banks of Amsterdam and Hamburg form perfect illustrations of this arrangement.

So long as we regard only the internal transactions of a town, then, a stationary amount of coin, lying untouched in the bank, will allow the whole to be accomplished. If the traders never require to make payments to a distance the metallic money might be dispensed with altogether. But since any of the customers a, b, c, etc., may want his money, the banker ought to keep at least as much as will meet possible demands.

System of Two Banks.

As a second case, let us suppose that there is a town which is able to support two banks. Some of the inhabitants keep their money in one bank and some in the other, but all whom it is requisite to consider have an account with one or the other. In the diagram,

let P and Q be the two bankers, a, b, c, d, being customers of P, and q, r, s, t, customers of Q. Now, the mutual transactions of a, b, c, d, will, as before, be balanced off in the books of P, and similarly with the customers of Q. But if a has to make a payment to q,

the operation becomes somewhat more complex. He draws a cheque upon P, and hands it to q, who may, of course, demand the coin from P. Not wanting coin, he carries the cheque to his own banker, Q, and pays it in to his account in place of coin. It is the banker, Q, who will now have to present the cheque upon P, and it might seem as if the use of coin would be ultimately required. There will be other persons, however, making payments in the town in the same manner, and the probability is very great that some of these will result in giving P cheques upon Q, and some in giving Q cheques upon P. The two bankers, then, will be in the position of the two traders before described (p. 251), who have a running account. At the worst the payment to be made in coin will be only the balance of what is due in opposite directions; but as this balance will probably tend in one direction one day, and in the opposite direction the next day, the balance need only be paid when it assumes inconvenient proportions.

Complex Bank System.

A large commercial town usually possesses several or many banks, each with its distinct body of customers. The mutual transactions of each body will, as before, be balanced off in the books of their common bank, but the larger part of the transactions will now be cross ones, resulting in a claim by one banker upon another. The probability is very great, indeed, that each banker will have to receive, as well as to pay, each day; but it

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does not follow that he will pay to the same as those who are going to pay to him. The complexity of relations becomes considerable; thus among fourteen banks there are 14X13 or 91 different pairs which may have mutual claims, and among fifty banks there would be no less than 1225 pairs. The result is, that P might happen to have a considerable balance to pay to Q, and yet might be going to receive about the same sum from R or S. The actual carrying about of coin under such circumstances would be absurd, because a manifest extension of the book-credit system at once meets the difficulty. The several banks need only agree to appoint, as it were, a bankers' bank, to hold a portion of the cash of each bank, and then the mutual indebtedness may be balanced off just as when a bank acts for individuals. In the figure we see four banks, P, Q, R, S, each with its own body of customers, but brought into connection with each other by the bankers' bank, X.

P need not now send a clerk to present bundles of cheques upon Q, R, and S, but can pay them into the central bank, X, where after being placed to the credit of P and sorted out, they will be joined to similar parcels

of cheques received from Q, R, S, and finally presented at the banks upon which they are drawn. Thus all the payments made by cheques will be effected without the use of coin, just as if there were only a single bank in the town. What each bank has to pay each day will usually be balanced pretty closely by what it has to receive. Such balance as remains will be paid by a transfer in the books of X, the bankers' bank.

It is not precisely true that there is in any English town a bankers' bank, which thus arranges the payments between banks. The accountants' part of the work is carried out by an institution called the Clearing House, managed by a committee of bankers, and the Bank of England is employed to hold the deposits of the bankers, and make transfers which close the transactions of each day. The organization of the Clearing House will be described in the next chapter.

Branch Bank System.

It is impossible to avoid perceiving that the organization of the English bank system is undergoing a complete transformation, and is approximating to that which has existed for a century or more in Scotland. Instead of a great number of small, weak, disconnected banks, there is arising, by amalgamation and extinction of the weaker ones, a moderate number of important banks, each possessing numerous branches. The Scotch banks have long had many branches, and at present each of the eleven great banks has on the average 78 branches,

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the lowest number being 19, and the highest 125. Already a few of the English banks have equally extensive ramifications. Thus the London and County Bank, and the National Provincial Bank, which have especially developed the branch system, have respectively 148 and 137 branches; the Manchester and Liverpool District Bank has 50 branches and sub-branches. The Irish banks also adopt the same system, and the National Bank of Ireland has about 114 branches and subbranches. It is interesting to observe that in Australia, too, the banking system has taken a similar form, and a comparatively small number of strong banks, such as the Bank of New South Wales, or the Bank of New Zealand, leave no rising village without its branch.

Now, the close connection which exists between the head office and each of the branches of an extensive bank leads to a great clearing off of claims. The diagram on p. 256 again serves to represent this relation, X being the head office, P, Q, R, S, branch banks, and a, b, c, etc., customers. If a pay m with a cheque on P, the cheque will be paid into R, credited to m, forwarded by post direct to P, and debited to a. The head office, being informed of this transaction in the usual daily statement, will close the business by transferring the sum from the account of P to that of R. Much accountants' work seems to arise, but it is work of mere routine which costs little. Cash remittances are seldom necessary, because each branch settles accounts only with the head office, so that many sums will be credited and debited during each week, and the balance