will usually be small. The head office, in fact, acts in every way like a clearing house, or bankers' bank.

The question naturally arises, indeed, how will the branches of one bank transact business with those of another bank? The solution, however, is simple; for unless the branches happen to be in the same town, or for other reason, in close relation with each other, they will communicate through their head offices. A cheque upon any branch of the London and County Bank received by a branch of the National Provincial Bank, will be presented through the head office of the latter at the Clearing House upon the head office of the former.

Bank Agency System.

Another important feature of the banking system is the extensive organization of agencies. A large bank has various business to be transacted in each of the principal commercial towns of the kingdom, and if it has no branches in these towns employs a banker in each town to act as its agent. This agent-bank collects cheques, bills, notes, etc., payable in the district, cashes drafts drawn against them, retires bills according to instructions, and does almost all that a branch bank would do, the main difference being that the remuneration for this work consists of a commission. Each agent-bank has a running account with its principal, so that to a certain extent each important bank and its agencies form a clearing system analogous to that of a head bank and its branches.

London Agency System.

By insensible degrees there has grown up in England an all-comprehensive and most perfect system of relations between the provincial and London city banks. Every banker in the United Kingdom, without, I believe, any exception, employs one or other of the great London city banks to act as agent. There are twenty-six city clearing banks which thus undertake agencies, and on an average, each of these banks represents at least twelve country banks; but the number varies very much, and some country banks have two London agentbanks.

This agency system leads at once to a clearing of transactions, because, if any two country banks have the same London agent, all their mutual adjustments of accounts can be made by transfers in the books of the agent. The diagram on p. 256 applies for a third time, and X represents the city agent, having running accounts with P, Q, R, S, the country banks. The whole of the customers of all the banks, having the same London agent, are thus brought into close relation, though they may live in the most distant parts of the country. Each of the city banks may be regarded as a bankers' bank and a clearing house on a small scale.

Country Clearing System.

Only one further step is required to complete the system of connections between each bank in the kingdom

and all other banks. Every country bank, as we have seen, has a running account with some city bank, and all the city banks daily settle transactions with each other through the Clearing House. It follows that a payment from any part of the country to any other part can be accomplished through London. In the following diagram, let P, Q, R be country banks having the

London agent, X, and U, V, W, other country banks having the London agent, Y. If a, a customer of P, wishes to pay r, a customer of U, he transmits by post a cheque upon his banker, P. The receiver, r, pays it into his account with U, who having no direct communication with P, forwards it to Y, who presents it through the Clearing House on X, who debits it to P, and forwards it by the next post. Nothing can exceed the simplicity and perfection of this arrangement.

It will be readily seen, too, that sums of money passing between London banks, or rather cleared off in the Lombard Street Clearing House, will frequently be the balances of extensive running accounts between country banks and their agents and correspondents.

So long as the balance of accounts between any two banks does not assume large proportions, it need not be paid in cash at all, except for special reasons. When a balance has to be paid, and the banks happen to have the same London agent, it is only requisite for the debtor bank to direct their London agent to transfer so much money to the credit of the other country bank. If they have different London agents, and P, in the last diagram, desires to pay a balance to U, it is done by directing X to credit Y, the agent of U. The credit note effecting this payment passes through the Clearing House amid a mass of other documents representing payments in one direction or the other, and will, in general, become an insignificant item in the general clearing. If it can be said to be paid in cash at all, it is in the form of a final transfer in the books of the Bank of England, as we shall see. Great as are the transactions daily settled in the London Clearing House, they are after all only those which have not been previously cleared off by any more direct communication, and they often represent the balances of multitudinous transactions which never pass through London at all.

CHAPTER XXI.

THE CLEARING-HOUSE SYSTEM.

By means of the London agency system, the banking transactions of the country are, as we have seen, brought to a focus in the city of London. The settlement of the reciprocal claims of the twenty-six principal city banks is therefore a business of the utmost magnitude and importance, representing as it does the completion of the business of no small part of the world. In a room of moderate dimensions, entered from a narrow passage running from the post-office in King William Street across to Lombard Street, debts to the average amount of nearly twenty millions sterling per day are liquidated without the use of a single coin or bank-note. In the classic financial neighbourhood of Lombard Street, and even in this very chamber, the system of paper commerce has been brought nearly to perfection. The early history of the London Clearing House is buried in obscurity, and it is much to be desired that those who are acquainted with the principal incidents in its progress should put them on record before it is too late.