The amount of the present business of private banks is perfectly unknown.  Their balance sheets are effective secretsrigidly guarded.  But none of them, except a few of the largest, are believed at all to gain business.  The common repute of Lombard Street might be wrong in a particular case, but upon the general doctrine it is almost sure to be right.  There are a few well-known exceptions, but according to universal belief the deposits of most private bankers in London tend rather to diminish than to increase.

As to the smaller banks, this naturally would be so.  A large bank always tends to become larger, and a small one tends to become smaller.  People naturally choose for their banker the banker who has most present credit, and the one who has most money in hand is the one who possesses such credit.  This is what is meant by saying that a long established and rich bank has a ‘privileged opportunity’; it is in a better position to do its business than any one else is; it has a great advantage over old competitors and an overwhelming superiority over new comers.  New people coming into Lombard Street judge by results; they give to those who have:  they take their money to the biggest bank because it is the biggest.  I confess I cannot, looking far forward into the future, expect that the smaller private banks will maintain their ground.  Their old connections will not leave them; there will be no fatal ruin, no sudden mortality.  But the tide will gently ebb, and the course of business will be carried elsewhere.

Sooner or later, appearances indicate, and principle suggests, that the business of Lombard Street will be divided between the joint stock banks and a few large private banks.  And then we have to ask ourserves the question, can those large private banks be permanent?  I am sure I should be very sorry to say that they certainly cannot, but at the same time I cannot be blind to the grave difficulties which they must surmount.

In the first place, an hereditary business of great magnitude is dangerous.  The management of such a business needs more than common industry and more than common ability.  But there is no security at all that these will be regularly continued in each generation.  The case of Overend, Gurney and Co., the model instance of all evil in business, is a most alarming example of this evil.  No cleverer men of business probably (cleverer I mean for the purposes of their particular calling) could well be found than the founders and first managers of that house.  But in a very few years the rule in it passed to a generation whose folly surpassed the usual limit of imaginable incapacity.  In a short time they substituted ruin for prosperity and changed opulence into insolvency.  Such great folly is happily rare; and the business of a bank is not nearly as difficult as the business of a discount company.  Still much folly is common, and the business of a great bank requires a great deal of ability, and an even rarer degree of trained and sober judgment.  That which happened so marvelously in the green tree may happen also in the dry.  A great private bank might easily become very rotten by a change from discretion to foolishness in those who conduct it.