Felix Somary, Das Aktienkapital der Notenbanken (1909)

Felix Somary’s short policy article examines whether note-issuing banks need share capital and how that capital should be invested. Prompted by German and Hungarian banking inquiries, it distinguishes the capital required to establish confidence in a bank from the investment practices that sustain its liquidity and monetary influence. In Germany, increased capital had been proposed as a remedy for high discount rates; in Hungary, the amount and procurement of capital were central questions. Somary uses these debates to reopen an issue he considers scientifically unresolved.

The first part separates established creditworthiness from state authorization. Somary rejects Molien’s claim that state privilege and monopoly can themselves supply the confidence necessary for note circulation, comparing it to Knapp’s theory of money. For Somary, banknotes derive their standing from trust in the issuing institution. Yet this does not make equity indispensable at every stage of a bank’s existence:

Wenn es aber auch sicher ist, dass ein neu einzuführendes Noteninstitut eines hohen Aktienkapitals unbedingt bedarf, so ist es doch ebenso zweifellos, dass eine bereits bestehende angesehene Bank zur Notenemission eigenes Kapital prinzipiell nicht benötigt.

English translation: But even if it is certain that an institute of issue newly to be established unconditionally requires a large share capital, it is nevertheless equally beyond doubt that an already existing bank of repute does not in principle need capital of its own for the issue of notes.

The qualification matters: Somary confines this possibility to highly developed capitalist economies with extensive deposit banks possessing note-issue rights, citing Scotland and Canada. His argument thus makes capital requirements dependent on institutional maturity and banking structure, rather than treating them as a universal consequence of issuing notes.

The article then turns to continental banks, all built with substantial capital, and contrasts investment in ordinary banking business with investment predominantly in fixed-interest securities. Somary reconstructs the protective rationale behind the latter approach, associated with the Peel Act: a bank whose resources are wholly committed to commercial credit may be unable to realize its claims or intervene during a general crisis. Securities held outside commercial business were intended to provide an independent reserve. England and France exemplify this practice:

Beide Notenbanken, die englische und die französische, haben heute einen ihr Aktienkapital weit übersteigenden Betrag in Staatspapieren angelegt.

English translation: Both banks of issue, the English and the French, have today invested in government securities an amount far exceeding their share capital.

Somary questions whether this separation actually guarantees liquidity. Although Consols can readily be sold, colonial government loans are less easily realized, and the marketability of public debt under general crisis conditions remains uncertain. What looks like a safeguard may instead immobilize resources. He further argues that securities investment has helped displace the Bank of England from London’s bill market, repeatedly weakening the effectiveness of its official discount rate. Portfolio composition therefore affects not only financial resilience but also the bank’s capacity to influence credit conditions.

Vom banktechnischen Standpunkte aus ist die bankmässige Anlage des eigenen Kapitals, wie sie heute von den mitteleuropäischen Notenbanken geübt wird, entschieden vorzuziehen.

English translation: From the standpoint of banking technique, the banking employment of a bank's own capital, as it is practised today by the Central European banks of issue, is decidedly to be preferred.

This preference for the Central European model rests on avoiding bond-price losses, improving liquidity, and widening the bank’s commercial effectiveness. It is nevertheless tightly bounded. “Banking investment” means the restricted practices observed in Germany and Austria-Hungary, not an unrestricted license to undertake financial operations. Somary closes by condemning such operations, practiced occasionally in Russia and recently proposed in Austria, as sources of immobilization and unfamiliar risks. The article’s central move is to judge capital use by realizability and operational influence rather than by the apparent safety of an asset category: neither state backing nor government securities automatically secure the confidence and liquidity a note-issuing bank requires.