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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 III.

THE YOKOHAMA SPECIE BANK.

(SHIOKINGINKO.)

ITS HISTORY.

IN 1879 a scheme was submitted to establish a bank with 3,000,000 yen capital, to be paid in silver. The main object in view was the discount of commercial bills drawn on foreign countries, so as to afford banking facilities to exporters and importers. It was also proposed to secure the privilege of issuing bank notes, with bonds convertible into specie as the basis, in conformity with the National Bank Act. This was called forth by the scarcity of metallic currency, and by the fact that the great volume of foreign trade in the treaty ports was in the hands of branch offices of English and of other banks. The assent of the Government was easily obtained, although the power to issue notes was reserved because of the incessant depreciation of the paper currency, and the Specie Bank came into existence on the 23d of February, 1880. Previous to this, two requests were made to the Government:

First. Although it is necessary, according to the National Bank Act, to pay in at once one-half of the capital, since the metallic currency is scarce, let the first installment be reduced to one-fifth of the capital, and the remainder be paid in within eight months.

Second. As the aim of the Bank is to benefit the foreign trade, a matter of grave importance and of public utility, let one-third of the stock be owned by the Government, on which the usual dividend shall be paid, if the profit falls below six per cent., and if above that rate, let the excess be credited to the Bank to form a reserve fund.

To these requests the Government agreed. Although it was at first proposed that the capital should be paid in silver, four-fifths of the payment were allowed to be made in paper money, with which Government bonds were bought, and in case of need the Government agreed to give silver in exchange for these bonds. Thus the capital consisted of:

With this mixed capital of silver and paper money, this bank began its business. But as the difference between the two became greater day by day, and it was found unsafe to mix them up in calculation, two departments were formed within the Bank, one for silver and the other for paper. But within two years after the opening of the Bank, chiefly owing to the carelessness and lack of experience and discretion on the part of its directors, to loose allowance of credit, and neglect to make up for the fall in value of mortgages, the losses reached the enormous amount of 1,771,800 yen, a sum exceeding one-half of its capital. Both the shareholders and the Government became alarmed. Special comptrollers were ordered by the Treasury to examine the condition of the Bank; but as they could not go into the details of the daily transactions, the examination yielded but little information. Fearing, however, not only the total loss of the shares owned by itself, but an utter collapse of the foreign bill transactions, the Government prepared a regulation to make the discounting of commercial bills more careful and safe, while at the same time increasing the power of the comptrollers. The shareholders were not quite satisfied, and some of them went so far as to urge the expediency of a voluntary winding up of the Bank. The Government tried hard to tide over the difficulty, and bought up the shares of the discontented shareholders. But matters did not seem to mend. At last a general meeting was convened in April, 1883, and a plan containing the following provisions was submitted:

1. First, to make good a portion of the loss by converting the silver into paper money. If this were done, nearly half the loss would be covered, as the silver was at thirty per cent. premium as compared with paper. At the same time, the reserve, amounting to 137,250 yen in silver, equal to 186,600 yen in paper, was to be used to make up for bad debts. But by so doing, the specie capital system would have to be wholly given up, contrary to the original plan.

2. The Government bonds for converting paper money into specie held by the Bank, which were computed in the capital fund as equal to silver yen, and the interest of which is paid in silver, were to be exchanged for Pension bonds, the quotation of which was lower, and the rate of interest much higher.

3. Silver was, however, to be kept on hand to as large an amount as possible, in order to give facilities to traders and to meet the requirements of commerce.

4. As an offset to the bad debts and unexpected losses, a process of strict retrenchment was to be carried out in the working expenses of the Bank, so that a recovery might be effected in the interval of five years.

These points were agreed to by the shareholders, but it was feared that to sell out silver at once in exchange for paper currency would cause a fall in its price, to the disturbance, also, of the general market. Again the Government help was invoked to buy up silver owned by the Bank, at thirty-eight per cent. premium, the average for the preceding ten days. But instead of obtaining paper to the full amount, Government bonds were required at the current price in exchange for 900,000 yen of silver. Although 740,000 yen was devoted to the covering of bad debts, it was feared that such a sum would be found insufficient, and a special reserve had to be provided against a future deficit. Gradually the state of the market improved, the Bank became more watchful, and was able to get out of its weakly condition. With the prospect of an increase of its dividends, those to be paid on the shares owned by the Government were thus fixed: 1. If the dividend were below six per cent., the Government was to get no more than other shareholders. 2. If it were between six and fifteen per cent., six per cent. was to be paid to the Government. 3. If between fifteen and seventeen per cent., eight per cent. was the Government rate. 4. If above seventeen per cent., one per cent. was to be added for every one per cent. excess.

It was about this time that the separation between the private property of the Crown and the public domain of the State was contemplated. According to the old idea, “everything was the Emperor’s property and everybody his vassals.” Such an idea, though natural to absolutism, was incongruous with the reign of law and the spirit of constitutionalism. Japan was to have a constitution carried out into practice in the memorable 1890. As the preparation for the approaching constitution, a line of demarcation was drawn between the Crown property and that belonging to the State. The fear was entertained that the former might not be sufficient for the future wants of the Imperial household, and as one of the means of its augmentation, the shares of big companies owned hitherto by the Government were transferred to the Crown. So the Government shares of the Bank were transferred to the name of the Superintendent of the Crown Property in February, 1885. In that year the condition of the Bank underwent a great change for the better, and in order to restore the original plan, and to facilitate the discount of foreign bills, it was determined in July, 1885, to place the capital again on the silver basis. The volume of foreign trade increased by leaps and bounds, the Bank was utilized more and more, its field of action yearly expanded, and the insufficiency of its capital began to be keenly felt. In March, 1887, the capital was doubled to 6,000,000 yen. By November, half of the new capital was paid in, the total paid-up capital of the Bank being then 4,500,000 yen, and the next payment to be made within a year was postponed until the directors should deem it necessary. Hitherto the Bank had to be guarded by the National Bank Act; but as its business expanded, the necessity arose for a special law adapted to its requirements. In July, 1887, the Yokohama Specie Bank Act was promulgated, the chief points contained in it being: 1. Provision for a joint-stock bank (limited), with a capital of 6,000,000 yen. 2. The term of existence to be twenty years after the date of its charter, viz., the 28th of February, 1880. 3. That the business of the Bank be limited to (a) dealings in and discounts of bills, (b) loans, (c) deposits, and (d) exchange of specie. 4. Government permission must be obtained for the appointment of directors, payment of dividends, and the opening of branch offices and agencies. 5. The Government to have the power to arrest any action of the Bank if it be risky, or in violation of the law or the by-laws of the Bank. 6. A comptroller to be appointed by the Treasury to inspect the affairs of the Bank. 7. The Bank must retain one-fourth of the amount on deposit to meet a sudden demand, must set aside one-tenth of its profits as a reserve fund, and must make provision for bad debts. 8. Accounts and reports must be submitted at the demand of the Minister of Finance, and the half-yearly balance-sheet made public in the official gazette and the newspapers.

In conformity with the act, the by-laws of the company were adopted, and were sanctioned by the Treasury in August, 1880. The difference between silver and paper money having disappeared, the necessity for dividing the Bank into two departments ceased, and the method of compiling the statement, which had been very complex, was greatly simplified. It will be perceived that the basis of the capital stock underwent four changes, being first silver, next paper, then a return to silver, and lastly paper and silver in equivalence. This bank, which was at first almost a complete failure, fortunately recovered, and now is a thriving, active, and influential institution, of an importance second to none except the Bank of Japan. It has a reserve of 4,020,000 yen—a sum almost equal to its paid-up capital.

THE BANK’S FIELD OF ACTION ABROAD.

After establishing a branch office in Kobé, a trading port near Osaka, in June, 1880, the Bank proposed to extend its field of operations to Europe and America. Before carrying out this intention a special mission was sent in August to London and New York, to survey the place of establishment and the actual condition of the foreign exchanges. Government permission was obtained for the gradual establishment of branch offices or agencies in London, New York, San Francisco, Shanghai, and other places. The commercial importance of London made it necessary to enlarge the branch office there in December, 1884. This was made the central institution of other branch offices abroad, especially of gold countries, and one of the directors was sent out to administer the affairs of the office. There the chief business was to buy the bills drawn on Asiatic markets with the money obtained on the bills at maturity. But soon the insufficiency of the money on hand was felt, and since 1889, a special fund has been placed in the hands of the London branch office to be used for the purchase of bills. The present branch offices, agencies, and correspondents are as follows:

GOVERNMENT CONTROL AND AID.

At first, as already stated, the Government owned one-third of the shares of the Bank, and in order to avoid undue losses, the Government appointed comptrollers, the Vice-Minister of Finance, Mr. Yoshiwari, being among them. The comptrollers were ordered to oversee the important affairs of the Bank, to be present at all meetings, to call a meeting when they deemed it necessary, to examine the specie on hand, and to sign the daily account-book after verifying it. The outside interference became so incessant that it obstructed the business management of the Bank, and became intolerable. Other means to serve the same ends were contrived, and in January, 1882, a scheme embodying the following points was submitted to the general meeting and was approved: 1. To the existing six directors, three more to be added, who are to be appointed by the Minister of Finance, either from among or outside of the shareholders. 2. Their rights and duties to be the same as those of other directors, but the control of sixty-eight votes which belongs to the Government is to be divided among them, and the salaries or bonus to be paid to them are to be turned into the bank reserve.

In 1883, the number of the appointed directors was reduced to two, and they were continued in their office even after the transfer of the shares to the Crown. But they were abolished by the Act of 1887. At the same time, with the revision of the act so as to increase the Government power of control, the appointment of comptroller was revived. This officer is appointed by the Minister of Finance from the officials of the Treasury Department, the selection falling usually upon the Chief of the Banking (the Third) Bureau. He is obliged to visit the Bank once a week, and is intrusted with the power of overseeing all its business. At first various forms of aid were given to the Bank by the Government, but now none is required. The Bank of Japan, however, rediscounts export or import bills for the Specie Bank on conditions favorable to the latter. The amount so discounted is shown in the following table:

Thus, the relation of these two banks is very intimate. The vice-president of the Bank of Japan may become a director of the Specie Bank, and a director of the latter be one of the directors of the former. The conversion of notes of the Bank of Japan is intrusted to the main office and the branch office at Kobé, of the Specie Bank. In fact, what the central bank is to the internal money market the Specie Bank is to the foreign exchanges. Especially during the war with China the transmission of specie to and fro was solely done by the agency of the latter. Some have criticised the methods of this bank as being too strict, but it was in virtue of these that it recovered from its impaired condition. Indeed, if it were not for the operation of the Specie Bank the foreign trade of Japan would not have developed so rapidly, and the extension of its sphere of action is expected by the country at large to require in the future an increase of capital.

FOREIGN BANKS IN JAPAN.

The Specie Bank is not, however, the only institution concerned with foreign exchanges. In Yokohama and Kobé, for instance, there are many foreign banks, as enumerated below, and many Japanese traders have transactions with these banks.

The following tables are given to show the gradual expansion of the business of the Specie Bank: