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The French System

In France, the Bank of France is the central institution. It is the
oldest of the important French banks of the present day, having been
established in 1800 by Napoleon the First. Its capital, amounting at
the present time to 182,500,000 francs, or approximately $36,500,000,
is supplied by about 30,000 private stockholders, about 10,000 of
whom own only one share each.

The two hundred largest stockholders appoint a General Council,
consisting of fifteen regents and three censors. Five regents and all
the censors must be chosen from the commercial and industrial classes,
and three of the remaining ten regents must be selected from the
tresoriers payeurs genereaux, an important group of representatives
of the public treasury scattered throughout the country. The General
Council as well as the stockholders' assembly is presided over by a
governor, who, together with two sub-governors, is appointed by the
President of the Republic upon the nomination of the Minister of
Finance. The governor is the chief executive officer of the bank and
the final source of authority in most matters of vital importance. He
is responsible to the government rather than to the stockholders, and
is subject to removal only by the power which appointed him.

The Bank of France has about two hundred branches and sub-branches
located in Paris and all the important cities and towns in the
Republic, also over three hundred so-called agencies located in
smaller places and transacting only a limited line of business. Each
branch has a manager appointed in substantially the same manner as
the governor, and the sub-branches and agencies are administered
through the branches. Through this network of offices, every part of
the country is brought into direct and easy access to the Bank.

The Bank of France is the only institution in the country privileged
to issue circulating notes. The maximum allowed it is regulated by law
and is increased from time to time. At present it amounts to
5,800,000,000 francs, or approximately $1,160,000,000. The bank is
obliged to redeem these notes on demand in gold coin or silver
five-franc pieces, but it is free to determine how much cash it shall
keep on hand for that purpose, and when and under what conditions it
shall issue them.

Its discount operations are limited by law to bills maturing in not
more than three months, and bearing the signatures of at least three
solvent persons, or two signatures and secured in addition by
specified forms of collateral. It is also permitted to make loans or
advances, as they are called, on securities of the French government
maturing at fixed dates, gold and silver bullion, and the money of
foreign countries, and obligations of the French railroads, French
cities, and departments, the Credit Foncier, and the Societe
Algerienne. It is also obliged to loan 180,000,000 francs
($36,000,000) to the government without interest.

One of the chief branches of the business of the Bank of France is the
service of the public treasury and the performance of other financial
duties imposed upon it by the government. It serves as the depository
and disbursing agent for the government, and performs important
functions connected with the public debt, the mints, the savings
institutions, and publicly administered trusts of various kinds. It is
also the depository for the banking reserves of the country. In
France, as in England, it is not the custom of banking and other
financial institutions to hoard money in their vaults, but to depend
upon the Bank of France for supplies as needed. To this end they keep
funds on deposit there, and regularly rediscount the paper of their
customers when balances need to be replenished.

Through its network of branches and agencies spread over the entire
country, the Bank of France is able economically and expeditiously to
conduct the intermunicipal exchanges of the country. It participates
in local clearings through membership in the clearing houses, at which
balances are paid by checks drawn against credits on its books
maintained for that purpose by all members, and it conducts so-called
transfer accounts with other banks and financial institutions against
which drafts can be drawn payable at any place where one of its
offices is located. Such drafts constitute the chief means through
which transfers of funds are made between different places.

The business of the Bank of France with private persons is limited by
the requirement that all paper discounted must have three signatures,
or two signatures and collateral security, and that advances can only
be made on the security of the forms of collateral indicated above.
Most business men find it either inconvenient or impossible to comply
with these conditions, and consequently transact most of their
business with other banking institutions. The third signature on paper
discounted by the Bank is, therefore, usually supplied by these
institutions, which thus act as an intermediary between the Bank and
the commercial world.

Next to the Bank of France, the most important banking institutions of
the country are the Credit Foncier, the Credit Lyonnais, the Comptoir
d'Escompte de Paris, the Societe Generale, and the Credit Industrielle
et Commercial. The Credit Foncier is principally engaged in extending
credit based on real estate security, but it also discounts large
amounts of commercial paper. Its organization is modeled after that of
the Bank of France, and, like that institution, it is controlled by
the state. Since it is primarily an investment bank, a description of
its principal operations will be deferred to the next chapter.

The four other banks mentioned are a product of the commercial life of
modern France, all having been established since the revolution of
1848. They are all heavily capitalized, the smallest, the Credit
Industrielle et Commercial, having a capital of 100,000,000 francs
($20,000,000), and the largest, the Societe Generale, having a capital
of 400,000,000 francs ($80,000,000), and all extend their business by
means of branches. The Credit Lyonnais and the Comptoir d'Escompte
have branches in France itself, the French colonies, and a number of
foreign countries; the Societe Generale, throughout France, in London,
and San Sebastian, Spain; and the Credit Industrielle et Commercial,
in Paris and its suburbs. Taken together, these four institutions
supply the French people in Paris and the Provinces with banking
facilities for both their domestic and their foreign business. While
in some of the larger provincial cities local banks with branches in
surrounding towns and sometimes in Paris are to be found, branches of
one or more of these four institutions are the chief reliance in
nearly all places.

These institutions cater to all the financial needs of their
constituents. They supply their needs for cash and for exchange;
conduct checking accounts for them, although these are not used in
France to the same extent as in the United States; discount their
commercial paper and make loans to them on personal and other
security; and receive on deposit their savings and provide them with
investments. In performing these functions they make extensive use of
the Bank of France and of the stock exchanges of the country. With the
former they conduct checking and transfer accounts and rediscount
their customers' bills, by these means procuring the coin, bank notes,
and exchange needed; and from the latter they obtain the investment
securities required for the satisfaction of both their own and their
customers' needs.

Gold and silver coin and the notes of the Bank of France constitute
the hand-to-hand money of the country. The latter form the elastic
element, and their operation approximates perfection. When demand for
money increases for any reason, more commercial bills are presented
for discount to the banks, which, after indorsement, exchange them at
the Bank of France for the notes with which they supply their
customers' needs. The note issues of the Bank thus expand in direct
and immediate response to the needs of the country for more currency.
When such needs have passed, the discounted bills, in exchange for
which these notes were issued, mature and are paid in greater volume
than new bills are created and presented for discount, and notes, or a
corresponding amount of coin, accumulate in the vaults of the Bank.
The notes are cancelled and destroyed and the coin is kept in store
until it again passes into circulation through exchange for notes
still outstanding, or for discounted bills.

On account of the elasticity of its note issues, and the extent to
which they are used in the commerce of the country, the Bank of France
has occasion to change its rate of discount less frequently than any
other bank in Europe. The result is that the country enjoys the
advantage of steady and low rates, since in France, as in England, the
discount rate of the central bank controls the market rate, and the
ease and inexpensiveness with which the notes are issued make low
rates possible.

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