Banking had developed in Germany along very much the same lines as in England and France during the period from 1875 onward. Germany, broken as it was into a considerable number of independent states prior to the war of 1870-71, had not developed any general system of banking, but in most of the German states there had grown up state banks more or less remotely resembling the Bank of England or the Bank of France, and as a rule charged with the handling of government finances and the furnishing of note currency under a monopolistic charter. After the formation of the German Empire it was desired to create a more uniform discount market and system of banking, and accordingly the Reichsbank was established under the Act of 1875, which substituted the new institution for the older Bank of Prussia, which dated from 1765. The Reichsbank was, in general thought, modeled upon the lines of the Bank of England, but in many important particulars it sought to introduce methods which were better adapted to German conditions. With a capital of 180,000,000 marks, its note issue was allowed to run up to 250,000,000 marks, a sum which was later increased to slightly less than 550,000,000 marks. The older banks in the several German states retained their right of issuing currency, but it was provided, just as in England, that if they failed to exercise them or gave them up at any time, allowing them to lapse into disuse, they should be transferred automatically to the Reichsbank. Government relationship with the management of the bank was modeled upon the system which had been developed in France. The chancellor of the Empire was made president of the bank, four other members of the council of control being also appointed by the government. Representation of private stockholders was furnished by a special board, which was placed in charge of the routine business. The charter of the Bank of Germany evidently contemplated that the bulk of the business of the institution would be conducted on the basis of credits established through the issue of notes, as in France and other continental countries, hence an exceptionally careful effort to limit the issues, it being provided that under ordinary circumstances the fixed amount of notes specified in the law should not be exceeded, although under exceptional conditions notes might be issued by them to this limit upon condition that the bank pay a tax of five-forty-eighths of one per cent per week, or about 5 per cent per annum, upon all such excess circulation. All of the circulation, moreover, was to be protected by a holding of bills running not over three months and secured by two signatures. In its general business the Reichsbank was intended to be a bankers' bank, doing business primarily with other institutions and limiting itself for the most part to very short-term paper. Loans were made both on commercial paper and on the basis of approved securities. Surrounding the Bank of Germany there have developed about twenty large joint-stock institutions, each with a system of agencies and branches. Taking Germany as a whole, the total number of banks is estimated at from three to four thousand, most of them very small local institutions. The German banks quite consciously were developing along the same lines as were being followed by the English institutions prior to the war. Conditions, however, were materially altered by the war along lines that must be briefly sketched.

Germany, in the expectation that the war would be short, had not arranged to revise her system of taxation, but undertook to provide the necessary means through banking advances and currency issues. Later, long-term loans were resorted to. Provision was made soon after the opening of the war for giving the notes of the Reichsbank legal-tender power, while government treasury notes were also issued. The bank was allowed to hold these treasury notes and treasury obligations as protection for its own notes, and a special kind of bank organized for war purposes made large advances to borrowers against government bonds. The effect was to increase the quantity of circulating medium in Germany, including both coin and notes, from about 5,500,000,000 marks before the war to about 41,000,-000,000 marks at the middle of 1919. During the post-armistice financing period there was a large addition to the floating debt, and the notes of the Reichsbank were enormously expanded, so that by the end of 1921 the outstanding circulation was over 100,000,000,000 marks, and the mark was quoted in New York as low as three tenths of a cent. While there was no material change in the status of the outside banks, they tended, as in England, to become more and more concentrated and fewer in number, small and weak banks being absorbed. This process was considerably accelerated by the bad foreign-exchange situation of Germany.