The Joint Stock Bank.

The  Joint Stock Bank- Even before the foundation of the Bank of England in 1694, from which date modern banking  may have started from, banking in its rudimentary form  was carried  on by  the London  gold –smiths. The goldsmiths had, for the purposes of their business, to provide  themselves  with strong  rooms  for the storage  of  plate and jewellery. Hence wealthy  business men and women found it  convenient  and safe  to deposit  their cash with them. The goldsmiths  issued receipts  for the deposits and sums  withdrawn  by the depositors  were written on receipts. These receipts  were  the forerunners  of the bank note. In 1833, there was an Act of parliament that  was passed by parliament of  Great Britain,  and in it’s belated endeavour  met  the pressing need  for increased banking facilities , permitted  the establishment of joint-stock banks consisting of  more than six  partners in London, without right  of note issue.The first  of these  banks  was London and Westminster   , founded  in 1834, followed  by the London  Joint Stock Bank  in 1836, the Union  bank of London  and the London  and County  Bank  in 1839.It has  also  been pointed  out  that  the chief  object  of the bank  Charter  Act of 1844 was to ensure  the convertibility  of all  notes  issued  into gold on demand and also , ultimately  to  confine  the issue  of notes  to the bank of  England, which object  has being fully achieved. Initially, The Bank of England  looked  askance  at the new  London  joint stock  banks. But  the future  lay  with the  cheque system and these banks gradually  grew in power. Then came the era of bank amalgamations  and today  the great joint stock  banks  in the magnitude  of their deposits  completely overshadow the bank. But nothing  can diminish the prestige  of the bank  as banker  to the government  as sole  credit  and though in ordinary times , the joint stock bank  in their desire  to earn profits  for their shareholders  may not  always  act  in strict  harmony  with the bank’s  and the  Treasury’s Financial  policy  they normally  do so  and certainly  whenever the country’s  economic  and financial state  demands  it they conform  to the bank’s lead  and work in complete accord  with it.

The Bank Balance Sheet- The functions of  the joint stock banks  and the place  they  occupy  in the monetary  economy  of the country  may perhaps  best be explained  by examining  a balance sheet  of one  of these  institutions.

Capital- The first item  on this  is the liabilities , side  representing the bank’s liability it’s shareholders. It is to be noticed  that there is a comparatively  small amount  of unis- sued capital.

Reserve Fund- It will be observed  that the amount , for instance  eighteen   Million  pounds  is more than the paid up capital. Each  of the  big five  banks  can show  equally  large  reserve  funds. The  reserve has being  built up gradually  out of profits , a portion  of these  profits  having been transferred  annually  to the  reserve  instead  of being  paid  to the shareholders  as dividends.

Profit and Loss Balance –This is the balance  of profit  for the  year  which  is to be carried forward into the next year. The  way  in which  this figure  is obtained is made  quite clear  in the  profit and loss account.

Current ,Deposit and other Accounts-The amount  of this item  indicates  the vast  business of the great  joint stock  banks. At the end  of 1954, the aggregate  deposits of the London clearing banks exceeded the limits to six billion, one hundred and sixty million pounds sterling. It is not , however  to be supposed  that the whole  of this  vast sum  was actually  deposited  by the customers  of the banks  to their depositors.

Notes in Circulation- The bank  of England  has the sole right  to issue  legal tender  in England , Scotland  and Northern Ireland. Certain  banks , however  in Scotland  and Northern Ireland  still a right of note issue, but to the notes of these banks  are not legal tender  and their issues are restricted to the  average amount  of notes  which they had in circulation  at the  time  of the passing  of the bank Charter  ACT of 1844. They  may issue  notes beyond  this average  but must  hold  gold  or  Bank of England  notes  pound  for pound  for any excess issue. The Isle  of man  is subject  to its own  laws  in this land in this  and other  respects.