The large credit banks in the several countries make up the bulk of the supply side of the market. They also discount directly only for those having accounts, but they purchase bills in large quantities from discount houses, bill brokers and in some cases from each other. The rates at which they discount or purchase bills are fixed by competitive forces in the market. Such rates are not necessarily uniform throughout the country but the more complete the competition the greater is the tendency toward uniformity.

The practice of the several central banks in the field of loans does not differ greatly, although the policy of the Reichsbank is perhaps a little more liberal than is that of the other two banks. The Bank of England is burdened with no legal restrictions but it lends in the main only on stock-exchange collateral. Occasionally loans are made on good unlisted securities, but mining stocks, whether listed or unlisted, are barred. The Reichsbank is authorized to lend on almost everything, real estate excepted. Loans on collateral are usually referred to as "Lombards." In France the law and the statutes of the Bank of France itself define what are acceptable securities for loan purposes. These are mainly bonds issued under governmental authority, state or local. The smallest rentier is privileged to avail himself of a Bank of France loan. The rate for loans at all three central banks is from1/2% to 1% higher than the rate for choice discounts, because the loan is regarded as less liquid than are good bills of exchange. The loans run from a lays Bays up to three months. Call loans are relatively of the volume.

At the central banks

At the general market banks

Loans

At the central banks

In England

In Germany

In France

The incorporated and other commercial bnks in the market also lend on reliable collateral, althugh real estate is quite generally tabooed. Stock-exchange securitiei supply the bulk of the collateral for loan purposes, al though in England the discount houses borrow extensively from the joint stock banks on bills of exchange as collateral Under the system of fortnightly or of monthly settlements which prevails on the stock exchanges the speculativ loans run ordinarily until the next settlement. The cal loan so familiar to American students is not a factor in stock speculation in Europe. Discount houses in Englanc can borrow on call because if the bills which they surrende as collateral cannot be sold in the open market they car always be rediscounted at the Bank of England.

Having discussed the general basis of credit expansion attention may be given in the next place to the limitation and control of such expansion. Here a distinction wil be made between deposits and notes because of the specia treatment accorded to notes.

Speaking first of legal limitation in the sphere of de posits it may be said that practically no restriction i imposed either on the central banks or on the other bank: in the general market. There is no attempt to prescrib absolute totals or reserves against deposit liabilities. Pru dence and tradition alone are relied upon.

The practical limitations are to be found in connectioi with the reserves that are actually maintained and witl the rates that are charged for advances.

Examining the reserves maintained by the central bank it is observed that in none of the three countries do the central banks make a distinction between reserve fo deposits and reserve for notes. In England the rigi limitation of note issue makes the reserve apply in practice chiefly to deposits. Being the reserve-holding banks in the respective countries the three central banks maintain relatively high reserves. Their deposit liabilities are, for the most part, the reserve deposits for other banks, and as such are the basis of further credit extension by these banks. While no definite percentage of reserves is maintained in practice the amounts are rarely permitted to decline below 40%. The Bank of France maintains the highest reserve, the percentage varying from 55 to 75. The Great War has, of course, sadly upset these percentages.

Loans at the general market banks

Limitation and control of credit expansion

Of deposits

Legal limitations

Practical limitations

The reserves

Gold is, of course, the chief element in the reserves, but other elements are permitted. In its "banking department," namely against deposit liabilities, the Bank of England carries as reserve mostly its own notes. In normal times in recent years the "uncovered issue" of the Bank of England has constituted about one-third of the entire issue, hence, as Hartley Withers points out,1 when the Bank of England advertises a 50% reserve the actual cash finally behind its credit may be but 33 1/3%. In Germany imperial treasury notes are also available for reserve purposes. In all three countries subsidiary silver enters as a factor in reserves, but it is only in France that silver is really significant. The Bank of France may, if it chooses, redeem its notes in silver, and this makes possible the protection of the gold holdings. In Germany the coinage of subsidiary silver is limited to 20 marks per capita, which limitation, coupled with the ordinary demands of trade, tends to prevent any large silver accumulation in the vaults of the Reichsbank. In England the silver money is only fractional currency, and it represents therefore only a minor reserve element.

The incorporated and general market banks keep their reserves mainly on deposit at the central banks. Only a small amount of cash is kept on hand to meet the day to day needs In France and Germany this "cash" is made up mostly of the notes of the central banks. In England, until the recent issue of £1 and 10-shilling notes, besides Bank of England notes, it comprised also gold and subsidiary silver. The general market banks in England have normally kept in their own vaults considerable quantities of gold. This has been due to the fact that before the Great War the Bank of England issued no notes under the denomination of £5, and possibly also to the further fact that there is not the same cordial cooperation with the central bank in the English market that is to be found in the markets of France and of Germany. In all three countries, but again more especially in England, some country bankers use the big incorporated banks rather than the central banks themselves as metropolitan correspondents, and hence as holders of ultimate reserves.