MR. HEADLAM* Sir, it has been usual, for Members of great authority and long experience, when they have introduced any subject of more than ordinary difficulty and importance, to state their sense of their
* From a Speech printed by Saunders.122 own inability, and to ask that their individual defects might not prejudice the case they had to bring forward. A request so made has been invariably conceded, and I can truly say, that upon no former occasion has there been greater need of the patience and indulgence of the House. For, without saying anything of myself individually, I at once ask whether there is any duty more clearly imposed upon us, than to provide that the laws concerning the system of banking in such a country as this should be based upon the soundest principles that reason, fortified by experience, can discover? If this duty be clear and important, so is it one of no small difficulty. I think, however, that there are circumstances which render the present a peculiarly suitable opportunity for a discussion such as I now invite. A great commercial storm has passed over us, from the effects of which we are only gradually recovering. Recent events have given us an experience as to the operation of our laws concerning banking, which we have not possessed upon any former investigation of the subject. We are in a period of comparative tranquillity. There is not that commercial excitement—that sanguine spirit of speculation, which is so pleasant in its progress, and so bitter in its consequences. There is not, on the other hand, that stagnation of credit which paralyses the industry of the kingdom, and makes men ready to catch at any straw to save them from immediate dangers. Without any causes to disturb the public mind—with the additional experience we possess, I say that we may now, with great propriety, consider whether our laws affecting joint-stock banks have not tended to produce some of the evils which this country has recently experienced. The extent that the district I represent has suffered from the failure of joint-stock banks has made me consider the subject most carefully; and the more attention I have paid to it, the more deep has become the impression upon my mind of the magnitude of the mischief that has been caused by the mismanagement of banks. When, however, banks are based on sound principles, and conducted with ordinary prudence and caution, the benefits, social, commercial, and economical, they produce, can scarcely be exaggerated. One of the evil effects produced by the failures to which I have alluded, is, the discredit they have brought upon the whole system. Men imagine that we have suffered from a too great ex- 123 tension of the system of banking. Far from it. The thing that we have suffered from is, a partial and incomplete development of banking, based upen unsound and erroneous principles. It would be easy to find examples in other countries where the practice of banking is far more widely extended than it is in this kingdom. When, moreover, we consider the infinite number of transactions produced by the activity of our trade and industry, and that capital is not here, as elsewhere, confined to a comparatively few, but that it is universally diffused through all classes of the community, I say it is clear that we have been very far from availing ourselves of all the benefits that a complete development of the system of banking would confer upon us. When banks are well conducted, the result is, that not only the surplus capital of the wealthy—not only the moderate gains of the middle classes—but also the savings of the poor, large in the aggregate, though small in the individual amount, are collected into one fund, which is again sent forth to give life and energy to new trade and industry, and to call forth the natural resources of the country. Such are the commercial and economical benefits of sound banking. Its social benefits are not less important. It spreads habits of economy generally throughout the whole community—confers a knowledge of what it is upon which credit rests—makes men afraid not only of everything tending to disturb political institutions, but of everything likely to shock or derange that complicated and delicate system whereon commercial credit rests.I have alluded only to some of the advantages to be obtained from a sound system of banking. On the other hand, I am satisfied that hon. Members very much underrate the bad effects produced by the mismanagement of banks. When a failure of a joint-stock bank occurs, the first question asked is. Will the public be paid? The answer probably is, that, though there will be great pressure upon the shareholders, sooner or later, the creditors will be paid. As there probably has been great mismanagement of the bank previous to its failure, it sounds as if there was something of retributive justice in the loss of the shareholders. The result is, that men go away with the impression, that though the failure of a joint-stock bank is an uncomfortable event, a thing on the whole to be regretted, still it is not an evil which calls for any particular attention on the 124 part of this House or the Government. Now, Sir, I have no hesitation in saying, that this is quite an erroneous view of the case. A large joint-stock bank does not fail without considerable mismanagement; and from the hour from which such mismanagement commences, to the time of the failure of the bank consequent thereon, and thenceforward until the results of the failure are completely effaced, the operations of such a bank are a curse to the neighbourhood where they take place.
I have before alluded to the manner in which a bank collects the capital around it, and re-employs it. A bank that mismanages its affairs has a similar control over the capital of the district. It collects large funds in the shape of calls from shareholders, and deposits from customers. When mismanagement occurs, these funds are employed in giving credit to individuals where credit is not due; in fostering unsound speculations which during their existence produce an unfair competition with natural and legitimate trades, and which falling with the false credit that gave them birth, end in the ruin of those involved in them. By means like these it is that a bad system of banking disturbs the natural course of the capital of the district, and directs it into false and artificial channels. Not only, however, does a bank possess this power over the capital of the community as it is produced, but the law most mischievously enables a bank to anticipate and pledge the future capital of the district wherein it is situated. The law enables a bank to borrow money upon the personal security of every one of its shareholders, and thus it becomes largely indebted in every quarter from whence money emanates. The result is, that when a failure does take place, natural and legitimate trades are loft paralysed by unfair competition, and deprived of the capital that ought to give them life. Numbers of persons are thrown out of employment by the failure of improper speculations which the bank has called into existence. Many years are required before the trade of the district can be restored to a healthy state. These are the commercial evils consequent upon the failure of a bank: the social evils are perhaps still greater. The poorer part of the shareholders who have invested their whole fortune in the purchase of shares, find themselves suddenly ruined by the loss of their investment. The middle class not only lose the value of their shares, but find themselves suddenly 125 liable to sums, the magnitude of which is to them almost unintelligible. The wealthier portion are selected as the first victims, and however small their interest may have been in the concern, they are called upon to pay sums which no private fortune can meet. The courts of bankruptcy and insolvency then become wonderfully active. At every assizes now victims are made. Some there are of the strongest who struggle for a time, but the fangs of the Court of Chancery are upon them, and their efforts to escape are in vain. Others have not strength of mind to contend against such calamities. It is within my own knowledge that suicide and lunacy have been amongst the consequences of such failures.
Well then, the question arises, are these evils inevitable? If they are so, legislation is useless. But the case I submit to the House is, that it is the law which is in some respects the direct cause of those evils, and that the law continually tends to make the occurrence of failures of joint-stock banks more probable. I know that I am undertaking no small responsibility in making this charge—that it is no light thing to disturb public opinion on a subject so delicate as that of banking. But I hope the House will give me credit for this, that I have not brought forward this subject without being convinced myself of the evil effects of the law, and that there are good grounds for supposing that an efficient remedy may be provided.
I have said that the tendency of the law is to render failures probable. The first mode in which it works to this end is, that it imposes a degree of risk upon every shareholder, which it is not reasonable to expect that wealthy and prudent men will undergo. Men will not undergo great risk without corresponding advantages. The only equivalents I know of which can be given are, either large profits upon shares, or indirect banking accommodation. The necessity of giving cither the one or the other of these equivalents, is fatal to the good management of a bank. I am perfectly aware that many wealthy and prudent men have been, and still continuo to be, directors and shareholders in joint-stock banks; but this fact does not prove that the tendency of the law is not what I state. The temptations which induced such men to become members of joint-stock banks have lost their power, and every day the tendency of the law to exclude them is seen more clearly. Joint-stock banks are of recent growth in this country. When 126 they were first established, men were sanguine of their success, as they usually are of new commercial speculations. They did not then dream of such failures as have occurred. The extent of the liability was greatly misrepresented; and it is only by degrees that experience is forcing upon the minds of men an accurate knowledge of what that liability really is. I cannot produce a stronger proof of the extent of misrepresentation there has been on the subject, than the fact that, even with the experience we now have on the subject, attempts at misrepresentation are still made, and apparently with success. I hold in my hand a prospectus, advertised in the country papers, holding out, in capital letters, to those who may become shareholders in a now bank, the temptation of limited responsibility. The law distinctly prohibits any such limitation. Announcements of this kind have usually been justified by the insertion in deeds of settlement of clauses providing for the winding-up of the bank upon the loss of a certain portion of its capital. These clauses are a common form in most deeds of settlement, and have proved to be practically worthless. The clause prohibiting any limitation of responsibility is the 7th section of 7 & 8 Victoria, cap. 113, and it provides—
That, notwithstanding such incorporation, the several shareholders for the time being in the said banking business, and those who shall have been shareholders therein, and their several executors, administrators, successors, and assigns, shall be and continue liable for all the dealings, covenants, and undertakings of the said company, subject to the provisions hereinafter contained, as fully as if the said company were not incorpoarted.I quote this section because I am desirous that there should be no further misunderstanding on the subject, and because I wish to prevent persons becoming partners in concerns of this kind in ignorance of the fact that they thereby render themselves liable to the whole extent of their fortunes. It is this ignorance or want of experience concerning the consequences of failures in joint-stock banks which has led many wealthy men to become shareholders in such establishments. As they are in many cases bound by personal considerations, they will continue to be members for their lives; but as they gradually die off, their shares come into the possession of a lower class of men. The tendency of the law, therefore, is, gradually to place the whole control of the banking system of this country in a speculating class of men. Laws 127 are inefficient directly to make men regulate their own affairs in any particular manner; but we have had experience in other cases of the manner in which a bad law can give a gambling and speculative character to a particular trade. It is impossible to conceive a law more likely to give such a character to a trade than that which imposes this unreasonable liability upon the shareholders in a joint-stock bank.This, Sir, is the first charge I make against the law: the second charge is still more important. The law gives to every joint-stock bank a species of credit, most false in principle, and most injurious in practice. It enables such a bank to borrow money to any extent upon the personal security of every one of its shareholders. Let us trace the manner in which this arbitrary power practically works. When a bank fails, it will be generally found that the losses which occasion the failure, take place not long after the commencement of the bank. Now how should a good law work when a serious loss happens? It ought to compel the parties, either to make good the loss, or to wind up the concern. How does the present law work under such circumstances? It enables the parties, after such a loss, with perfect facility to carry on their business with borrowed capital. I do not mean that a bank can, like a wealthy individual, borrow 100,000l. on mortgage; nor can it borrow a precise sum on its security, and employ it in its business. But what it can do is this. It can obtain bills to be discounted to that amount, or, indeed, to a very much larger amount. It pledges the personal security of its shareholders for the satisfaction of the bills so discounted. The security your law allows it to offer enables it to borrow the amount of the bills for the period during which they have to run. It can again and again repeat the same operation; and if it can keep the market supplied with bills, it has continually the loan of the sum of money so discounted upon the security I state. Thus the law makes the first step in the downward career of a bank as easy as possible.
It is almost certain that a bank thus maintaining itself on borrowed capital, will go on from bad to worse. Both to maintain its credit, and to compensate its shareholders for the risk they are continually undergoing, it must pay large dividends. It has therefore to pay large interest on the capital it borrows, and dividends upon 128 capital which it has lost. In many other respects, it cannot carry on its affairs as economically as a wealthy and solvent concern. The time at length arrives when a vigorous effort will still save and re-establish it; but when, without such an effort, it is clear the bank must, before long, fail. How, under such circumstances, does the existing law work? Does it hold out to the parties an inducement to make such an effort? or does it induce them to let the system go on until the bank fails? The alternative the law holds out to the wealthy shareholder is this: On the one hand, let him endeavour to effect a call, prevent the payment of dividends, change the system of management, and by other means reestablish the bank—then should he fail in such efforts, the bank will at once fail; and, however small may be his interest in it, he will probably be the first victim, and be ruined by the crash. On the other hand, let him keep the vicious system going on for a short time, and get quit of his shares, the law makes him nearly safe; for it is the existing shareholders who are primarily liable. Let the bank be kept alive but for three years after he has disposed of his shares, he is safe. When such temptations are held out to men to take the wrong course, and they are made liable to such dangers and such injustice if they take the right course, is it wonderful that the directors of joint-stock banks have persevered in bad management until the day of failure? At length the time comes when there is a bad harvest or a pressure in the money market; or else the bill brokers and bankers, who are the principal creditors, knowing that their security is melting away, step in and put an end to the lingering existence of the concern. Then occur the evils which I have before alluded to; evils, be it observed, not confined to the particular district where the failure takes place, for our commercial system is sensitive and delicate, and a shock given to it in the remotest part of the kingdom, is felt immediately throughout. I ask those Members of the House who investigated the causes of the commercial crisis under which the nation was so deeply suffering when this Parliament was assembled in 1847, whether it is not the case, that the failure of joint-stock banks was one of the most important causes of that most fatal event? Now, Sir, I have traced the operation of the law from the commencement of a bank of this kind until its failure, and I say that its tendency throughout is to lower the 129 class of men who are shareholders—to offer them opportunities for had management—to discourage vigorous efforts for the re-establishment of a sinking concern—to smooth the road to ruin—and to render ultimate failure probable.
Let us now see how this fatal law originated. Before the year 1826, joint-stock banks were not permitted in this country. The Bank of England possessed what is usually, but inaccurately, called an exclusive privilege of banking. The Bank of England was subjected to almost unbounded competition in the trade of banking by private individuals; but it was the only corporation that was allowed to carry on the trade. Its privilege consisted in its own internal construction. The Bank of England was a corporation according to the established principles of the common law; that is to say, the persons who held its stock had merged their individual in their corporate character. The corporation could hold lands, enter into contracts, render the corporate property liable for its contracts, and possess, as a corporation, all the rights and liabilities of property. Those who dealt with it, dealt with it as a corporation, and had no remedy against the individual holders of stock. It possessed two of the great elements of the prosperity of a bank—a large paid-up capital, and a permanent corporate character, necessarily limiting the liability of its shareholders. By the aid of the right hon. Baronet the Member for Tamworth, it now possesses the third element of prosperity, namely, the publicity of accounts. Such was the condition of the Bank of England in the year 1825. On the other hand, there were innumerable private banks in which the principle of unlimited responsibility was carried to the utmost. The storm that raged in the commercial world during the year 1825, almost swept away these private banks, while the Bank of England, with these foundations of prosperity, though then, as upon former occasions, tried severely by events over which it had little control, stood firm. Public opinion, struck with this fact, demanded that the law should be altered, so that banks might be formed similar in their constitution to the constitution of the Bank of England. The result was the statute 7 Geo. IV., cap. 46, which law regulates joint-stock banks to the present day. This Act was a kind of treaty between the Bank of England, on the one hand, and the public on the other. The Government of that day stipulated for 130 the best terms they could obtain on the part of the public. The authorities of the Bank of England, on the other side, had to maintain the interest of their shareholders. The Government, on the part of the public, sought to make lawful the formation of perfect banking corporations with limited liability, such as I have described the Bank of England. On the other hand, the Governor and Deputy-Governor of the Bank of England objected to the formation of such powerful bodies, and made many conditions intended to he for the benefit of their own shareholders. They stipulated that the new banks should not he within sixty-five miles of London. They stipulated that all the partners in them should be individually liable, and they made other conditions for the purpose of weakening the strength of the new banks; as, for instance, that they should not be at liberty to draw bills of exchange upon London. Such, Sir, was the origin of this principle of unlimited liability. It was not, as many suppose, a prudent precaution, taken for the public by the Legislature. On the contrary, it was forced upon the Government against its own views by the Bank of England stipulating for its own interests. The statesmen who conducted this treaty with the Bank of England, and who sought to obtain for the public this principle of limited liability, were the late Lord Liverpool and Mr. Huskisson—men, whose authority is of no small weight on such questions. But it was not the Government alone which then adopted this view of the question. We find from the debate which ensued upon the Bill, that the late Lord Ashburton, not connected with the Government, was of the same opinion. He thus expressed himself:*—
If the right hon. Gentleman (Mr. Huskisson) had allowed persons to combine together on condition of depositing their capital and of limiting their responsibility to their capital, he would have found plenty of individuals ready to engage in such associations. Landed gentlemen would put down their five, their ten, or their twenty thousand pounds, as might be convenient, and banks would be formed all over the country on the best principles.To which Mr. Huskisson replied, that†—He allowed that it would be a great improvement, if, under a proper system, chartered banks were established with only a limited liability. But the Bank objected to the extension of this limited liability: it would, no doubt, induce many persons of great credit and fortune to invest their money in shares in such banks.* Hansard, Vol. xiv., p. 209.† Ib., p. 243.131 It is clear, therefore, that it was this objection to the Bank of England which prevented Lord Liverpool and Mr. Huskisson from constituting banking corporations with limited liability.In the year 1833, the charter of the Bank of England expired, and Lord Althorp, who was then the Chancellor of the Exchequer, again attempted the same thing. He proposed to the House of Commons that*—
In the case of joint-stock bank companies not issuing their own notes, one fourth of their subscribed capital should be paid up, and vested in securities, and that the shares in such banks should not be less than 100l. each, and that the partners should be liable or responsible only to the amount of their shares.This proposition he subsequently withdrew, not† (as he himself stated) from any alteration of opinion upon the subject, but because he found the opposition to it too strong.Although, however, the Bank of England has persisted in maintaining this condition concerning the unlimited liability of the partners in joint-stock banks, it has in other respects adopted a more liberal course. One by one the other conditions (for which it stipulated in the statute 7 Geo. IV., cap. 46,) have been given up, although some of them, during the time of their continuance, were most vigorously enforced in the courts of law. The Bank of England is now strong in public opinion: it is beyond the fear of competition: it does not stand in need of enactments made for the purposes of weakening rival establishments: it has discovered that its interest, like the interest of other great establishments, is identical with that of the public. I have, therefore, good reason to hope that no opposition will arise from the Bank of England to the proposal I now make; but that it will adopt, with respect to this last remaining condition, the same liberal policy that it has pursued with respect to the other conditions for which it stipulated in 1826, and which it has subsequently given up.
I have stated the manner in which the existing law works, and the circumstances under which it originated, and I must now say a few words as to what its provisions precisely are. In the first place, a creditor having obtained a judgment against the company, may issue execution against any one of the shareholders he may think fit, however large the judgment, and however
* Hansard, Vol. xviii., p. 184.† Ib., Vol. xix. p. 82.132 small the interest of the shareholder against whom it is sought to be enforced. The statute law on the subject is, in many respects, more stringent than the common law with respect to partnerships. In the language of Lord Langdale—Any person being a member at any time between the date of the contract and the time when the debt arising therefrom is satisfied, is to become liable for its payment. A person might not be a party, or liable to the contract; he might not be a member of the copartnership at the time when proceedings were taken to enforce it; but by becoming a member at an intermediate period between the contract and the judgment, he would thereby render himself liable to the payment. This is no small advantage given to the creditor of such a concern.This is technical language; the hardship of the law would be better illustrated by cases arising under it. An action is now pending under the following circumstances. A shareholder in one of those banks died; his executors received dividends upon the shares, as part of the estate of the person whom they represented. They never intended to make themselves shareholders, and were not registered as such. Under these circumstances a verdict was obtained against them by a creditor, and they were held liable to pay the amount so recovered, not out of the estate of the testator, but out of their own private fortunes.Another case is that of a single woman who had some shares left her; she never received any dividends upon them, in consequence of there being some arrears due for calls. Seven or eight years afterwards she married. The existence of the shares seems to have been forgotten by the wife, and was never made known to the husband. About a year after the marriage, an action was brought against the husband upon these facts, and a judgment obtained against him.
Now, Sir, I am aware that individual cases of hardship are no proofs of the bad principle of the law; but recollect the character of this particular law. It is a restraint upon individuals, prohibiting them from entering into such contracts as they might otherwise choose, maintained apparently for the purpose of protecting individuals who might be supposed capable of protecting themselves. On this subject, hear what is said by Mr. Mill, the greatest of our modern political economists:—
If a number of persons choose to associate for carrying on any operation of commerce or industry, agreeing among themselves, and announcing to those with whom they deal, that the 133 members of the association do not undertake to be responsible beyond the amount of the subscribed capital, is there any reason that the law should raise objections to this proceeding, and should impose on them the unlimited responsibility which they disclaim? For whose sake? Not for that of the partners themselves; for it is they whom the limitation of responsibility benefits and protects. It must, therefore, be for the sake of third parties—namely, those who may have transactions with the corporation, and to whom it may run in debt beyond what the subscribed capital suffices to pay. But nobody is obliged to deal with the association; still less is any one obliged to give it unlimited credit. The class of persons with whom such associations have dealings are in general perfectly capable of taking care of themselves, and there seems no reason that the law should be more careful of their interests than they will themselves be; provided no false representation is held out, and they are aware from the first whom they have to trade with.Our law does not act upon these principles. It interferes arbitrarily for the protection of a particular class of persons, and when this is its character, I do say it is a strong argument against it, that it produces such eases of hardship against another class of persons as those which I have mentioned.I will now state shortly the material provisions of the remedy I suggest. In the first place, I propose that no bank shall have the benefit of this Act, unless, upon a petition presented to the Board of Trade, it shall appear to be for the public interest that such a bank should be established. I propose that a sum of money should be invested in the Funds previous to the letters patent being granted. I do not propose to prohibit the bank from selling out this fund, and applying it for the security of the bank in times of difficulty and danger. But I offer the strongest inducement to the parties to keep such a security continually invested, by prohibiting them from paying any dividends unless such a sum shall have been invested in the Funds during one year previous to the declaration of such dividends. I also propose that accounts, in a precise form, shall be published by the bank four times a year. There are also provisions in the Act to enable any existing bank to avail itself of the provisions of the Act.
Now, Sir, I am aware that an opinion generally prevails as to the impossibility of trusting to any published accounts. It is undoubtedly true, that where parties have the power of making accounts, or reports, in such form as they see fit, no reliance can be placed on them. Without making one false statement, nothing is 134 easier than to mention facts which tend to show the prosperity of a concern, and to say nothing of those which show the reverse. Every one who knows any thing of the way in which reports may be drawn up, and figures perverted, must at once see how easy false inferences may be suggested. But when an account, in a precise given form, has to be made up, I see no reason for doubting its accuracy. Such an account must be accurate, unless we suppose positive wilful false items introduced by those who make it up. Nobody doubts the accuracy of such an account as that published by the Bank of England. I propose that if any party shall violate the provisions of the Act, or be cognisant of any material error in the accounts, he shall forfeit the privileges of the Act. With such a security against intentional fraud, I see no reason whatever why the public should not be able to rely upon the accuracy of such accounts as I propose shall be published.
If the system I propose were adopted, the credit of a bank would depend upon the magnitude of its known capital and the character of its management. It may be that such a bank would not be able to become indebted in such enormous amounts as banking companies under the present system have rendered themselves liable for. I should not regret such a result. The security of the public would, I verily believe, be as great as at present. Should a bank, such as I propose, fail, there would be no immense sums due to London agents or bill brokers. To meet the smaller liability, there would be the paid-up capital, and what there might be due upon the shares, together with what had been paid for dividends in the last year. These funds would be immediately available, and there would not be that tedious and expensive process of law by which the losses that occur under the present system are extracted from ruined shareholders.
I have stated the evils I seek to redress, and the nature of the remedy I propose; let me now remind the House that the consequences of the existing law were predicted before they occurred.
The subject was brought forward in the year 1836, by my hon. Friend the Member for the Tower Hamlets. He had not then the benefit of that experience which we now possess. He, however, traced out with wonderful precision the natural results of the law of which I complain; and I can truly say that few speeches made in this 135 House have been more fully verified by subsequent events.
I am not proposing any new theory, unheard of in the commercial world. On the contrary, my proposal is in accordance with the practice of other nations. There is no country in the world where such a law as ours prevails. The practice of the United States is universally to carry on the banking of the country by corporations with limited liability. The law of France is most fully in accordance with what I suggest. Such is also the case in Belgium, in Germany, and in Spain. The three most important banks in Scotland rest upon this principle. With us the Bank of England is a corporation with limited liability; but our law absolutely prohibits the creation of any other such corporation. Our law is an exception to the universal policy of mankind, and we have experience to prove that it has not been successful.
I now, Sir, ask for leave to bring in this Bill, and submit its provisions to the consideration of this House and of the country. I make this demand on the part of the public, who are most deeply interested in the establishment of sound principles of banking. I ask on their behalf the same thing that was asked in 1826 by Lord Liverpool and Mr. Huskisson—the same thing that on their behalf was proposed to this House in 1833 by Lord Althorp. I make this demand on behalf of the shareholders whom your law exposes to temptations to which men ought not to be exposed—whom your law subjects to risks and penalties to which men, without the most extreme necessity, ought not to be subjected. I ask it on the authority of the greatest of our statesmen, and the wisest of our abstract writers. I ask it when theory has traced out the natural tendency of our law, and when experience has verified to the letter the truth of the predictions of theory. And I submit that upon authority, reason, and experience, I have established a case to justify this House in allowing me to bring in the Bill I propose.
§
Motion made, and Question proposed—
That leave be given to bring in a Bill to render lawful the formation of Incorporated Joint Stock Banks, based upon the Principle of a limited Liability of the Shareholders.
§ MR. EWARTsaid, that having entertained a strong impression for many years in favour of the measure which his hon. and learned Friend had introduced, he begged leave to be permitted briefly to second the Motion. The conviction on his 136 mind was, that by limiting the liability of the shareholders, they would greatly increase the certainty of the security of the bank. He thought his hon. and learned Friend would have acted more wisely, if, instead of asking for leave to bring in a Bill, he had moved for a Select Committee to inquire into the law of limited liability. By so doing he would have opened the whole question, and have drawn public attention to it, and would thus have had the matter tested. His hon. and learned Friend had, however, thought it more advisable to take another course; but it was still a most useful one, and it afforded him (Mr. Ewart) great pleasure in seconding it.
§ The CHANCELLOR OF THE EXCHEQUERsaid, his hon. and learned Friend had, in the course of his speech, gone into various details of the measure which he proposed to submit to the House; but into those details he should not follow him, as he was opposed altogether to the principle of limited responsibility in banks, which the hon. and learned Gentleman contended for. He thought it was but fair to him to state at once his opposition to the principle of the Bill, and his determination to take the decision of the House upon the principle of limited or unlimited responsibility as applied to banks, and therefore it would be unnecessary for him to go into details. Last year he had certainly received three or four representations from parties in favour of the views held by the hon. and learned Gentleman; but all of them came from the town of Newcastle, where this notion of limited liability had taken hold of the public mind. From no other part of the country had he received a single representation in favour of the principle of limited liability. His hon. and learned Friend had stated correctly that the 7th and 8th of Victoria prohibited limited responsibility; but he had referred to an advertisement of a bank about to be established in London, in which "limited liability" was put forward. This advertisement was extracted from the Newcastle Chronicle, where it had been inserted no doubt to meet the views of the people with whom the advertisers had to deal. It had been inserted probably by the agent of the proposed bank in Newcastle, and it contained in large letters the words "responsibility to be limited." Any one, however, who read the advertisement would discover how far the liability would be limited; and there would not be found in any paper but the Newcastle Chronicle the words "re- 137 sponsibility limited." It was, in fact, a quack advertisement, meant only for the people in that neighbourhood by whom it was to be read. His hon. and learned Friend, however, rightly stated that the 7th and 8th of Victoria enacted that the partners of a bank were responsible for the liabilities of the bank to the whole extent of their fortunes, whatever provisions might be contained in their charter. The question was, whether a limited liability or an unlimited liability tended most effectually to the ultimate solvency and good management of a bank. Attaching, as he did, no inconsiderable importance to the ultimate solvency of a bank, he agreed with his hon. and learned Friend in thinking that the immediate solvency and good management of a bank was of still more importance. He did not think it necessary to enter into the history of the various attempts to alter the law on this subject. He had at all times found public opinion to be against limited liabilities. In 1836, on the Motion of his hon. Friend the Member for the Tower Hamlets (Sir W. Clay), a Committee on joint-stock banks was appointed. That Committee sat for three successive Sessions. His hon. Friend examined several witnesses, and had the opportunity of ascertaining the opinions of practical men, and of expressing his own opinion on the subject of limited and unlimited responsibility, but not one single word was said in the report of that Committee on that subject. That was rather a strong proof that his hon. Friend could not prevail on the Committees to express an opinion one way or the other. General Austin was examined before the Committee, and he said—
There is a great difference of opinion as to unlimited liability and limited liability. I think that a middle course may be steered.Mr. Stuckey was also examined, and he gave it as his opinion that—Persons of wealth and respectability would join with limited liability; but he said, at the same time, with unlimited liability I every day hear of persons of property taking shares.Mr. James was of opinion that—Unlimited responsibility affords better security. Unlimited responsibility does not prevent persons from embarking in joint-stock banks, properly conducted.Mr. Gibbins stated that—A charter of limited liability might induce respectable persons to purchase shares. It might make the directors more negligent in looking after the concern. I think there might be danger to the public in limiting the liability.138 Then came Mr. Robertson, who said—Where there are small stock banks, with small proprietaries, I think the security which they would give to the public would not be of that unquestionable description which it ought to be.Then there was an Irish Member, Mr. Callaghan, who stated—I think the condition of unlimited liability is the better of the two; it is a security to the public. In the instance of the late bank that stopped we have full proof of that.There were only two other witnesses examined upon that subject; the one was Mr. Samuel Martin, who said—I do not see myself any public advantage or security to be derived from limited responsibility.The last witness was a gentleman whose name was often mentioned in that House as one of the highest authority upon all commercial affairs—Mr. Samuel Gurney. He was asked—In reference to the system of joint-stock banks, do you conceive it would be an improvement, or a disadvantage, to the present system, if joint-stock banks were permitted to be established with a limited liability?—I think it would be a very serious addition to the evils of the case.What he had thus read must leave a decided impression on the House that the weight of evidence of the majority of those who were most competent to give an opinion on the subject, was distinctly against the principle of limited liability. His hon. and learned Friend had insisted on another point connected with limited liability, namely, publicity of the accounts. Now, as to the publicity of the accounts, his hon. and learned Friend appeared to place more reliance on that circumstance than experience induced him (the Chancellor of the Exchequer) to do. Then his hon. and learned Friend was of opinion that unlimited liability gives to a joint-stock bank a false species of credit, which enables it to carry on its business with borrowed capital, on the security of the known wealth of its shareholders; and this, he thinks, would not be the case with a bank of limited liability; but he (the Chancellor of the Exchequer) did not think there was much in that argument. He did not believe that a bank founded on limited liability would, in the case of panics, which seemed to occur periodically, as was said, every ten years, prove to have obtained less credit—at least, not to have obtained credit sufficient to get everybody into a scrape—than a bank founded upon 139 the principle of an unlimited responsibility. Upon the whole, he must say, from what they had seen of late days, that as to a restricted confidence being placed upon a limited responsibility, the extraordinary sums which had been vested in railways completely refuted that supposition, while the utter falsification of accounts, and the utter mismanagement of those concerns, must convince every impartial mind, that neither in the case of restricted confidence nor in the accuracy of accounts was the argument in favour of limited liability. Upon the question of insolvency, no man could entertain the slightest doubt that a bank where all the partners were liable to the full extent of their property must afford a better security than where the partners were only liable to a limited extent. In the case of a bank of limited liability no one would think of vesting his whole property in it; but in the case of a bank of unlimited liability the whole property of the person holding a share in it would be responsible. Now, unless his hon. and learned Friend could prove that a part was greater than the whole, unlimited responsibility must be better security for payment of the creditors than limited responsibility. That was capable of mathematical proof. Then came the question of good management. What was the best security for good management? Surely it was the consequences that would fall upon the shareholders if they did not watch vigilantly over the affairs of the bank. It was true, when banks of unlimited responsibility got into discredit, they found themselves obliged to do extraordinary things for the sake of maintaining their credit; but banks of limited responsibility would do much the same. They, too, would probably pay interest on moneys borrowed, and dividends on their shares out of their capital. Railroads were founded on the principle of limited responsibility—they paid interest on sums borrowed, and dividends on their shares, but how? Out of their capital. Within the last six or eight months these railroad companies—with a limited responsibility—had taken stops quite as extraordinary and quite as dishonest as any body founded on unlimited responsibility ever did in this world. It was alleged that there had been great mismanagement on the part of joint-stock banks. He admitted the fact; but had it not often arisen from their having invested not only their deposits, but their paid-up capital in securities which were not immediately available when 140 wanted? Neither a limited liability, nor the publication of accounts, could protect books under those circumstances against failure. What was the best security for good management? The degree of interest which the parties felt in seeing that their concern was so conducted as to protect them from loss. If, then, a party was liable to the amount of 10,000l., he would feel a greater interest in looking into the management of the concern, than if he were liable only to the extent of 100l. But the principle advocated by his hon. and learned Friend was quite the reverse of this. The arguments used by his hon. and learned Friend appeared to him to be contrary to mathematical truth, to all the principles that regulated human action, and to the dictates of common sense. In the United States the principle of limited responsibility was acted upon; but had there been no failures there? In Scotland, where the principle of unlimited liability prevailed, the failures were remarkably few; while in the United States he found it stated in a book written by Mr. Gilbart—a most eminent practical banker—that no less than 165 chartered banks had failed in America. In his History of Banking in America, that gentleman said—Unlimited liability gives greater security to the public… Unlimited liability is to a certain extent a guarantee for prudent management… If in some cases even this has been found to fail, are there no failures on the other side? Has not limited liability been also tried, and failed? Are the 165 chartered banks that have failed in America to go for nothing?The right hon. Gentleman concluded by saying, that he thought he had shown that the principle of limited liability was no security whatever against mismanagement. He did not at this time consider it necessary to go at greater length into the question. He agreed with his hon. and learned Friend, that the two main points were to secure immediate solvency, but still more good management; but he did not conceive that these two objects were so likely to be attained by the adoption of the principle of limited responsibility as by unlimited responsibility; and, therefore, as he wished to take issue upon the question as to which was the most advantageous mode for the public at large in the management of banking establishments, he should resist the introduction of the Bill of his hon. and learned Friend.
§ SIR W. CLAYbegged permission to say a few words on the subject before the House, as he had been personally alluded 141 to. It appeared that his right hon. Friend the Chancellor of the Exchequer still clung to the opinion that unlimited liability was the surest way of obtaining good management in the end. He should have been less surprised if that opinion had fallen from a person who was less intimately acquainted with monetary affairs than his right hon. Friend. If the principle of unlimited liability was sound at all, he did not know why it should be expected to operate with less force in a small than in a large copartnery. Ever since the establishment of the Bank of England, there was no instance of a chartered hank being established with more than six partners previous to 1826. Now each of these parties felt a keen interest in the bank to which he belonged. It was rare that a single individual was a sleeping partner. Every one was intimately acquainted with the affairs of his own hank; and yet what was the result? He would divide the history of these banks into three periods—first, the period up to 1791–2, when there were no bank restrictions, and no issue of notes under 5l. Under this system, up to the year 1791–2, one hundred banks were swept away. Well, what were the facts after bank restriction had been established, and permission was given to issue small notes, that was to say, from 1809 to 1819? In that time 174 commissions of bankruptcy were issued against country banks, proving that an altered system, retaining the principle of unlimited liability, failed the same as before. Again, after the return to cash payments—that was, from the year 1819 to 1826, 99 commissions of bankruptcy were issued against country banks. In 1826 it was well known that it was the Bank of England alone which prevented the experiment from being tried of a bank on the principle of limited liability. Lord Liverpool, Mr. Huskisson, and the late Lord Ashburton, were all favourable to the scheme; and it was solely the opposition of the Bank of England that prevented the experiment from being tried. No man knew better than his right hon. Friend that the system of 1826 had proved a complete failure. His right hon. Friend had expressed a doubt whether there would be eqvially good management in a bank of limited liability as in a bank of unlimited liability; and he quoted the evidence of certain persons taken before the Committee which he (Sir W. Clay) had moved for, who stated that they had no objections to take shares in banks of unlimited lia- 142 bility. But since the disastrous experience of the last year, he believed that the same disposition would not be found now. With regard to the question of prudence, the first point was to get persons of respectability to become partners; and that was only to be ensured by limiting the responsibility of parties, and holding out to them at the same time the moderate profit of six or seven per cent for their money, which might easily be acquired, as was proved by the experience of several of the jointstock banks. His right hon. Friend, in illustration of his argument, referred to railway companies, which had limited responsibilities, and which yet sometimes did extraordinary things. But the right hon. Gentleman had totally overlooked the true analogy of these cases. What they wanted limited liability for was for the very purpose that those who dealt with them should be on their guard. It mattered not how the partners dealt among themselves; the great object was that their customers should be vigilant. The true analogy between a bank and a railway company was in the case of contractors for works and stores, who always took care that the railway companies were solvent before they dealt with them. Then the right hon. Gentleman had dwelt on the advantage of ultimate solvency; but that was not the point to be aimed at—in point of fact it was already provided for; because of all the banks that failed in 1826 a large portion ultimately paid in full; and he believed that, taking the bank failures of 1826, the entire average paid—that was, taking the bad with the good—not less than 17s. in the pound. That was very creditable to the banks; and if there was to be no amendment in the law, so as to admit the principle of limited liability, he, for one, would rather that the present system were entirely swept away, and that they should return to the system which was established prior to 1826. But, as he said, ultimate insolvency was not the thing to be guarded against—what they had to provide for was immediate solvency. He then referred to the Scotch banks, and said, that if the prudent management of the Scotch banks were an argument in favour of unlimited liability, it was an equally valid argument in favour of limiting the number of partners, for in 29 of the Scotch banks there were only six partners, and seven only had as many as 20. But the truth was, there was no one form of banking which was perfect. There was great force in the line 143 —"That which is best administered is best." Yet he admitted there were exceptions to the general rule; but still he felt that the principle of limited liability had the greatest tendency to security. For the security of unlimited liability, therefore, which completely failed, he proposed to substitute the vigilance of the public, sharpened by the sense that they had no security beyond the amount of paid-up capital, and the prudence with which that capital was managed. He would not trespass further on their attention, but would cordially support the Motion of his hon. and learned Friend.
The CHANCELLOR or THE EXCHEQUERsaid, his hon. Friend had completely misrepresented what he stated. Far from attaching more value to ultimate than to immediate solvency, he said the very reverse.
§ MR. CARDWELLthought that the hon. Baronet who had just sat down had been rather unfortunate in telling the right hon. the Chancellor of the Exchequer that he had mistaken assertion for argument. He thought that imputation more fairly belonged to the hon. Baronet himself; for, after showing, as reason and example, that private banks sometimes failed in their solvency, and that joint-stock banks with unlimited liabilities were also sometimes unfortunate, the hon. Baronet jumped at once to the conclusion that their only security was in joint-stock banks with limited liabilities. That was a fair statement of the argument which the hon. Baronet addressed to the House. He did not see this question involved any recondite matters of monetary speculation, or of monetary history. He thought it was a very simple question—the application of ordinary common sense to a very familiar business—the business of banking. The object was to attain well-constituted and well-directed banks; and how was this to be accomplished? By requiring from all persons connected with them that they should be liable to the whole extent of their fortunes; or by allowing persons, to whom a few thousand pounds were of comparative indifference, to place them in an institution where they might expect a higher rate of interest than they could otherwise attain, while they remained careless as to the management of the institution, because the loss would be a small one to them? Before the Committee, of which so much had been said, this subject was referred to; and one of the witnesses stated the difference between joint-stock 144 banks and private banks, with unlimited liability in both, to be this—that in joint-stock banks there was greater security for ultimate solvency, but in private banks there was greater security for good management. That being the argument, Mr. S. Gurney, to whom, on another point, the Chancellor of the Exchequer had referred, was asked the question—
What would be the effect of establishing banks with limited liabilities?and he said—I think you will retain the evils of both systems, with none of the advantages of either—that was to say, that they would have smaller resources to fall back upon to secure ultimate solvency, and less vigilance to secure solvency at the moment.He is then asked—Have the goodness to state what are the evils we should retain of the system of private banking?—We should have a security inferior to that which most private banking establishments give, and, generally speaking, a less safe system of management.That was the language of Mr. Gurney in 1836, and it was equally applicable in 1849. But the hon. Gentleman proposed by this Bill to provide certain securities which should be our guarantee for the future. The first of these was, that the Board of Trade was to have the power of saying, whether or not a bank was to be established in a particular district. Now, on what principle of trade could it be argued that it should be left, not to the commercial requirements of a district, but to the department of the Government, exercising an arbitrary discretion, to say whether there should or should not be an additional supply of banking facilities in a particular district? That was a proposition which he thought would need little argument in that House to put down. Another security was, that a portion of the securities should be placed in the public funds, and that they should be publicly advertised to be so placed. Now, with great deference to his hon. and learned Friend, he doubted whether that was the best way of securing the solvency of a bank. The general and compulsory investment of a certain proportion of the resources of banks in the public securities, would certainly tend very much to increase the price of the funds in good times, and would proportionably depress them in times when it was of the utmost importance to all mercantile concerns that they should be upheld. Then it was said, they would have a security in the publication of the accounts. On 145 this subject he wished to read a letter which he had received from a gentleman who was well acquainted with the subject of joint-stock banks, and to whose opinion great weight ought to be attached, because he was one of the witnesses selected by the community which he had the honour to represent to give evidence on the late important inquiry into the subject of banking. That gentleman had some knowledge of the way in which accounts were prepared, and he said—I do not believe any mode can be devised which would enable the public to judge of the trustworthiness of the accounts published by banks, or to obtain from these accounts a satisfactory pledge as to their real position. Nothing but constant and daily superintendence can supply the means of accurate knowledge. The only real security is in having good management, at whatever cost and in whatever form; and this is more likely to be required by shareholders, who know that all their property is pledged on its accomplishment.Another gentleman, who had been selected by the mercantile portion of the community to give evidence on the same subject, said—I have a strong opinion that if you limit the responsibility of shareholders, you take from the public the only really valuable security which they possess; and that a law to establish joint-stock banks with limited liabilities would be most objectionable to the safety of the community at large. Without the power of scrutinising the bills and assets of the bank, the publication of their accounts would be liable to deceive; because, by the insertion of securities that could not be realised, of bills that were overdue and unpaid, and of debts which the parties were not able to meet, it was obvious that these accounts might be made to meet the means of any one who had an object to serve.Now, was not this language consonant to every day's experience, both in railway and other matters? The hon. Baronet the Member for the Tower Hamlets argued that an overdue bill could not be put down to the credit of the bank—that it would be detected at once. That was true; the overdue bill would be detected; but the bill that was overdue might be renewed, and how was it to be detected then? In reality, no skill—nothing but regular vigilance—could detect these transactions. A gentleman of the highest respectability had sent him a paper containing a conspectus of the affairs of a joint-stock bank. He was a gentleman of the highest experience in banking, and on his authority he (Mr. Cardwell) could implicitly rely; but as he did not guarantee the accuracy in all respects of the statement, he would give no name, but would quote it, if the House 146 pleased, as an imaginary case of what any day's experience might produce; and he would ask, what would be the monetary effect of such banks in this country? He would suppose a bank with a capital of 150,000l. The assets stood thus: secured upon a township in the neighbourhood of Liverpool, 70,000l. To that item there was a note appended, stating that no interest had been paid upon the loan; that there were bonds amounting to about a quarter of a million secured upon the same township, all of which had a prior claim to that of the bank debt, and all of which should, therefore, be paid off before the bank could obtain anything. Consequently the statement stood thus: 70,000l. secured upon a township in the neighbourhood of Liverpool, value nil; lent upon collieries and mines, 40,000l., value 9,000l. The hon. Baronet was justly solicitous about the immediate solvency of a bank. Let him, therefore, particularly notice that the total capital of the bank was 150,000l., out of which 40,000l. were advanced to collieries and mines, and that this was now valued at only 9,000l. The bank house, 21,375l.; real value, 10,000l. Loss on bills and accounts, 30,000l., value nil. Loss on bills of exchange, 52,500l., value nil. Total, 213,875l. from which was to be deducted the estimated value, 19,000l., leaving a loss of 194,875l.; from which, if the entire original capital were deducted, it left a loss over and above of 45,000l., or, in precise figures, 45,401l. Now, let them suppose that that were a case of limited liabilities. The estimated loss beyond the capital was 45,000l., and it would have been so had the liabilities been limited. He supposed the hon. Member for the Tower Hamlets would argue that if it were a bank of limited liabilities, those losses would never have occurred—[Sir W. CLAY: Hear, hear!]—but unless he could show some proof in support of such an argument, he (Mr. Cardwell) could not admit its force. The hon. Gentleman said that on one occasion the Bank of England, in order to prevent the occurrence of a great public calamity, advanced no less than 1,500,000l. to assist in preserving the credit and solvency of a great joint-stock bank in the north of England. The hon. Gentleman said that there was no opportunity—there was no time—for looking into the accounts of that bank, and the Bank of England was obliged to come down with a million and a half without knowing how the concern actually stood. That was what the Bank 147 of England had done for the protection of the mercantile community in the case of a bank of unlimited liability. But how would the case have stood if there had been only a limited liability? The Bank of England had before them the names of men of great and well-known capital, living in the neighbourhood of the bank, and connected with it as directors and shareholders. They saw who the shareholders were, and they said, "With the law of unlimited liabilities, we may safely advance a million and a half to save the credit of this bank." But if it had been a bank of limited liability, would they have dared to advance such a sum of money with such readiness? It was clear that in such a case the Bank of England would run no such risk. They would not venture to advance until at least they had sifted the accounts. But in this case there was, according to the hon. Baronet, no time for such an investigation. The decision of the Bank must be taken at the time, and the welfare of a large community must be affected by the result. A stronger example could scarcely have been given of the advantages of the present law. His hon. and learned Friend who had brought forward the Motion had spoken of the frauds that had been perpetrated, and of the persons who had been unwittingly drawn into joint-stock concerns, and ruined in consequence of the law of unlimited liabilities. Those were cases of great hardship undoubtedly. If there had been no such instances, he (Mr. Cardwell) should have said, "Do not be afraid of allowing limited liability. Your permission will be innocuous; for no one will deal with such a bank." But when the hon. Gentleman told him that shareholders could not be induced to look into the affairs of joint-stock banks, and that widows and orphans were ruined by going into them as shareholders, he would only reply by asking, was there to be no consideration for the widows and orphans who were the depositors in those banks? Were not those depositors to be guarded who were content with a moderate rate of interest for their money, under the impression that they could withdraw it when they pleased, but who might be told, when their money was most needed, that the bank was unable to pay, and that it was one of limited liability? Surely if shareholders could not be induced to look into the concerns of banks in which they were so deeply involved, it could not be expected the depositors would be more careful. He would 148 venture to express his belief that, if there were one business in which, more than another, they should abstain from giving a limited liability—in which they should render it impossible for people to go and gamble with small sums of money belonging to others, it was the business of banking. Banking was to other trades as the reservoir, from which the streams of commerce were filled and regulated and kept flowing. It was to the bank they applied when they required capital. He would follow his hon. and learned Friend in all he said; he would repeat all the early part of his speech, sentence by sentence, and word by word; he would go over all the instances of suffering which the present system was said to create; and he would say, if, notwithstanding all the vigilance of private banks, notwithstanding the wide resources which joint-stock banks with unlimited liabilities command, you suffer from such great misfortunes, do not aggravate them all by adopting a system which, to use the words of Mr. Gurney, when speaking of the comparison with the existing joint-stock and private banks, "would unite all the evils of both systems, with none of the advantages of either."
§ MR. W. BROWNSir, I dissent from most of the opinions expressed by the hon. Baronet the Member for the Tower Hamlets, as well as those of the hon. and learned Member for Newcastle-upon-Tyne; but I agree with the hon. Member for Liverpool, as I have been connected with one of the joint-stock banks in Liverpool, to which the hon. Baronet has alluded, ever since the commencement of joint-stock banking. That bank deemed it proper at an early period of their business, to send a deputation to Manchester to meet deputations from other joint-stock banks from various parts of the kingdom, to discuss the propriety of asking Her Majesty's Government to establish limited liability to shareholders; and a great majority of the trading interests there represented, repudiated limited liability. They considered it of great importance to this country that parties should know with whom they dealt; that they should have the greatest possible security for their transactions; and that a mere list of stockholders would not give them that information and guarantee which they ought to possess for the good management of joint-stock banks, and therefore no action was taken in this matter. The Bank of England, and two Scotch banks under charters of limited liability, are cited 149 as instances of good management, and that they have been very useful to the country, particularly the Bank of England. This last may he said to be under Government patronage and support; but as those banks are admitted to be exceptions to the general rule, I need not further allude to them; yet, I think, it can hardly be doubted, that where stockholders are liable in the whole amount of their fortunes, they will be more careful in the selection of directors than if limited liability existed, which would risk only the amount of their shares. The hon. Baronet the Member for the Tower Hamlets has quoted Mr. Gurney's evidence, where he stated that the name of a joint-stock bank on a Bill added much to its security. I quite agree with Mr. Gurney: such an endorsement gives additional credit and safety to the transaction, from the fact being known that every individual stockholder in the bank is liable in the whole amount of his fortune: if you grant limited liability to joint-stock banks, where are you to stop? Two individuals may call themselves bankers, and register limited sums in their business beyond which they would not be liable: this would in my estimation be most injurious to our national credit and interest, and ought not to be listened to. This limited liability exists in France, and is detrimental to the credit of their merchants. My hon. and learned Friend the Member for Newcastle-upon-Tyne, could not have cited a more unfortunate case for his arguments than the American banks; for of 700 or 800 that stopped payment with limited liability since 1836, it has not been the creditors only, but the stockholders too, that have been severe sufferers. The Americans have discovered their mistake, and the tendency of their legislation is to retrace their steps, and take securities from banks requiring charters for their issues, and in other cases to make a pro rata liability on stockholders; but as many of the old charters have some years to run, alterations cannot be made until they expire. Now, as respects joint-stock banks in England that have stopped payment, although great distress and inconvenience have arisen to creditors, I am not aware of any one who has not paid their debts in full. Some of the American banks that have stopped payment, have been mere jobs got up for the benefit of a president or a cashier, who have allowed those friends who served them to use largely of the funds of the bank, to the injury of the stockholders 150 and ruinous loss to the public. The exhibition of accounts, as recent events show, is no security against mismanagement. During my ten years' residence in the United States it was a well-known and acknowledged practice that A endorsed for B, and B for A, and that those bills were discounted, although not based on any legitimate transaction; and, by a renewal of those bills, putting it in the power of the managers to prevent the appearance of paper remaining unpaid. In fact, there is no security for correct accounts but honesty. I do not think that joint-stock banks are better for the country than private banks. In localities where banks are wanted, if not supplied by joint-stock banks, private banks are sure to be established. I am glad to hear from the hon. Baronet the Member for the Tower Hamlets, that of one hundred failures amongst them, their average dividend was upwards of 17s. in the pound. Men, whose pockets are immediately to suffer from an undue extension of credit, are in general more careful who they trust than those who feel less the immediate consequence of over confidence. My hon. and learned Friend the Member for Newcastle-upon-Tyne has alluded to an investment in the funds to sustain the credit and engagements of joint-stock banks with limited liability; but as this would require two capitals, one to secure the payment of engagements, and another to carry on business, I fear this would not hold out sufficient inducement for men to embark in those useful concerns. I feel strongly that any attempt to make limited liability would be very injurious to our best interests, both at home and in foreign countries; I, therefore, must oppose any introduction of a Bill for effecting that object.
§ MR. MACGREGORbelieved that the greatest misfortune which could be inflicted on this country would be to establish banks in England with limited responsibility. The whole of the business in Scotland was transacted by joint-stock banks, and he was glad to know that the Bill of 1844 would cause these joint-stock concerns in this country to be conducted on such principles as would give the most extensive security to the public. Allusion had been made to a new bank in London which had been established upon the Scotch principle. He was happy to assure the House that the responsibility of the shareholders in that concern would be altogether unlimited, and that, in his opinion, joint- 151 stock banks, if they were conducted on the Scotch principle, were quite as safe as any other banks in the country.
MR. HEADLAMsaid, that, seeing the disposition of several hon. Members to uphold the principle of unlimited responsibility, he should not put the House to the trouble of a division, but would withdraw his Motion.
§ Motion, by leave, withdrawn.