HC Deb 06 February 1826 vol 14 cc103-11

The following Papers were laid on the table of the House:— COPIES of COMMUNICATION between the First Lord of the Treasury and the Chancellor of the Exchequer, and the Governor and Deputy Governor of the Bank of England, relating to an alteration in the Exclusive privileges enjoyed by the Bank of England. No. I. Fife House, Jan. 13. Gentlemen.—We have the honour of transmitting to you herewith a Paper, containing our views upon the present state of the Banking System of this country, with our suggestions thereupon, which we request you will lay before the Court of Directors of the Bank of England for their consideration. We have the honour to be, gentlemen, &c. (Signed) Liverpool. FREDERICK JOHN ROBINSON.

The Governor and Deputy-Governor of the Bank of England.

The panic in the money-market having subsided, and the pecuniary transactions of the country having reverted to their accustomed course, it becomes important to lose no time in considering whether any measures can be adopted to prevent the recurrence in future, of such evils as we have recently experienced.

However much the recent distress may have been aggravated, in the judgment of some, by incidental circumstances and particular measures, there can be no doubt that the principal source of it is to be found in the rash spirit of speculation which has pervaded the country for some time, supported, fostered, and encouraged by the country banks.

The remedy, therefore, for this evil in future, must be found in an improvement in the circulation of country paper; and the first measure which has suggested itself, to most of those who have considered the subject, is a recurrence to gold circulation throughout the country, as well as in the metropolis and its neighbourhood, by a repeal of the act which permits country banks to issue one and two pound notes until the year 1833; and by the immediate enactment of a prohibition of any such issues at the expiration of two or three years from the present period.

It appears to us to be quite clear, that such a measure would be productive of much good; that it would operate as some check upon the spirit of speculation, and upon the issues of country banks; and whilst, on the one hand, it would diminish the pressure upon the Bank and the metropolis, incident to an unfavourable state of the exchanges, by spreading it over a wider surface; on the other hand, it would cause such pressure to be earlier felt, and thereby ensure an earlier and more general adoption of precautionary measures necessary for counteracting the inconveniences incident to an export of the precious metals. But though a recurrence to a gold circulation in the country, for the reasons already stated, might be productive of some good, it would by no means go to the root of the evil.

We have abundant proof of the truth of this position, in the events which took place in the spring of 1793, when a convulsion occurred in the money transactions and circulation of the country more extensive than that which we have recently experienced. At that period nearly a hundred country banks were obliged to stop payment, and Parliament was induced to grant an issue of Exchequer-bills to relieve the distress. Yet, in the year 1793, there were no one or two pound notes in circulation in England, either by country banks or by the Bank of England.

We have a further proof of the truth of what has been advanced, in the experience of Scotland, which has escaped all the convulsions which have occurred in the money-market of England for the last thirty-five years, though Scotland during the whole of that time has had a circulation of one-pound notes; and the small pecuniary transactions of that part of the United Kingdom have been carried on exclusively by the means of such notes.

The issue of small notes, though it be an aggravation, cannot therefore be the sole or even the main cause of the evil in England.

The failures which have occurred in England, unaccompanied as they have been by the same occurrences in Scotland, tend to prove that there must have been an unsolid and delusive system of banking in one part of Great Britain, and a solid and substantial one in the other.

It would be entirely at variance with our deliberate opinion, not to do full justice to the Bank of England, as the great centre of circulation and commercial credit.

We believe that much of the prosperity of the country for the last century is to be ascribed to the general wisdom, justice, and fairness of the dealings of the Bank; and we further think, that during a great part of that time, it may have been, in itself and by itself, fully equal to all the important duties and operations confided to it. But the progress of the country during the last thirty or forty years, in every branch of industry, in agriculture, manufactures, commerce, and navigation, has been so rapid and extensive, as to make it no reflection upon the Bank of England to say, that the instrument, which, by itself, was fully adequate to former transactions, is no longer sufficient without new aids to meet the demands of the present times.

We have to a considerable degree, the proof of this position, in the very establishment of so many country banks.

Within the memory of many living, and even of some of those now engaged in public affairs, there were no country banks, except in a few of the great commercial towns.

The money transactions of the country were carried on by supplies of coin and Bank notes from London.

The extent of the business of the country, and the improvement made from time to time in the mode of conducting our increased commercial transactions, founded on pecuniary credit, rendered such a system no longer adequate, and country banks must have arisen, as in fact they did arise, from the increased wealth and new wants of the country.

The matter of regret is, not that country banks have been suffered to exist, but that they have been suffered so long to exist without control or limitation, or without the adoption of provisions calculated to counteract the evils resulting from their improvidence or excess.

It would be vain to suppose, that we could now, by any act of the legislature, extinguish the existing country banks, even if it were desirable; but it may be within our power, gradually at least, to establish a sound system of banking throughout the country; and if such a system can be formed, there can be little doubt that it would ultimately extinguish and absorb all that is objectionable and dangerous in the present banking establishments.

There appear to be two modes of attaining this object:

First, That the Bank of England should establish branches of its own body in different parts of the country.

Secondly, That the Bank of England should give up its exclusive privilege as to the number of partners engaged in banking, except within a certain distance from the metropolis.

It has always appeared to us, that it would have been very desirable that the Bank should have tried the first of these plans—that of establishing branch banks, upon a limited scale. But we are not insensible to the difficulties which would have attended such an experiment, and we are quite satisfied that it would be impossible for the Bank, under present circumstances, to carry into execution such a system, to the extent necessary for providing for the wants of the country.

There remains, therefore, only the other plan —the surrender by the Bank of their exclusive privilege, as to the number of partners, beyond a certain distance from the metropolis.

The effect of such a measure would be, the gradual establishment of extensive and respectable banks in different parts of the country; some perhaps with charters from the Crown, under certain qualifications, and some without.

Here we have again the advantage of the experience of Scotland.

In England there are said to be between 800 and 900 country banks; and it is no exaggeration to suppose that a great proportion of them have not been conducted with a due attention to those precautions which are necessary for the safety of all banking establishments, even where their property is most ample. When such banks stop, their creditors may ultimately be paid the whole of their demands, but the delay and shock to credit may, in the mean time, involve them in the same difficulty, and is always attended with the greatest injury and suffering in the district where such stoppages occur. If this be the case where the solidity of the bank is unquestionable, what must it be when (as too often happens) they rest on no solid foundation.

In Scotland there are not more than thirty banks; and these banks have stood firm amidst all the convulsions in the money-market in England, and amidst all the distresses to which the manufacturing and agricultural interests in Scotland, as well as in England, have occasionally been subject.

Banks of this description must necessarily be conducted upon the general understood and approved principles of banking.

Individuals are, from the nature of the institutions, precluded from speculating in the manner in which persons engaged in country, and even in London banks, speculate in England.

If the concerns of the country could be carried on without any other bank than the Bank of England, there might be some reason for not interfering with their exclusive privilege; but the effect of the law at present is, to permit every description of banking, except that which is solid and secure.

Let the Bank of England reflect on the dangers to which it has been recently subject, and let its directors and proprietors then say, whether, for their own interests, such an improvement as is suggested in the banking system is not desirable, and even necessary.

The Bank of England may perhaps propose, as they did upon a former occasion, the extension of the term of their exclusive privilege, as to the metropolis and its neighbourhood, beyond the year 1833, as the price of this concession.

It would be very much to be regretted that they should require any such condition.

It is clear that in point of security they would gain by the concession proposed to them, inasmuch as their own safety is now necessarily endangered by all such convulsions in the country circulation as we have lately and formerly witnessed.

In point of profit, would they lose any thing by it, for which they are entitled to demand compensation.

It is notorious, that at the present time their notes circulate in no part of England beyond the metropolis and its neighbourhood, except in Lancashire; and perhaps for that district some special provision might be made.

But as it is the interest, so it has been and ever will be the endeavour, of the country bankers to keep the Bank of England notes out of circulation in those parts of the kingdom where their own circulation prevails. In this they must always be successful, whilst public credit continues in its ordinary state, and the exchanges not unfavourable to this country. The consequences are, that in such times the Bank of England becomes in a manner the sole depository for gold; and in times of an opposite tendency, the sole resort for obtaining it; that at one period their legitimate profit is curtailed by an accumulation of treasure beyond what would be required by a due attention to their own private safety as a banking establishment; and at another period they are exposed to demands which endanger that safety, and baffle all the ordinary calculations of foresight and prudence.

If, then, the Bank of England has no country circulation, except in the county above named, the only question for them to consider is, whether, on the ground of profit, as well as security to themselves, the existing country circulation shall or shall not be improved.

With respect to the extension of the term of their exclusive privileges in the metropolis and its neighbourhood, it is obvious, from what passed before, that parliament will never agree to it.

Such privileges are out of fashion; and what expectation can the Bank, under present circumstances, entertain that theirs will be renewed? But there is no reason why the Bank of England should look at this consequence with dismay. They will remain a chartered corporation for carrying on the business of banking. In that character they will, we trust, always continue to be the sole bankers of the state, and with these advantages, so long as they conduct their affairs wisely and prudently, they always must be the great centre of banking and circulation.

Theirs is the only establishment at which the dividend due to the public creditor can by law be paid.

It is to be hoped, therefore, that the Bank will make no difficulty in giving up their exclusive privileges, in respect to the number of partners engaged in banking, as to any district——miles from the metropolis.

Should the Bank be disposed to consent to a measure of this nature in time to enable the government to announce such a concession at the opening of parliament, it would afford great facilities to the arrangement which they may have to propose for ensuring the stability of private credit, in which the support of public credit and the maintenance of public prosperity are so materially and closely involved.

No. II.—At a Court of Directors at the Bank, January 20:

This court having taken into consideration the important paper received from the first lord of the Treasury and the chancellor of the Exchequer, have resolved—

That however essentially they may differ on certain views and sentiments therein laid down and expressed, it is not for the court at I the present moment to offer any opinions of their own, the paper appearing to be intended as declaratory of the grounds on which his majesty's ministers have come to the determination to require the Bank to give up its exclusive privilege as to the number of partners engaged in banking, except within a certain distance from the metropolis.

It cannot, however, be considered inconsistent with this forbearance, to state the apprehensions of the court of Directors, that confidence is not so fully restored as lord Liverpool and the chancellor of the Exchequer seem to imagine.

Though the panic has subsided, credit, both public and private, remains in a very uncertain and anxious state.

That the country circulation is in many parts extremely defective, cannot be controverted; and the Bank would very reluctantly oppose itself to any measures tending to ameliorate it, but would be glad to promote that object, either by fresh exertions on their part, should such be found practicable, or by any reasonable sacrifice.

Under the uncertainty in which the court of Directors find themselves with respect to the details of the plans of government, and the effect which they may have on the interests of the Bank, this court cannot feel themselves justified in recommending to their proprietors to give up the privilege which they now enjoy, sanctioned and confirmed as it is by the solemn acts of the legislature.

No. III.—The first lord of the Treasury and the chancellor of the Exchequer have duly considered the answer of the Bank of the 20lh inst.

They cannot but regret that the court of Directors should have declined to recommend to the court of Proprietors the consideration of the paper delivered by the first lord of the Treasury and the chancellor of the Exchequer to the governor and deputy governor of the Bank on the 13th instant.

The statement contained in that paper appears to the first lord of the Treasury and chancellor of the Exchequer so full and explicit on all the points to which it relates, that they have nothing further to add, although they would hive been, as they still are, ready to answer, as far as possible, any specific questions which might be put, for the purpose of "removing the uncertainty in which the court of Directors state themselves to be with respect to the details of the plan suggested in that paper."

After all, the simple question for the Bank to consider is, whether they are willing to relinquish their exclusive privilege as to the number of partners engaged in banking at a certain distance from the metropolis?

The first lord of the Treasury and the chancellor of the Exchequer are satisfied that the profits of the Bank would in no degree be affected by their consenting to such a proposal.

Convinced of this, and that its adoption by the Bank is as important to their own security as to that of the public, it does not appear that the Bank can be equitably entitled to claim any compensation for the surrender of this privilege of their charter.

Against any proposition for such compensation the first lord of the Treasury and chancellor of the Exchequer formally protest; but if the Bank should be of opinion that this concession should be accompanied with other conditions, and that it ought not to be made without them, it is for the Bank to bring forward such conditions.

Fife-house, Jan. 23.

No. IV.—At a Court of Directors at the Bank, January 26;

The governor laid before the court the following minute of the committee of Treasury, viz.—

Committee of Treasury, Jan. 25.

The committee of Treasury having taken into consideration the paper received from the first lord of the Treasury and the chancellor of the Exchequer, dated January 23, 1826, and finding that his majesty's ministers persevere in their desire to propose to restrict immediately the exclusive privilege of the Bank, as to the number of partners engaged in banking, to a certain distance from the metropolis, and also continue to be of opinion, that parliament would not consent to renew the privilege at the expiration of the period of their present charter; finding, also, that the proposal by the Bank, of establishing branch banks, is deemed by his majesty's ministers inadequate to the wants of the country, are of opinion, that it would be desirable for this corporation to propose, as a basis, the act of the 6th Geo. IV. c. 42, which states the conditions on which the Bank of Ireland relinquished its exclusive privilege; this corporation waving the question of a prolongation of time, although the committee cannot agree in the opinion of the first lord of the Treasury and the chancellor of the Exchequer, that they are not making a considerable sacrifice, adverting especially to the Bank of Ireland remaining in possession of that privilege five years longer than the Bank of England.

The act above alluded to contains the following clauses, sections 4 and 18. [See the annexed paper, marked A.]

(A)—"Provided always, and be it further enacted, that nothing in this act contained shall extend, or be construed to extend, to enable or authorize any such society or copartnership, either by any member or members thereof, or by their agent, or any other person on behalf of such society or copartnership, to pay, issue, or re-issue, at Dublin, or within 50 miles thereof, any bill or note of such society or copartnership, which shall be payable to bearer on demand, or any Bank post-bill, nor to draw upon any partner or agent who may be resident in Dublin, or within 50 miles thereof, any bill of exchange which shall be payable on demand, or which shall be for less amount than 50l., nor to borrow, owe, or take up in England, or in Dublin, or within 50 miles thereof, any sum or sums of money, or any promissory note, or bill of any such society or copartnership, payable on demand, or at any less time than six months from the borrowing thereof, or to make or issue any bill or bills of exchange, or promissory note or notes of such society or copartnership, contrary to the provisions of the said recited acts of the 21st and 22nd years of king George the 3rd, or of the 1st and 2nd of his present majesty, save as provided by this act in that behalf.

"And be it further enacted, that execution upon any judgment in any action obtained against any public officer, for the time being, of any such society or copartnership, whether as plaintiff or defendant, may be issued against any member or members, for the time being, of such society or copartnership, and that in case any such execution against any member or members, for the time being, of such society or copartnership, shall be ineffectual for obtaining payment and satisfaction of the amount of such judgment, it shall be lawful for the party or parties so having obtained judgment against such public officer for the time being, to issue execution against any person or persons who was or were a member or members of such society or copartnership, at the time when the contract or contracts, or engagement or engagements, on which such judgment may have been obtained, was or were entered into. Provided always, that no such execution as last mentioned shall be issued without leave first granted on motion in open court, by the court in which such judgment shall have been obtained, and which motion shall be made on notice to the person or persons sought to be charged; nor after the expiration of three years next after any such person or persons shall have ceased to be a member or members of such society or copartnership."

Resolved,—That the foregoing recommendation of the committee of Treasury be agreed to; and that the governor and deputy governor be requested to lay it before the first lord of the Treasury and the chancellor of the Exchequer.

No. V.—The first lord of the Treasury and the chancellor of the Exchequer have taken into consideration the paper delivered to them by the governor and deputy governor of the Bank, on the 27th instant.

They think it right to lose no time in expressing their concurrence in the proposition which has been sanctioned by the court of Directors, as to the exclusive privilege of the Bank of England, and are willing to agree that the two clauses inserted in the Irish act last year, and referred to in the paper communi cated by the governor and deputy governor on the 27th instant, shall be inserted in the bill, which will be necessary to give effect to the new arrangement.

The first lord of the Treasury and the Chancellor of the Exchequer cannot conclude without adverting to that part of the paper of the Bank which respects branches of the Bank of England. In their paper of the 13th of January, the first lord of the Treasury and the chancellor of the Exchequer have stated the reasons why they are of opinion that, under all the present circumstances, the establishment of branches of the Bank of England would not of itself be sufficient to meet all the exigencies of the country; but they are so far from wishing to discourage the establishment of such branches, that they are decidedly of opinion, that the formation of them, under proper regulations, would be highly advantageous both to the Bank and to the community.

Fife-house, January 28th.

No. VI.—At a general Court of the Governor and Company of the Bank of England, Friday, February 3rd:

Resolved,—That this court do consent to the terms proposed to the Bank, in the papers now read, and do request the court of Directors to carry the arrangement into effect.