Originally posted on Thursday, May 2nd, 2013
“To me by far the most interesting phase of our foreign examinations was the personal inquiry made of the actual managers of these great banks, for the purpose of ascertaining the precise details of the practical workings of their institutions.” — Sen. Nelson W. Aldrich
SENATOR NELSON W. ALDRICH BEFORE THE ECONOMIC CLUB OF NEW YORK NOVEMBER 29, 1909 ON THE WORK OF THE NATIONAL MONETARY COMMISSION (pp. 10 -12):
The position occupied by the great central banks, their duties and obligations (which they are not always willing to acknowledge in a public way), with reference to sustaining public credit, and their responsibilities to the public and to other banks, in always having available an adequate gold reserve, are of recent origin. To me by far the most interesting phase of our foreign examinations was the personal inquiry made of the actual managers of these great banks, for the purpose of ascertaining the precise details of the practical workings of their institutions. …
The central banks of these countries are all private banks—that is, the governments have no ownership or interest in their shares. The provisions for the control and management of the respective banks differ widely. The management of the Bank of England is in the hands of 24 directors, selected largely from merchants—no bankers, in their sense of the word, being eligible for the position—and these, including the governor and deputy governor, elected by the directors from their own number, have control of the business of the Bank.
With regard to the Bank of England, I have frequently been asked why such an institution, serving as it does a limited territory, and doing the business of a small island, should require one hundred millions of capital, and why the success of this bank could be construed as a guaranty of the efficiency of a similar bank in a country with a greater area and more extensive business. I think the answer is obvious. The Bank of England not only sustains the credit and holds the reserve of the banks and the people of England, but it is the center of the financial system of the entire British Empire, with its four hundred millions of population and with connections and affiliations extending around the world. Not only this, but its friends say, and I must confess with great truth, that the Bank of England is to-day the financial center and clearing house of the world.
We know that sterling bills drawn on London are still the highest form of commercial credit. These bills sell at a lower rate in Paris, in Berlin, in Amsterdam, and New York than any other form of commercial credit. The Bank of England reaches a larger territory than any other institution in the world and serves financial interests that are exceeded in importance and amount only, if at all, by those of the United States.
The governor and the two deputy governors of the Bank of France are appointed by the chief of state. The governor of the Bank of France directs the general policy of the bank. The two hundred largest shareholders elect eighteen regents and censors who have functions of limited importance. The Reichsbank is managed by the directorium, consisting of a president, vice-president, and 7 directors, appointed by the Emperor. The stockholders elect a central committee of 15 members with limited advisory powers. Except as to its ownership, the bank is in effect a government institution under the control and management of expert bankers.
The earnings of these banks are not excessive, and as their charters have been renewed from time to time, conditions have been imposed for the purpose of bringing about a greater restriction of profits or a more satisfactory division with the state.
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