How London Account Is Operated

As will have been foreseen, it is necessary for the bank to have an account with a London bank to enable it to carry on these and other operations in sterling exchange. Not nearly so many drafts on London are wanted at the branches as there are drafts on New York. All the branches may have accounts in their general ledgers with the New York correspondents; and they may debit and credit the correspondents with the respective transactions put through.

But it is found best to have the London account operated directly by one or two of the central branches, such as Montreal or Toronto, and New York, if the bank has a New York agency. Then, though the lesser branches may draw on the London bankers, they do so on the central branch's account. The drafts they draw would be charged by the London bank to the central branch; the items they send for deposit would be credited also to it.

The New York items purchased go to the New York correspondents for credit of account. The sterling items may go to the central branch at debit, or they may go direct to London for credit of the central branch.

The fact that the banks send a great many of the sterling items they receive direct to London banks for credit is in no sense a contradiction of the statement made, a short distance back, that New York is the sterling exchange market for this continent. For whenever the banks wish to adjust their London balances-draw down a credit balance that is too large, or cover an overdraft - they are accustomed to do it in New York.