But in modern bill-broking the credit of the bill-broker is a vital element.  The lender considers that the bill-brokerno matter whether an individual, a company, or a firmhas considerable wealth, and he takes the ‘bills,’ relying that the broker would not venture that wealth by guaranteeing them unless he thought them good.  The lender thinks, too, that the bill-broker being daily conversant with bills and bills only, knows probably all about bills:  he lends partly in reliance on the wealth of the broker and partly in reliance on his skill.  He does not exercise much judgment of his own on the bills deposited with him:  he often does not watch them very closely.  Probably not one-thousandth part of the creditors on security of Overend, Gurney and Co., had ever expected to have to rely on that security, or had ever given much real attention to it.  Sometimes, indeed, the confidence in the bill-brokers goes farther.  A considerable number of persons lend to them, not only without much looking at the security but even without taking any security.  This is the exact reverse of the practice which Mr. Richardson described in 1810; then the lender relied wholly on the goodness of the bill, now, in these particular cases, he relies solely on the bill-broker, and does not take a bill in any shape.  Nothing can be more natural or more inevitable than this change.  It was certain that the bill-broker, being supposed to understand bills well, would be asked by the lenders to evince his reliance on the bills he offered by giving a guarantee for them.  It was also most natural that the bill-brokers, having by the constant practice of this lucrative trade obtained high standing and acquired great wealth, should become, more or less, bankers too, and should receive money on deposit without giving any security for it.

But the effects of the change have been very remarkable.  In the practice as Mr. Richardson described it, there is no peculiarity very likely to affect the money market.  The bill-broker brought bills to the banker, just as others brought them; nothing at all could be said as to it except that the Bank must not discount bad bills, must not discount too many bills, and must keep a good reserve.  But the modern practice introduces more complex considerations.  In the trade of bill-broking, as it now exists, there is one great difficulty; the bill-broker has to pay interest for all the money which he receives.  How this arose we have just seen.  The present lender to the bill-broker at first always used to discount a bill, which is as much as saying that he was always a lender at interest.  When he came to take the guarantee of the broker, and only to look at the bills as a collateral security, naturally he did not forego his interest:  still less did he forego it when he ceased to take security at all.  The bill-broker has, in one shape or other, to pay interest on every sixpence left with him, and that constant habit of giving interest has this grave consequence: