Chapter XXIV: The French Banking System (2)

A. Including the country, something like 5,000.

Q. Have you a pension system for your employes?

A. Our clerks consent to a rebate of 5 per cent. on their salaries, and we duplicate this rebate by a voluntary contribution, in order to constitute a pension fund; it amounts now to about 7,000,000 francs.

Q. If a new bank were to be organised here, would it be admitted as a member of the clearing house?

A. Certainly.

Q. You have no new banks except the Union Parisienne?

A. There is also the Banque Francaise, managed by M. Rouvier, who formerly was Premier.

BANQUE DE PARIS ET DES PAYS-BAS

INTERVIEW WITH M. MORET, MANAGER OF THE BANQUE DE PARIS ET DES PAYS-BAS[180]

Q. We assume that your business is in many respects quite unlike that of the other joint-stock banks?

A. Yes; in some respects.

Q. What is the difference?

A. The Societe Generale, Credit Lyonnais, etc., receive deposits from the public; they invest these deposits and try to make the most of them, paying a small rate of interest on them; they also loan money on commercial paper which can be rediscounted at the Bank of France. Here we are more a business bank; we do not care for deposits from the public; we work with our own money, with the money which is the capital of the bank, and we are occasionally assisted by the capital of the directors, the people who sit around this table, who are all rich people and some of them bankers. As a rule we do not receive deposits from the public.

Q. But you do receive some deposits?

A. We receive the deposits of big companies which we have created or promoted or whose stocks we have issued--they are our customers--but we do not receive deposits of small accounts from the public.

Q. What is your capital?

A. 75,000,000 francs.

Q. You have current accounts--190,000,000 francs?

A. They are current accounts, from manufacturing concerns, railway companies, big organisations of any kind.

Q. You have a considerable foreign business?

A. We have connections all over the world, and very often we take an interest in business abroad.

Q. Do you operate more particularly in one part of the world than in another?

A. No; although we have only three branches--one in Brussels, one in Amsterdam, and one in Geneva.

Q. Do you endeavor to carry any special amount of cash at the Bank of France? Or are you indifferent as to the amount of balance you have there?

A. We always calculate what sum each day will be likely to be withdrawn; besides which we always have a large amount of commercial paper which we could rediscount at the Bank of France at once. Therefore we keep just enough cash in vault to meet any cheques which may be presented.

Q. Do you carry an account in New York?

A. We lend money to bankers there. Different kinds of loans, some are at sixty days or ninety days.

Q. You are not restricted in any way as to the character of the undertakings you may make?

A. No; we can do as we like.

Q. Do you specialise in practice or do you consider propositions of various kinds?

A. All sorts of propositions, railway building, harbors, tramways, electrical enterprises, etc.

Q. Do you sometimes take an interest in business such as placing Pennsylvania Railroad and Union Pacific bonds?

A. Yes.

Q. You frequently act as managers of syndicates which might include the other banks of France?

A. Very often we take the head of syndicates.

Q. You are the leading bank in that business in France?

A. They say so.

Q. Is there cordial co-operation between the banks of Paris and the Bank of France, generally speaking?

A. Yes; business as a rule is done, when it is a big business, with several of these big societies or banks, and perhaps with all of them together.

Q. Are there particular corporations in which you have a permanent interest?

A. Yes; so as to have some control in certain large companies.

Q. What do you think of the attitude of the Government toward the Bank of France? That is to say, are they exacting more and more from it?

A. I do not think that they exact too much from it. The shares of the Bank of France are always very high in price; it has not hurt at all the development of the bank.

CREDIT FONCIER DE FRANCE

INTERVIEW WITH M. TOUCHARD, SECRETARY[181]

Q. Is the Credit Foncier a public institution?

A. Yes, it is a mixed institution; it is at the same time a joint-stock company and a society under the control of the Government by reason of privileges which the Government has granted to it.

Q. Who are the shareholders?

A. Any one; the shares are dealt in on the Bourse. The firm capital is at present 200,000,000 francs; the shares are issued at 500 francs.

Q. What dividend do you pay?

A. We now pay 6 per cent.; for several years it was only 5 per cent.

Q. Does the Government receive no income from it?

A. No; on the contrary, the Government began by giving us a subsidy of 10,000,000 francs; that was at the beginning, in 1852, in order to help us make loans at a rate advantageous for that time. This subsidy was not renewed, and the State does not intervene now, except occasionally to exercise its control.

Q. Does the company appoint the officers?

A. The Government appoints the governor and the two sub-governors. There must also be three treasurers-general among the 23 members of the council of administration. These treasurers, as well as the other administrators, are named by the general assembly of stockholders; but before presenting their names to this assembly, it is customary to obtain the approval of the Minister of Finance.

Q. Do you pay the same taxes as the other banks?

A. Yes. We are treated like any ordinary bank. We have the special privilege of issuing bonds secured by mortgages. It is a very complicated system in France; there are legal complications which would render it impossible for any corporation to undertake the business unless it had special privileges.

Q. Are you confined by law to business with mortgages?

A. We have two principal kinds of operations--mortgage loans and communal loans. The total business of the two branches of operations amounts at present to about 4,000,000,000 francs. Operations on so large a scale involve a considerable transfer of funds, and make necessary a treasury service requiring, of course, the use of banking methods. Our statutes, therefore, recognise our right to carry on ordinary banking operations, within certain rather sharply defined limits.

Q. How is your banking business limited?

A. We are allowed to receive deposits up to a maximum of 100,000,000 francs.

Q. Do you invest in securities other than mortgages?

A. We employ our deposit funds in discounting commercial bills on condition that they have two signatures and can be presented to the Bank of France; that is to say, they must not run over three months.

Q. You take mortgages on private estates?

A. Our mortgages may be on houses or on rural property.

Q. What is the precise relationship of the stockholders to the business of the company? Have they really a voice in the administration?

A. The two hundred largest stockholders meet once a year to ratify accounts, vote the dividend, and consider the questions docketed for the day of the meeting.

Q. What is the usual length of time for mortgages on real estate?

A. Our statutes allow us to loan for seventy-five years on ordinary rural or city property. In the case of summer resorts and certain other property liable to depreciate rapidly, for the sake of prudence we do not generally lend for more than thirty years; besides, the borrowers always have the right to repay at any time, and they often avail themselves of this right, so that the average length of our loans is much less--hardly exceeding fifteen or twenty years.

Q. What is the cost for amortisation in the long mortgages on property in the country?

A. The amortisation is spread over the whole duration of the loan, so that the total of the interest paid and the capital reimbursed forms a constant yearly annuity.

Q. Do you employ your amortisation funds to buy new mortgages?

A. Yes; we lend again.

Q. May you call your bonds at par? Are they payable at par at your option?

A. In our recent issue we have put that clause in, viz., that we can redeem our bonds at par. Generally we only redeem a certain portion of them each year, which are drawn by lottery.

Q. What is the minimum size of your mortgages on private estates?

A. There is no minimum; but we do not care to make very small loans because it costs too much to foreclose.

Q. What percentage of your total business is in the country and what in the city?

A. About one-half in Paris, and our best business is in Paris. The urban mortgages cause us less difficulty, and the tendency is for the proportion of them to increase.

Q. Who are the subscribers to the bonds, and what are the usual sums subscribed? Are they small or large?

A. They are bought by small people, and generally remain in the hands of persons of small capital. This is one of the reasons why their quotations show so little fluctuation.

Q. Do you lend on farms?

A. Yes. Up to one-half, except on forest land, vineyards, and the like, on which we lend only one-third. We do not lend on mines. On factory buildings we lend only on the value of the ground and of the building, independently of its industrial value.

Q. What other institutions of this character are there in France?

A. There are no others; we no longer have a _legal_ monopoly, but we very nearly have a _practical_ monopoly. There are private individuals who make mortgage loans, but no large company makes this the principal feature of its business.

Q. How long has it been the privilege of the Credit Foncier to add lotteries to its loans?

A. It has done so from the beginning, although we are obliged to ask the permission of the Minister, but it is on that account that we have been able to place our bonds so low.

CAISSE DES DEPOTS ET CONSIGNATIONS

INTERVIEW WITH M. DELATOUR, GENERAL DIRECTOR OF THE CAISSE DES DEPOTS ET CONSIGNATIONS[182]

Q. We should like to know the general character of the business conducted by your institution.

A. The mission of the Caisse des Depots et Consignations is to receive, hold, and repay all private funds intrusted to the State either voluntarily or under compulsion.

Q. You say that you also do an insurance business. What do you mean by that?

A. The insurance office, managed by the Caisse, issues policies of life insurance, insurance payable after death or in case of accident, like any private insurance company. As regards accidents to employes while at work, it insures only against such accidents as cause death or permanent total or partial incapacity for work.

Q. Is this a corporation?

A. The Caisse des Depots et Consignations is not a corporation. It is a state organism, but, while charging the Caisse with the management of all private funds, which may be turned over to it by the State under different headings, the legislature bestows upon it full autonomy, in order to avoid even a semblance of possible confusion in the handling of private moneys with the handling of public moneys. Moreover, it has placed the Caisse under the direct supervision and the guaranty of the legislative powers.

Q. What is done with the profits realised from the business?

A. Profits earned by the Caisse on deposits of the savings banks are turned over to the reserve and guaranty fund of savings banks.

Q. What restrictions govern the investment of your funds?

A. As long-term investments, we make loans to departments and municipalities, sometimes to the State; we take government rentes, treasury securities, guaranteed railroad bonds, etc. As short-term investments, we take treasury bonds, bonds of the Monte de Piete of Paris (municipal pawnshop), etc. Finally, we keep large sums in cash, either in our own vaults or to our credit in the treasury and the Bank of France, which, for that purpose, keep account currents on demand for us.

Q. You do not, as a rule, invest in mortgages?

A. No; owing to the difficulty in disposing of such investments.

Q. You purchase no bills and do no commercial business whatever?

A. No; that role is played by the Bank of France. Sometimes we make advances on securities, but only on treasury bonds.

Q. Your organisation is quite unique in the world, is it not?

A. There is nothing like it in England or America, but there are similar institutions in Belgium and Italy, for instance. In France this institution is highly appreciated by the lawmakers, who steadily increase its functions, and the number of laws and regulations governing the Caisse is ever growing.

Q. It is customary in France for savings banks to carry their reserve with this establishment?

A. The savings banks are bound to turn over to us all they receive from their depositors, except such sums as may be required to meet immediate demands.

Q. Then, as a matter of fact, this is a central bank for the savings banks of France?

A. Precisely.

CREDIT AGRICOLE

INTERVIEW WITH M. DECHARME, CHEF DU SERVICE DU CREDIT MUTUEL ET DE LA COOPERATION AGRICOLE AT THE MINISTERE DE L'AGRICULTURE[183]

Q. What is the nature of the business of the Credit Agricole and when was it instituted?

A. The first law was in 1899. The first bank was opened in 1900. The Credit Agricole is based upon local organisations. France is divided into 86 departments, in each of which we are to have a regional bank (_caisse regionale_); and we hope eventually to have a local office (_caisse locale_) in each commune of each department. Among these 36,000 communes there are many which are cities, which naturally would not have agricultural banks. There are only 2 out of the 86 departments in France which have not already established a regional bank.

Q. Who furnishes the capital?

A. The basis of the system is the local office of the Credit Agricole in which each member--local farmers--has one or many shares of 20 francs, but on which he has to pay only 5 francs down. On payment of these 5 francs he becomes a stockholder. When a local office has been established it turns all of its capital over to the regional office. Then comes the State which advances to the regional bank an amount four times the capital which has been subscribed by the local banks. The money given by the Government is not really given; it is lent without charge, without interest.

Q. For what purposes can this capital be used?

A. The regional office does not lend directly to the farmers; it lends to the local office, and the local office has a board of directors which examines the demands of the various members.

Q. Under what conditions do they make loans to farmers, and are their loans confined entirely to people engaged in agriculture?

A. The State loans to the regional office without interest; the regional office loans to the local office at 3 per cent.: the local office loans to the farmers at between 3-1/2 and 4 per cent.; in the northern region at 3-1/2 per cent.; in the southern at 4 per cent.

Q. Under what conditions?

A. The farmer who wants to borrow from the local office draws a bill upon himself, takes it to the local office, and the board of administration there considers it. If they approve it, the president signs it--and it has then two signatures--and then sends it to the regional office; if the regional office has plenty of money they will lend the money directly; if not, the president of the regional office signs it--it has then three signatures and is bankable paper--and it is taken to the Bank of France. During the crisis in the south of France last year in the wine-growing region at Montpellier, the centre, the regional office had one million capital; the Government then added 4; that made 5, but they lent at that office all together 16 millions, and the difference was obtained from the Bank of France in the way described by using paper with three signatures. Before the founding of these agricultural societies it would have been difficult for a farmer to obtain the three signatures necessary to borrow from the Bank of France, and what happened last year in the south of France could not have occurred before the organisation of the Credit Agricole. It should be added there has never been one cent lost by the Credit Agricole.

Q. Are all loans made to members?

A. Yes; exclusively to members.

Q. Who can become a member?

A. Farmers; agricultural workmen are excluded. We do not lend to people for nourishment to support themselves. We lend them money to increase the production of the land.

Q. Must a man have some share in the crops?

A. We lend money to buy a horse, a cow, or to buy fertilizer. We will lend to a man who rents a farm, but does not own it, to buy machinery, cattle, etc., but we will not lend to a man who wants to borrow the money for his own consumption; we do not lend money for a man to buy a coat, for instance. These local offices are in communities where everybody knows everybody else, and they always ask what the man wants to borrow for, and if he says he wants 400 francs to buy a cow, they watch him, and if four or five days afterwards he has no cow, they know it. As the liability is without limit, the other members of the locality would be responsible. At the beginning the farmers were afraid of unlimited liability, and on that account they had to make it limited, but now, in all of the new offices, the responsibility is unlimited.

Q. What are your co-operative societies?

A. They are societies for the production, preservation, sale, or transformation of agricultural products. There are co-operative agricultural societies in the wine-growing regions which have their own wine cellar; there are co-operative dairy societies for making butter and cheese; there are also co-operative societies which use waterfalls and electricity; co-operative mills to grind corn; co-operative railways to bring beet roots to the sugar refinery; co-operative distilleries and co-operative warehouses for corn. To these co-operative societies we make loans for twenty-five years. The Government loans without charge to the regional office and the regional office lends to these co-operative societies for twenty-five years at 2 per cent.

Q. What is the security?

A. The guarantee is the consolidated liability of all of the members of these co-operative societies and also a mortgage upon their real estate; their responsibility is absolutely without limit.

Q. Do you compete at all with the branches of the other banks or with the Bank of France?

A. No; we have an entirely different class of customers.

Q. Is there any other institution of this character in France, or do you practically cover the field?

A. The members of these local offices are people who up to the time these local offices were organised had never had any banking connection at all. The only persons with whom the local offices compete are individuals who used to loan to farmers at very high rates of interest.

FOOTNOTES:

[165] M. Robert Masson, Sous-Directeur du Credit Lyonnais, _The Bank of France_, an address delivered at the annual banquet of the bankers of the city of New York, January 19, 1914.

[166] Adapted from Maurice Patron, _The Bank of France in Its Relation to National and International Credit_. Publications of the National Monetary Commission, Senate Document No. 494, 61st Congress, _2d Session_.

[167] "Compte rendu de l'assemblee generale des actionnaires de la Banque de France," 1891.

[168] Burdeau, "Discours sur le renouvellement du privilege de la Banque de France," June 29 and July 6, 1892, in the Officiel of June 30 and July 7.

[169] The Bank of France, during periods of quiet and prosperity, aims at a gradual effacement, at a more complete retreat toward a very high but very restricted sphere of economic activity. But as soon as the least trouble appears ... the Bank assumes again its place at the head of our great financial institutions. (Brouilhet, "Le nouveau regime de la Banque de France." Revue d'Economie Politique, 1899.)

[170] The discounts and loans of the financial institutions are growing in importance, and are steadily increasing in proportion to those of the Bank. This condition, revealed by statistics, is in itself not alarming, but it once more justifies that intervention, so many motives for which we have brought out.

[171] It seems that this protective mission especially applies to the department for stock market orders, originally reserved for the customers of the Bank, and later opened to everybody. Thus it prevents the financial institutions from driving us toward excessive speculation. This purpose explains, according to our notion, the growth and broadening of the business of stock market orders at the Bank of France.

[172] P. Coq, "Les circulations en Banque," Paris, Guillaumin, 1865, p. 38.

[173] The indirect expansion might be increased by wider use of the "crossed check." It will be long before we may expect good results from this practice, since we are as yet too far from the time when this check, almost unknown in France, will be currently used.

[174] Journal Officiel, 1845, p. 2471.

[175] The main reason lies in the numerous formalities which the law of April 30, 1906, has simplified but not suppressed, in the many expenses caused by the organisation, and also, it appears, in the inexperience of some of the officials. The clerks of the justices of the peace, intrusted with the delicate and novel functions of registrars of chattel mortgages, are, as a rule, little fitted to perform them.

[176] The model of these institutions came to us from foreign countries; but the foreign differ from ours materially, because of the diversity of their origin. With our neighbors, the movement began slowly in the lowest levels of the rural population. With us, on the contrary, the system of agricultural associations began at the top. Thus, these institutions penetrate only with difficulty into the rural districts, where economic education has but just begun.

[177] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, _2nd Session_, pp. 189-218.

[178] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland and Italy_. Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, _2nd Session_, pp. 219-248.

[179] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, _2nd Session_, pp. 249-267.

[180] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 268-276.

[181] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_, Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 277-291.

[182] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_, Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 296-308.

[183] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 309-322.