Chapter II.—The Paper Currency.

[‡ ] For the National Debt, readers are requested to refer to Appendix D.

[* ] For convenience of the Bank, a part was returned in 1895 in Government bonds.

[* ] Appendix C.

[† ] Appendix D.

[* ] See the Convertible Bank Note Act, in Chapter IV.

[* ] As shown in foregoing Table I, the First National Bank expires in September, 1896.

[* ] The members of the clearing-house are fewer than those of the league, being the Bank of Japan, nine national banks, and forty-four common banks.