/banking/Banks Joint Stock Banks

Banks Joint Stock Banks

/banking/Banks, Joint-stock, banks whose principal function is to receive deposits and make short-term loans, mainly for working capital. Also described as commercial banks.

Until the nineteenth century commercial banking in Britain was conducted by several hundred private banks, each with unlimited liability (that is, the partners were entirely responsible for the debts of the banks). These banks proved inadequate to finance the rapidly growing British economy. In 1826 joint-stock company banks were permitted, although the principle of limited liability was not extended to them until 188. The functions of joint-stock banks comprise (a) ordinary bashing business: the exchange of cash for bank deposits, and vice versa; the transfer of deposits between individuals or businesses by the cheque system; the exchange of bank deposits for securities (bills of exchange, Government bonds, etc.); the advance of credit to customers, and the consequent exchange of bank deposits for promises or collateral security: (b) ancillary services: e.g. executor and trustee services, Stock Exchange transactions, custody of valuables, foreign currency transactions, income tax advice, etc.

The typical joint-stock bank in Britain has numerous branches throughout the country; this is 'branch' banking. In the U.S.A. by contrast a system of 'unit banking' predominates under which a bank comprises a single office or at most a few branches in a small area. The advantages of branch banking are principally those of large-scale operation, specialization and division of labour and the spreading of risks. The corresponding disadvantages of unit banking are to some extent overcome by the system of correspondent banks, which allow one another deposit and other banking facilities, and by the provision of many facilities by the central bank.

An important consequence of the development of the branch banking system in Britain is the small number of large banks. The eleven most important English joint-stock banks are usually referred to as the clearing banks, since they are members of the London Clearing Bankers' Association. The 'big five' banks (Barclays, Lloyds, Midland, National Provincial and Westminster) have branches in most towns and their resources account for six-sevenths of the total. The District and Martins account for a further 8 per cent of the total and have branches all over the country (mainly in the north of England); Williams Deacon's (predominantly a Lancashire bank) and Glyn, Mills jointly own the Royal Bank of Scotland; Coutts & Co. is in London owned by the National Provincial Bank; the National Bank is predominantly Irish, but has several branches throughout England.

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