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.