This brings us to consider the question of competition among bankers, which at present is very keen, and which quite conceivably may lead to dangerous results unless kept within reasonable bounds.
The tendency of the time is towards the absorption of the smaller and weaker banks of the country by the large joint-stock banks. In itself, this is not an undesirable feature, in that it places the banking system, as a whole, on a sounder footing. Another feature is the establishment of branch offices throughout the length and breadth of the land. This gives facilities for capital to flow readily from one part of the country where it may be in excess, to another where it is in demand.
The joint-stock banks, however, are keen competitors among themselves, new branches being established wherever the possibility of securing new business exists, or where existing connections are threatened by the incursions of some other bank.
This multiplication of banking offices is of decided convenience to customers; it saves them the trouble of sending long distances to pay in, or to draw wages, etc.
In the race for business, however, rates are cut down to attract custom, and risks are perhaps undertaken which would not be entertained if competition were not so keen. These risks may not be large individually, but collectively they may amount to a large sum. They possibly tend to lock up resources in _one class_ of security, which, as we have seen, is a source of danger. This is especially the case in new and growing districts, where much accommodation is asked for on the security of house property, and for the purpose of developing new estates. There is, in fact, a growing tendency at the present day to transfer to banks business which formerly went to building societies; and if this system is encouraged, it is likely to result in a large portion of a bank’s advances becoming of a fixed nature and unavailable in case of need.
Mr. F. E. Steele, in a lecture recently delivered to the students of the London Chamber of Commerce, called attention to another danger resulting from undue competition. He said:—
“There is another phase of competition which should be touched upon. This phase I do not remember to have seen specifically dealt with in treatises on banking. I refer to the growing tendency on the part of banks to ear-mark, for the benefit of particular depositors, securities which should form a free asset; a security to the general body of its depositors. You will find now in some balance sheets, either in the investment column or as a footnote, that a certain portion of the bank’s investments are held for public bodies, such as county councils, borough councils, corporations, etc. In order to secure the accounts of these bodies the banker hypothecates to them certain securities, such as Consols, which would otherwise be held for the benefit of its depositors in general. This tendency to tie up assets which should be free should be narrowly watched by the public, and carefully controlled by bankers. That it should be resorted to in some cases seems inevitable. It is done by some of the best and soundest banks. But it is a course which should be resorted to as little as possible.”
