Japan by the Japanese/Chapter 16.1

The modern system of banking in Japan dates from the promulgation of the National Bank Regulations in November, 1872. Before the Restoration—commercial circles being limited—it was natural that little progress should have been made in banking business, except that there were in operation some bank-like organs conducting the business connected with national taxes and acting as financial agents for feudal lords.

In November, 1872, there were promulgated the National Bank Regulations, based mainly upon the National Bank Act of the United States of America.

The regulations in their original form provided that the National Bank notes should be convertible in specie. But when the issue of Government loan bonds, amounting to 170,000,000 yen, for the capitalization of the hereditary feudal pensions was undertaken, the regulations were revised to the effect that the bank-notes should be issued on the security of Government loan bonds, and be convertible in Government paper money. This is called the ‘Revised National Bank Regulations of August, 1876.’ Under the revised regulations the bank-notes thus became inconvertible notes. The inevitable evil results of such a system did not, however, manifest themselves in any conspicuous manner for some years, because the amount of notes in circulation was kept within moderate limits. But with the increase of national banks—there being at one time 153 of them—and more especially with the sudden inflation of Government paper money to meet the expense of putting down the great Satsuma Rebellion of 1877, paper began to depreciate so rapidly and so disastrously that the Government by heroic efforts set about the adoption of a really convertible system. This arduous task was commenced by the revision of the National Bank Regulations in 1883, and was completed in ​1886, when the monetary system was finally put on a sound basis.

Under the new system the national banks were deprived of the privilege of issuing notes, which privilege was lodged exclusively in the hands of the newly-created Bank of Japan. Most of them changed themselves into private banks, according to the Law for the Settlement of National Banks on the Expiration of their Term of Charter and the Law for the Special Settlement of National Banks prior to the Expiration of their Term of Business; while a few of them wound up their business, so that by February, 1899, there existed no national bank in the country.

Meanwhile, private banks and bank-like companies which did not come under the National Bank Regulations had considerably increased, until in 1884 their total number reached 954. These private banks and companies might be freely established, the only condition being that they should be under the supervision of local authorities. To bring these institutions under a uniform and more efficient control, the Government promulgated the Bank Regulations and the Savings Bank Regulations, putting them in force in July, 1891, on which date a part of the Commercial Law also came into operation. Again, in April, 1896, the Bank Consolidation Law was enacted, with a view of facilitating the consolidation of existing banks by omitting the formalities of dissolution and so forth. As the result of these legislations, a great improvement is noticeable in the condition of private banks.

The use of cheques and credit notes had long been extensively practised among business men in Osaka. The practice, after a temporary and partial suspension during the general confusion brought about by the War of the Restoration, was soon revived with the revival of trade and confidence under the new régime. To improve the system of credit which had thus grown up in that emporium of commerce, and bring it more in harmony with the requirements of modern business, the leading banks of Osaka formed an association in 1879, and in September of the same year they applied to the Government for permission to establish a clearing-house, which was opened to business three months later. This was the first clearing-house ever established in Japan.

Since then the system of clearing bills has witnessed a steady and remarkable development. Clearing-houses are now in operation in Tokyo, Nagoya, Kobe, and other important centres of business throughout the country.

In November, 1879, a bank was established in Yokohama, under the National Bank Regulations, with a capital of 3,000,000 yen, for the purpose of affording facilities to Japanese merchants engaged in foreign trade. This is the progenitor of the present well-known Yokohama Specie Bank. It applied for ​permission to issue convertible notes; but the application being rejected by the Government, it chiefly devoted its attention to the business of foreign exchange and hypothecation of foreign bills. Notwithstanding many difficulties, it expanded its business operations, its capital being soon afterward increased to 6,000,000 yen.

Being in its organization and the nature of its business operations essentially different from a national bank, it did not properly come under the National Bank Regulations. In recognition of this fact, the Government promulgated the Regulations for the Yokohama Specie Bank in March, 1887. Since then the bank has made a rapid and steady growth, its capital being increased to 12,000,000 yen in 1896, and again to 24,000,000 yen in September, 1899.

To remedy a state of confusion brought about by the rise of a multitude of small banks with very imperfect connections between one another, the Government decided, in 1882, to establish a central bank, and in June the same year the Regulations of the Bank of Japan were promulgated. The newly-established bank was opened in October of the same year. The main objects of the establishment of the Bank of Japan were to smooth relations between the different banks, to facilitate monetary circulation, to lower the rate of interest, to improve the business of bill-discounting, and to issue convertible bank-notes for the purpose of establishing a firm basis for the monetary system of Japan. Moreover, in consequence of the fact that the bank manages the receipt and disbursement of the national revenue, its credit was assured from the moment of its establishment. After the Chino-Japanese War its capital was increased to 30,000,000 yen, with more branches and agencies, so as to meet the requirements of its fast-expanding business.

The Convertible Notes Regulations, which were first promulgated in 1884, were revised in August, 1887, the principal object of the revision being to regulate the maximum limit of note-issue on security reserve. After the adoption of the gold standard in October, 1897, the bank-notes, of course, became convertible into gold coins. Owing to the economic progress of the country, the demand for currency was much increased, and so the limit of note-issue on security reserve was again expanded in February, 1899.

Though the organs of monetary circulation in regard to commerce had been provided and improved, yet there existed no such organ in regard to agriculture and industry, and the need of remedying this defect led to the promulgation of the Law of the Industrial Bank of Japan and the Law of the Agricultural and Industrial Banks (Local Industrial Banks) in April, 1896.

These banks were established in order to supply capital at ​low rates and for long periods, for the purpose of the improvement and development of agriculture and industry, the Industrial Bank of Japan acting as the central organ, and the Agricultural and Industrial Banks as local organs. The Industrial Bank of Japan commenced its business in August, 1897, and the Agricultural and Industrial Banks in 1898.

In 1897 the Government promulgated the Law of the Bank of Formosa, and established the Bank of Formosa with the capital of 5,000,000 yen. The bank was granted the privilege of issuing notes convertible in silver. It was also entrusted with the business of receiving and disbursing the Government revenue in the island, its position there thus corresponding to that held by the Bank of Japan in Japan proper. The establishment of a special central bank for Formosa on a silver basis was necessitated by the special requirements of the native population of the island.

With a view of facilitating the colonization and the economic development of Hokkaido, the Law of the Colonial Bank of Hokkaido was promulgated in March, 1899, and the Colonial Bank of Hokkaido was established in March next year.

The volume of securities in Japan now amounted to upwards of 1,100,000,000 yen, yet there existed no special organ for advancing money against these securities. Consequently the Law of the Crédit Mobilier of Japan was promulgated in March, 1900.

The following table shows the number, capital, and other particulars of the various banks now existing in Japan:

​The figures in the above table are based on the returns for December, 1900. Special reserves are included in reserves, and sub-branches in branches. There were at that date fifty-two ordinary banks besides those in the above table, but some of these had not yet commenced their business, being in course of establishment. Their aggregate capital amounted to 4,568,500 yen.

The following seven banks, viz., the Bank of Japan, the Yokohama Specie Bank, the Hypothec Bank, the Agricultural and Industrial Banks, the Bank for Colonization and Exploitation of Hokkaido, the Bank of Formosa, and the Industrial Bank of Japan, are banks established under the special patronage of the Government, each with some special object, as is mentioned before under the head of each of these banks. While their branches of business are more or less limited, corresponding to the objects for which they are founded, they are all endowed with some privileges more or less lucrative, which more than balance the disadvantages of their limited sphere of action. At the same time they are subject to the strict control of the Government; not only their statutes, but also particular cases of their action, as is pointed out in the laws, are subject to the special permission of the Minister of Finance. Besides, one or more Special Commissioners are appointed for each of these banks, to supervise the course of their business and make report on it to the Minister. The governors, presidents, and directors of these banks are either directly appointed by the Government or approved by the latter after they are elected in the general meetings of the banks.

The amount of convertible notes at the end of October, 1900, was as follows:

Kind.	Amount of Issue.
​
Bank of Japan’s notes …		On cash reserve	…	67,349,129		228,570,032
		On security reserve	…	161,220,903
Formosan bank-notes …		On cash reserve	…	2,071,861		3,583,390
		On security reserve	…	1,511,529
​

The system of banking established in Japan not long after the Restoration was modelled on that in the United States. National banks which came into existence under the National Bank Act of 1872 were allowed to issue notes with Government bonds as their securities. But, after an experience extending for several years and more than one alteration in the ​law, the working of the system proved not quite satisfactory. Besides, the currency was dangerously inflated by the issue of inconvertible notes, to which the Government was obliged to resort in consequence of the political crises. A proper regulation of the currency thus became the prime necessity of finance, and it was to relieve the situation that the Bank of Japan was established in 1882 as part of a broad scheme of financial reforms. The following objects of the institution were set forth in the memorandum presented to the Cabinet by Count Matsukata, then Minister of Finance:

1. To promote the co-operation and assimilation of banks under a central bank.
2. To increase capital available for trade and industry.
3. To reduce, as well as to equalize, the rate of interest.
4. To transfer to the bank various services in the Treasury, when its business is firmly organized.
5. To discount foreign bills, so as to regulate the influx and efflux of specie.

In 1884 the Convertible Bank-Note Act was enacted, whereby it was aimed to replace both the Government and national bank notes with those of the Bank of Japan, so as to unify the currency system under this central institution. Thenceforth the issue of convertible notes became an important function of the bank.

At first the capital of the Bank of Japan was 10,000,000 yen. This was divided into 50,000 shares of 200 yen each. One-half of this capital was subscribed by the Government with its surplus fund. This was afterwards transferred to the Crown property. The expansion of business necessitated an increase of capital, and in 1887 it was increased to 20,000,000 yen, and again in 1895 to 30,000,000 yen. Its capital, which is all paid up, is divided into 150,000 shares. The shares are all registered, and their ownership is allowed only to Japanese subjects, who obtain permission of the Minister of Finance to acquire it. The number of the shareholders now stands at 948.

The profit is semi-annually divided in the following way: Out of the net profit, 6 per cent. is declared as the first dividend, and then at least one-tenth of the rest is added to the reserve, and another one-tenth may be distributed as a bonus to the bank officers. The second dividend is to be declared out of the remainder, some part of which is sometimes carried to the reserve account. Since 1887 the sum of these two dividends has varied between 10 per cent. and 15 per cent. per annum.

The reserve fund can be drawn on only to make up for the losses of the capital or to equalize the annual dividends. This fund is to be invested only in the purchase of gold, silver or ​Government bonds, and the profit from the same is carried to the gross income of the bank. The latest accounts show that this fund stands at 15,700,000 yen. The successive directors of the bank have always endeavoured to increase the fund so as to strengthen its credit.

At the time when the Bank of Japan was organized, the market was flooded with inconvertible paper currency. The Government paper money amounted to 115,381,292 yen. The notes of national banks were over 34,396,818 yen, which did not all enjoy the same credit. The currency was inflated to such a degree that the premium on specie was once 79 per cent. Under such circumstances it was the policy of the Government to place the power of regulating the currency entirely in the hands of the Bank of Japan, and to replace this inflated currency with the notes of the bank, which were to be elastic and redeemable in silver. For this purpose the Government issued gold note redemption bonds to contract the circulation of depreciated paper, and purchased silver and foreign bills to prepare the way for the resumption of specie payments. Within three years the Government paper money was withdrawn to such an extent that the Bank of Japan felt it safe to issue its first notes in May, 1885, and all paper currency became convertible into specie from January 1, 1886.

The law which regulates the notes of the Bank of Japan is based upon the German system, yet there are some interesting differences. The bank-notes are issued under three different conditions:

1. The notes issued on metallic reserve. This reserve used to be silver, but since the adoption of the gold standard, on October 1, 1897, it has consisted and consists of gold, save that one-fifth of the total metallic reserve may be kept in silver. But, as in the case of the Bank of England, this exception is seldom fully availed of.

2. Notes issued on business assets within the legal limit. The limit, which was at first 70,000,000 yen, was extended to 85,000,000 yen in May, 1889, and to 120,000,000 yen in March, 1899. In consideration of this privilege the bank was prescribed by law to advance to the Government a sum of 22,000,000 yen without interest, which has been employed as the fund for withdrawing the Government paper money. Moreover, the outstanding circulation of Government and national bank notes was included in the amount of the legal limit of the bank’s note issue, and it was to be gradually replaced by the notes of the bank. It was not until the end of 1899 that the Government and national bank notes were entirely withdrawn from circulation.

3. The emergency notes, or those issued upon business assets ​in excess of the above legal limit. These notes are subject to a special tax. The rate of the tax is to be 5 per cent. or more. In the German system this rate is fixed at 5 per cent.; but in the Japanese system only the minimum rate is fixed, and the power of discretion is given to the Minister of Finance, who may charge any rate above 5 per cent., according to the state of the money market. This is quite an effectual measure to alleviate any stringency of the market, and at the same time to secure the immediate withdrawal of superfluous notes when the necessity is over.

This system of note issue seems to be particularly well adapted to meet varying demands of trade in a country like Japan, where, on account of her geographical position, specie cannot be called in from abroad to respond to the immediate need of the market.

The following figures show the outstanding amount of notes issued at the end of the respective years:

The kinds of business transacted by the Bank of Japan are mentioned in its by-laws as follows:

1. The purchase or discount of Treasury bills, bills of exchange, and other commercial paper.
2. Dealing in gold and silver.
3. To make loans upon gold and silver coin and bullion.
4. To make collection of bills for banks, corporations, and individuals who are the regular customers of the bank.
5. To receive deposits and accept the custody of objects of value and documents.
6. To made advances on current accounts or loans upon the securities of Government bonds, Treasury bills, or other bonds and shares guaranteed by the State.

Besides these, the bank performs a number of important services for the Treasury without compensation. Not only does it receive and pay out public revenues and expenditures for the State, but it also manages all operations concerning public debts and public deposits. The withdrawal of the Government and national bank notes has also been dealt with by the bank. In fact, certain parts of the bank are closely united with the various departments of the Treasury.

Bills and cheques in modern forms are new things in Japan. For the last twenty years the Government, as well as the bank, ​has not spared any effort to encourage their use in commercial transactions. As the result of these efforts the discount business has grown to a considerable amount. The bills cleared in the clearing-houses in Tokyo and Osaka during 1901 amount to 1,268,802,079 yen and 528,122,083 yen respectively. Bills offered for discount to the bank must be endorsed by at least two substantial names, and be payable within one hundred days. Those which bear a single name must be accompanied by collateral either in the form of warehouse receipts of merchandise or of the shares and bonds classed as securities of good credit.

The loans made by the bank upon securities are much smaller in amount than the discounts. These securities are the bonds of the Imperial Government of Tokyo and Osaka municipalities, and also those shares and bonds guaranteed by the State. Loans can be made for a period of three months or less, and renewal is allowed only once when necessary.

The bank receives deposits and makes advances on current accounts. The Bank of Japan does not pay interest on current deposits. Customers place their surplus money in the vault of the bank to secure the convenience of drawing cheques upon it. The banks belonging to the clearing-house association also settle their daily balances with their current accounts in the bank. The bank also issues deposit receipts, draft and transfer cheques. The distribution of various kinds of coins and bank-notes to the different districts of the empire constitutes no inconsiderable portion of the business of the bank.

Formerly the bank allowed loans and discounts exclusively to bankers, being literally the bank of banks; but since June, 1897, the way has been opened to deal directly with individuals and corporations which have good business standing. This measure has been taken to extend the benefit of the low rate of interest to the general market, and to check the excessive profit often secured by other bankers as mere intermediaries between the bank and the public. The change of the rates of interest on loans and discounts is subject to the sanction of the Minister of Finance.

The Bank of Japan has no direct dealings in foreign markets. But it uses its sister institution, the Yokohama Specie Bank, as its foreign agent. Indeed, to encourage foreign commerce, the Bank of Japan assists this institution in many ways. Among other favours, the former advances to the latter up to the amount of 15,000,000 yen in rediscounting foreign bills at a specially low rate of interest. The indemnity money received from China was also transferred from London to Japan through this institution either by the purchase of bullion or by exchange operations.

The total business transactions of the bank for 1901 amounted ​to 10,576,036,318 yen. The following figures will show the growth of business of the bank since its foundation:

The Bank of Japan being the only bank of issue, not only is it placed under the control of the Government, but it is heavily burdened in return for the privileges granted. It has, besides supporting the public credit in times of financial emergency, to render the following services:

1. The receipt and disbursement of Government money.
2. The call and payment of the principal as well as the interest on the national debt.
3. Custody of money and goods entrusted to the Government.
4. The redemption of Government paper money.
5. The redemption of the national bank notes.
6. The rediscounting of foreign bills of exchange for the Yokohama Specie Bank at a specially low rate.

All these involve considerable sacrifices on the part of the bank, but are done simply for the public convenience as directed by the Government.

The administration of the Bank of Japan is composed of a Governor, Vice-Governor, four directors, and from three to five auditors. The Governor and Vice-Governor are appointed by the Government for five years. The directors are also chosen by the Government out of the double number of candidates nominated at the general meeting of shareholders, and their term of office is four years. The Governor, Vice-Governor, and directors meet daily together, and constitute the Administrative Board, which decides all important questions of the bank. The auditors are elected by the shareholders for the term of three years. They constitute the Board of Auditors, which meets at least once a month. All important actions of the Administrative Board, such as the change of the rate of interest and the rate of dividend to be declared, are subject to their approval. They also inspect books and documents of the bank. The Governor, the Vice-Governor, directors, and auditors, constitute the general meeting of the bank, which deliberates upon questions proposed by the Governor. These officers must live in Tokyo, and during their terms of office ​they cannot accept any other office either in the Government or other banks and corporations. The regular meeting of shareholders takes place semi-annually on the third Saturday of February and August. Those who own ten shares or more have a voice at this meeting, and an additional vote is allowed for every fifty shares over and above the first ten shares.

Besides these bodies, the Government appoints a certain number of comptrollers out of the officials of the Treasury Department. They have the power to stop any act either contrary to the laws and by-laws or deemed to be disadvantageous from a Government point of view. They weekly visit the bank and receive various reports regarding the condition of the bank and its transactions. They can attend any meeting of the bank officers and express their views in regard to the business of the bank.

In 1902 there was at the Bank of Japan the following reserve against the convertible notes issued by the Bank of Japan, viz., 232,094,377 yen, composed of 108,118,817 yen in gold coin or bullion, 1,000,000 yen in silver coin and bullion, and 122,975,560 yen special security reserve.

The Yokohama Specie Bank was founded in 1880, with an authorized capital of 3,000,000 yen (1,400,000 yen in silver and 1,600,000 in paper), for furnishing financial facilities for the foreign trade of the country. It was at first supported by the Government in various directions; for instance, the management of several million yen of the Treasury reserve fund was entrusted to the bank, and thus an ample amount of capital was put at the disposal of the bank for discounting foreign bills of exchange. In 1882, when the Bank of Japan was established, such kind of support was withdrawn, and instead the Bank of Japan was engaged to rediscount foreign bills of exchange upon the demand of the Specie Bank to an amount not ​exceeding 20,000,000 yen a year at the rate of 2 per cent. In March, 1887, a special ordinance for the Specie Bank was promulgated (Imperial Ordinance No. 26, 1887), and at the same time the capital was raised to 6,000,000 yen. The consequent growth of its transactions necessitated the further increase of its capital to 12,000,000 yen in the same year. In 1899 the capital was again doubled, making 24,000,000 yen, of which 18,000,000 yen are now paid up.

The following lines of business are transacted by the bank: (1) Foreign exchange; (2) inland exchange; (3) loans; (4) deposits of money and custody of objects of value; (5) discount and collection of bills of exchange, promissory notes, and other cheques; (6) exchange of coins. The bank may also buy or sell public bonds, gold or silver bullion, and foreign coins, if the condition of business demands it. The bank may also be entrusted with affairs bearing on foreign loans and the management of public moneys for international account.

The Hypothec Bank of Japan was founded in 1884 by Law No. 82 of the same year as a joint stock company with a capital of 10,000,000 yen, under the special patronage and control of the Government, for the purpose of furnishing long-period loans at a low rate of interest for improvement and development of agriculture and industry. It was to serve as the central organ of credit for agricultural and industrial enterprises of larger scale throughout the whole country, as agricultural and industrial banks of each prefecture are destined for local activity in the same branch of business.

The chief lines of business transacted by the bank are as follows:

​To make loans on the security of immovable property, redeemable in annual instalments within a period of not more than fifty years; to make loans on a similar security, redeemable at a fixed term within a period of not more than five years, provided the total amount of such loans does not exceed one-tenth of the total amount of loans redeemable in annual instalments (the amounts of loans made on the security of any immovable property may not exceed two-thirds the value thereof, as appraised by the bank); to make loans without security to prefectures, districts, cities, towns, and other public bodies organized by law; to take up the mortgage debentures of Agricultural and Industrial Banks; to accept the custody of gold and silver bullion and negotiable instruments.

The bank is authorized, when at least one-fourth of its nominal capital is paid up, to issue mortgage debentures up to an amount not exceeding ten times its paid-up capital, provided the amount of such debentures does not exceed the total amount of outstanding loans redeemable in annual instalments and the debentures of Agricultural and Industrial Banks in hand. These debentures shall be redeemed at least twice a year by means of drawings in proportion to the total amount of redemption of loans redeemable in annual instalments in the same year, and the debentures of Agricultural and Industrial Banks in hand. Besides, for each issue of debentures, premiums of various amounts varying from 10 to 1,000 yen, are allotted to a certain number of the debentures determined by drawings. This is the single exception to the general prohibition of lottery or any lottery-like system, specially allowed to the Hypothec Bank, in order to attract smaller capitals to the subscription of its debentures.

The Industrial Bank of Japan, established in accordance with the Law of the Industrial Bank of Japan (Law No. 70, 1900) promulgated in 1900, is a joint stock company of a capital of 10,000,000 yen, of which 2,500,000 yen are paid up. As the Hypothec Bank and the Agricultural and Industrial Banks are intended to furnish long and cheap loans on the security of immovable property for agricultural and industrial enterprises, especially for the former, the Industrial Bank has for its special object the handling of bonds and shares of various kinds. It may be regarded as a kind of crédit mobilier, while the former are crédits fonciers with special forms and purposes. The business allowed to the bank by the law are:

1. To make loans against the pledge of public loan bonds, local loan bonds, companies’ debentures and shares. ​
2. To subscribe or take up public loan bonds, local loan bonds, and companies’ debentures.
3. To accept deposit of money and custody of valuable objects.
4. To transact various kinds of trust business with local loan bonds, companies’ debentures and shares.

Thus, loans without security, or on the security of other than negotiable papers and discounts of bills, are not within the scope of the bank’s business. In order to enable it to obtain the necessary amount of capital for carrying out its object, the bank is also endowed with the privilege of issuing debentures to an amount of five times its paid-up capital, which, however, may not exceed the total amount of advances made by the bank, the local loan bonds and companies’ debentures appropriated by it. Besides, for the first five years dividend of 5 per cent. of its paid-up capital is guaranteed by the Government.

The Agricultural and Industrial Banks were established in accordance with the Law for the Agricultural and Industrial Banks (Law No. 84, 1886), as local organs of credit for the same object as that of the Hypothec Bank, each with a capital of 20,000 yen or upwards. Each bank has, as a general rule, for its business district the whole part of the prefecture where it is established, each prefecture having one bank; but it is provided that, if the circumstances require, a prefecture may be divided into two or more districts in respect of agricultural and industrial banks by special Imperial ordinances, which provision, however, has not yet been made use of.

​The following lines of business are transacted by these banks:

To make loans on the security of immovable property, redeemable in annual instalments within a period of not more than thirty years; to make loans on a similar security, redeemable in a fixed term within a period of not more than five years, provided the total amount of such loans does not exceed one-fifth of the total amount of loans redeemable in annual instalments (loans made on the security of any immovable property may not exceed two-thirds of the value thereof, as appraised by the banks); to make loans on the same conditions without security to cities, towns, villages, and other public bodies organized by law; to make loans without security, redeemable in a fixed term within a period of not more than five years, to more than twenty persons combined with joint liability, who are engaged in agriculture or industry, and whose reliability is recognised; to receive fixed deposits, and accept the custody of gold and silver bullion and negotiable instruments. Besides, the banks may be entrusted with the receipt and disbursement of the public funds of prefectures. Each of these banks is authorized, when at least one-fourth of its capital is made up, to issue mortgage debentures to an amount not exceeding five times its paid-up capital. Such debentures may not, however, exceed the total amount of outstanding loans redeemable in annual instalments. The debentures shall be redeemed at least twice a year by means of drawings, in proportion to the amount of the redemption of the said loans. In accordance with the provisions of the Law for supporting the Agricultural and Industrial Banks (Law No. 84, 1886), the Government gave over to the prefectures funds for subscription of the shares of Agricultural and Industrial Banks. The amount of the said fund is limited by the law to the proportion of 70 yen per 100 cho of taxed lands in each prefecture, excepting building sites, mineral spring lots and swamps. The total amount assigned to each prefecture may under no circumstances be more than 3,000,000 yen, nor may it exceed one-third of the paid-up capital of each bank.

The Bank of Formosa was created by the Law of the Bank of Formosa (Law No. 38, 1897), for the purpose of promoting the economical development of the island. It is a joint stock company with a capital of 5,000,000 yen, and is granted the privilege of issuing bank-notes convertible in silver yen against the reserve of gold or silver coins or bullion and Government bonds, Treasury bills, notes of the Bank of Japan, and any other negotiable papers or commercial bills of reliable nature. The amount of notes not covered by the specie reserve is limited to ​5,000,000 yen, and may in no case exceed the amount of notes issued against specie reserve. Notes issued beyond this limit in case of emergency are subject to a tax of 5 per cent. or more per annum. The Government has subscribed 1,000,000 yen of the shares of the bank, and the dividends accruing from these shares are added to the reserve fund of the bank for the first five years, for which period the Government is engaged not to transfer its shares. The Government has further made an advance of 2,000,000 yen in silver to the bank with no interest, which are added to the specie reserve against bank-notes issued.

The following lines of business are transacted by this bank: (1) To discount bills of exchange and other commercial bills; (2) exchange business; (3) to collect bills for companies and merchants who are regular customers of the bank; (4) to make loans on the security of immovable or movable property of a reliable nature; (5) to open current accounts; (6) to accept the custody of objects of value, such as gold and silver coins, precious metals, and documents; (7) to buy or sell gold or silver bullion; (8) to act as agents for other banks.

The island of Hokkaido being of great importance from military as well as economic points of view, its colonization and exploitation have received, and are receiving, the keenest attention of the Japanese Government. It was considered of urgent necessity to supply ample capital for the development of the island by establishing a special financial organ there, and with this object in view the Law of the Colonial Bank of Hokkaido was promulgated in March, 1899.

There is no essential difference between the purpose of the bank and that of an Agricultural and Industrial Bank. But the condition of things being considerably different in the northern island from those prevailing on the mainland of Japan, it was considered wise to establish a special bank there instead of an Agricultural and Industrial Bank.

The Colonial Bank of Hokkaido makes loans secured by shares and debentures, besides long-period loans secured by immovable property. Also it may issue debentures, receive deposits, and transact current account business.

The bank was opened to business in April, 1900, and in a few days the amount of applications for accommodation reached 1,270,000 yen.

In order to support the bank, the Government subscribed 1,000,000 yen of its shares, and for the first ten years the dividends on these shares are to be added to the reserve fund of the bank.

Bankers’ associations were established to discuss important subjects connected with banking business for the purpose of the common interest of banks, as well as to make sales, purchases and exchange of bills and cheques. At present they exist in Tokyo, Osaka, and a few other localities.

In September, 1879, there was established a clearing-house in Osaka, where the custom of clearing mutual accounts by transference of bills and cheques had been prevailing for a long time. This was the first clearing-house ever established in Japan.

In August, 1880, a Bankers’ Association was established in Tokyo, where the business of clearing bills was first adopted in December, 1887. The business was for some years conducted in the building of the Bankers’ Association, but the rapid growth of transactions by bills soon necessitated the removal of the clearing-house from the association building. The Tokyo clearing-house was at the time thoroughly reorganized on the pattern of similar institutions in Europe and America.

Next, similar institutions appeared in Kobe, Kyoto, and other localities, and also there were established bankers’ associations in Kyoto, Kobe, Nagoya, and Yokohama.

Each clearing-house is only open to the banks belonging to the particular bankers’ associations under whose auspices it is established. Its expenses were formerly divided into three equal parts, one part to be imposed on each bank equally, the second part according to the number of bills and cheques cleared, and the third part in proportion to the value of bills cleared. Recently, however, the Tokyo Clearing-House adopted a new method by which the expenses are imposed on the total amount of bills and cheques cleared by each bank.

The managers of each clearing-house are to be appointed from the allied banks by turn for a term of one week. As to the balance after clearing, it is settled by transferring it to the current accounts at the Bank of Japan (or its branch office). Any demand arising from non-payment of the amount on the face of bills or cheques, or from any error in clearing, shall be settled by the particular banks concerned.

Before the promulgation of the Bank Regulations and Savings Bank Regulations, both now in force, any association might be formed by a free contract, and only those companies which happened to bear the title of ‘bank’ were subject to the National ​Bank Regulations. Under such a system, or want of system, much inconvenience was felt by the Government in the way of the administrative control of bank-like companies, which would appear one day and disappear the next. To remedy this state of things, the Financial Department issued a notification saying that permission would henceforth be given for the establishment of banks according to the following regulations:

1. Liability of shareholders should be unlimited. But since 1886 limited liability on security was permitted to a company having the capital of 500,000 yen or upward, if there exist special circumstances recognised by local authorities.
2. Shares should be above 10,000 yen.
3. Payments upon shares should be made within 1 yen.
4. Since 1884 the Government has not permitted the establishment of those private banks whose liabilities could not be clearly known, on the ground that, if savings deposits were received by them, there would not be any means of exercising supervisory control over them. Also ordinary banks may not receive savings deposits.
5. No banks should be permitted to engage in the sale or purchase of shares and other articles.

Under the Commercial Law, the Bank Regulations, and the Savings Bank Regulations, all of which came into force in July, 1893, those institutions which engage in the discount of bills, and receive deposits and make loans, are treated as banks, and those receiving deposits from the general public by means of compound interest, as savings banks, whatever titles they may bear. Those wishing to engage in business of this kind must apply to the Minister of Finance for permission through the local authorities.

All savings banks are joint stock companies, each with a capital of 30,000 yen or upwards. Its directors are liable to the obligations incurred by the bank during their term of office, until the liabilities are extinguished at the expiration of two full years after their resignation.

Much improvement has been effected in the business condition of private banks since the operation of the Commercial Law, the Bank Regulations, and the Savings Bank Regulations. At the end of December, 1893, they had 541 head offices with 160 branches throughout the country, their aggregate amount of capital standing at 35,414,860 yen. A great increase has since taken place in their number, especially after the Japan-China War. At the end of 1901 there existed 2,402 head offices, the total amount of capital standing at 523,188,149 yen.

​The increase of private banks since 1895 was as follows: