ADVANCES TO CUSTOMERS

A banker may advance money to a customer with no greater security for loan than the customers’ known probity and financial standing, it is usual for him to require some specific security for the advance.

Types of security-Common forms of security rendered  to bankers by customers  are stated as follows-a) Bonds, debentures, stocks, shares (b)Bills  of exchange and promissory note (c)Documents  of titles to goods (d)policies of life assurance(e)guarantees (f)Title deeds (g)Assignments of debts.

Security Registers-A banker keeps a careful and complete record of all securities deposited with him as cover for loans in specially ruled security registers and periodically revises which affects a security detrimentally is of the greatest interest to the banker who has advanced money against it.

A banker also keeps the accounts of all customers to whom he has advanced money under close observation. If the value of the security deteriorates, the banker calls for further cover; if the working of the customer’s account is unsatisfactory, he calls in the loan.

THE BANK CHARTER OF 1844-

Original banking started in England and as time progresses, there was a bank charter in 1844, the year the parliament passed the bank charter Act. Prior to 1844, the bank note issues of the country of England were unregulated and financial crises involving numerous banking failures were of periodical occurrence. The bank charter Act of 1844 was designed to restrict the issue of bank notes and to ensure their convertibility into gold on demand and also to prevent the occurrence of the commercial crises that had periodically distributed the trading community. It failed to achieve fully either purpose, mainly because its farmers failed to take into account the power to issue credit inherent in the newer deposit banking. On the whole, however, the act of 1844 was beneficial and advantageous. The bank of England was divided into the issue department and the banking department under the banking Act of 1844. The issue department was concerned with the issue of notes and maintenance of gold stock, reserves, as required by law while the banking department is concerned with receiving money from customers on current and deposit accounts, makes advances at interest against security, discount bills and so on. Its customers are the government and all the other banks of the country, foreign banks, large corporations and wealthy private persons. The bank allows no interest on deposits. The rate at which it will discount approved bills of exchange is known as the Bank rate. This rate as just mentioned is the basic rate for loans. The London Banker’s clearing house account is kept with the Bank and balances finally ascertained to be due from or due to member banks of the clearing house on each day’s clearing are settled by transfers to or from that account. It is through the clearing house system, from the published index numbers of commodity prices from information derived from other sources and from its own long experience that they should obtain on which, in conjunction with the Treasury, it is able to exercise control over the volume of currency and to assist in the implementation of monetary policy.

The bank was empowered to issue notes against securities to be held in the issue department, up to the amount of £16,000,000(sixteen million British pounds sterling) and for every note issued beyond that sum was to retain in the department gold and silver to an equal amount but the silver bullion was not to exceed one fifth part of the gold coin and bullion. Any man or woman could demand notes from the issue department by tendering gold bullion in exchange at the rate of £3.17.9d. Per oz. No man or woman but a banker was to issue notes payable on demand in the United kingdom and no banker, unless on May 7, 1844 he was in fact issuing such notes and then he was to restrict his average monthly issue to the average amount he had issued for the twelve weeks preceding April 28, 1844.If any note issuing banker became bankrupt  or from other cause ceased to issue notes, he is not to resume the issue and if any banker with a right of note issue ceased to issue , the bank might be authorized to increase its securities to extent of two thirds of the lapsed issue , and to issue notes against the increase . No bank of issue then consisting of seven or less than seven partners could continue to issue notes, if the number of partners were increased beyond seven banks of issue did from one the other of these causes lose their right of issue after the passing of the Act, until finally they were completely extinguished and the Bank alone had the right of issue. Provision was made in the Act, for an account to be complied of the assets and liabilities of each department and published every week in the London gazette; equally same around all protectorates and colonies around the world. This account is called the Bank returns. During  the first world war1 , there was a high need for conserving the national gold  holding became imperatively strictly, the gold currency was called in and the notes for £1pound and 10scents issued  by the Treasury were substituted  for the gold coinage. By the currency and bank Notes Act of 1928 , the currency note issue was transferred to the bank of England ,which assumed liability for the amount of Treasury notes then outstanding, and took over government assets built up for the redemption of the issue and the bank was authorized to issue its own notes for £1pounds and 10scents.

The Joint Stock Bank-From the Bank of England which is the origin of modern banking today, banking in its rudimentary form was carried on by the London goldsmiths. The goldsmiths had for the purpose of their business to provide themselves with strong rooms for the storage of plate and Jewellery. Hence business men and wealthy private persons found it convenient and safe for the deposit and sums withdrawn by the depositors were written on the receipts. These receipts were the forerunners of the bank note.

It has already been shown how the parliament legislated to safeguard the position of the bank of England and how the need for increasing banking facilities to meet the growing trade of the country, encouraged the formation of hundreds of financially weak note issuing country banks  including of not more than five or six partners with consequent numerous banking failures; and how the competition of the bank of England led the private London issuing banks to give up their note issues and develop the system of deposit banking with the cheque as its characteristics instrument  and how the Act of the 1833 in its  belated facilities, to meet the pressing pressure  for increased and enhanced banking facilities, permitted the establishment of Joint stock  Banks containing of more than seven partners in  London without right of note issue. The very first of these banks was the London and Westminster Bank in 1836, the union Bank of London and the London and county Bank in 1839.However, pointed out that the chief objective 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 of which objectives has been fully achieved.