HC Deb 21 February 1861 vol 161 cc752-63

Order for Committee read.

On Motion "That the Speaker do now leave the Chair,"


said, he regretted that some hon. Members of experience had not gone into a discussion of the Bill upon the second reading. Though the Bill had met with no consideration in the House, it was one, nevertheless, which excited deep interest out of doors. They were about to surrender to the Bank of England the control of the monetary affairs of the kingdom for twenty-five years. It was true that the Bill related only to the management of the public debt; but any person who considered the matter practically would see that those parties who, for twenty-five years, would have the control of the public debt, must, of necessity, at the same time have the control of the other departments of the monetary affairs of the country. Now, he would ask whether the management of the Bank of England hitherto had been so satisfactory, or whether it was then so satisfactory, as to induce the House to give them so large a power for so considerable a space of time? The House would be aware that, in 1858, very soon after the crisis which was then just past, the Bank established certain rules with regard to discount, with the avowed object of removing the chances of those violent fluctuations from which the money-market had been suffering. But what was the fact? Why, since that time the fluctuations had been greater and more violent than at any other period, except in the case of an extreme crisis. Since January, 1860, there had been thirteen or fourteen changes of the rate of discount. The year 1860 began with the rate of 2° it ascended to 4 and 5, fell again, and now stood at 8 per cent. And this, he believed, was the cause of a great pressure upon the money-market, with loss occasion for such a pressure than had ever before occurred in the history of the country. Then, again, the Bank thought to ensure greater regularity in the Value of money by depriving their competitors in the discount trade of any assistance. That might be a convenient arrangement for getting business to the Bank; but he was told by one of their competitors that it compelled the discount houses to keep an amount of reserve in consequence, which had mainly contributed to the present difficulty with regard to money matters. But the Bank had alleged, as an excuse for these operations, that the discount houses were most imprudent and adventurous in their advances. well, what had been guilty of like imprudence. In the case Which had occupied a good deal of public attention for the last few months, the Bank of England led the way to giving credit to the greatest impostors that had almost ever figured in the commerce of this country. Engagements were entered into on its behalf to advance to Streatfield and Co., a short time before their failure, £180,000; and though he admitted to be when taken, the Bank would not have lost anything: yet so complete was the confidence which the directors felt in the house, that to the many applications which were made to them, the reply was invariably given that the solvency and respectability of the firm were undeniable. He hoped the Canceller of the Exchequer would explain to whom the Bank of England—which had the power of raising and depreciating the value of money at will, and, as rumour affirmed, by very small majorities—was responsible, and whether, in case it was to lose the confidence of the right hon. Gentleman or his successors, it would be possible to exercise any control over the management of the issue and currency departments?


said, he was not surprised that the hon. Gentleman, at a period of great pressure, and of uncertainty consequent on the duration of that inconvenience, should have availed himself of the opportunity to make some remarks on the state of the money-market, in connection with the Bill before the House. The hon. Gentleman apprehended that Parliament, by giving its assent to certain arrangements with the Bank in relation to the management of the public debt for twenty-five years would, either by direct engagement or by some indirect implication, continue to the Bank the certainty of its present position for some years to come in regard to the other important functions which it discharged as the banker of the public, and likewise as the great agent in making the issues of the State. So far, however, from any new title being conferred upon the Bank through the medium of the Bill in reference to those other great and important branches of its duties, he could assure the hon. Gentleman that the very reverse was the case. It had hitherto been always the subject, more or less, of doubt, whether the remuneration given to the Bank in respect of its management of the debt was not to be considered as part of the permanent privileges conferred by its charter. By the present Act, however, the question had been severed and detached from any other portion of the business which the Bank performed for the public. Both in the Acts of 1844 and 1834 the agency of the Bank, and the remuneration that it was entitled to receive for discharging that duty, were referred to in terms which the Bank, if it had been inclined to an illiberal course of action, and to stand on its extreme rights, might, perhaps, have contended, did not in honour and good faith leave Parliament at liberty to interfere. The change would, no doubt he most weighty and momentous, but the transaction itself was perfectly simple. The conduct of business between the public and the bank rested on its own merits, and was confined exclusively to its own objects, and had no connection or concern whatever with the business of the Bank as the public banker, or with regard to issues, or yet with regard to the quasi-trusteeship which the Bank, under the loan Acts, seemed to discharge towards the public creditors. In the future, therefore, no such entanglement could arise as was deprecated by his hon. Friend, who rightly regarded it as a great evil and inconvenience. In stating that the other functions of the Bank, as guardians of the public purse and with reference to issues, had been entirely separated, he did not not mean that Her Majesty's Government contemplated making any proposals on that head. The position of that question was clearly understood between the Government and the Governors of the Bank, and would be found stated in the official correspondence. As to the general comments of his hon. Friend on the present state of the money-market and the conduct and policy of the Bank of England he would not attempt at such an hour (a quarter to twelve o'clock) to enter into a question of such great moment and of such profound difficulty. But in reference to one portion of his hon. Friend's remarks impugning the conduct of the Bank in relation to a particular house, he must be permitted to express his regret that before making a statement so seriously affecting the policy and something more than the policy of the Bank, he bad not given some intimation to the hon. Gentlemen connected with the Bank in that House, in order that whatever explanation the case admitted of might at once be given. As regarded the general proceedings of the Bank of England, he thought his hon. Friend, with the clear and accu- rate knowledge of the case which he possessed, would admit that the period through which they were passing had been one of peculiar difficulty; for although it had never assumed the character of a sharp and sudden crisis, for a considerable time there had been a sort of zigzag movement in the value of public securities which had passed on and off, and had been most trying to the Bank and to those with whom they had commercial relations. He believed, too, that if they were to consider the conduct of the Bank as a banking establishment, under those trying circumstances, they would find it to be the opinion of the commercial world that their recent proceedings had, in general—he spoke not of particular cases—been characterized by great prudence and a determined regard to keep their resources in a solvent position, available for whatever circumstances might arise. As regarded the rule of which his hon. Friend (Mr. Bass) complained, and under which the power of discount, except at certain periods, had been withheld from important bodies, who, no doubt, as his hon. Friend said, were competitors of the Bank, that was a question which he supposed, before any long time had elapsed, would be more fully opened and discussed both there and elsewhere; but he was bound to say he believed that in the adoption of that rule the Bank were not governed by any narrow regard to their own interest; but that, considering the public trust attached to them and their public position and power over money proceedings, their desire had been to act in the spirit of the law, and to prevent, if possible, the recurrence of those crises on which they all looked with dissatisfaction, and under which the suspension of the law had several times become necessary.


said, he wished to explain that he had mentioned to an hon. Gentleman then present the circumstance which he had just stated to the House, and it would be in the power of that hon. Gentleman to make any explanation which he might consider necessary.


said, he believed that the hon. Gentleman alluded to him; but he did not know how far he (Mr. Bass) was entitled to call on him for an explanation respecting a conversation that had taken place at a dinner table in the refreshment room of that House. If conversations held under such circumstances were to be reported and explained to that House, there would soon be an end to anything like confidential or private conversation between two hon. Members. He was perfectly con-tent with the defence of the public conduct of the Bank of England made by his right hon. Friend the Chancellor of the Exchequer; but his hon. Friend (Mr. Bass) bad complained of the fluctuations in the rate of discount by that establishment. Surely his hon. Friend did not mean to say that the Bank exercised a control over the demand for and value of money?—that they made the price of money in this country! His hon. Friend was a large manufacturer —a manufacturer of an article which was in extensive use; but no effort on his part could control the consumption of or demand for that article. All the Bank affected to do was to follow the demand and to regulate their price accordingly. As regarded the proceedings of the Bank, to which his hon. Friend more particularly referred when he complained of their not placing money freely at the disposal of other dealers in money, he bad to make this remark—though he did not mean to put forward the matter as one of discussion in the House—that persons engaged in banking business, whether as discounters or holders of bills, ought to bold in their hands convertible securities which they could al-ways have available in cases of emergency, It was not a proper course in large establishments, instead of holding their own money in reserve, to call on the Bank of England in times of pressure. The Bank of England had been guided by a strict regard to what they considered to be the public interests. He repudiated the charge that they had been influenced by selfish ones. They were sensible of their responsibilities—they acknowledged them; and should always act accordingly. With regard to the Bank's transactions with the commercial establishment alluded to by his hon. Friend, his hon. Friend did not know the nature of that case. It was true that the Bank had been led into the same errors its others—they bad been misled by the credit which that establishment got in this country; hut the Bank of England had this merit—that in lending money they got good security, and it was a fortunate circumstance that they were not losers. The private transactions of the Bank in their private capacity, however, were not subjects for discussion in that House on occasions like the present; but if a Motion impeaching their conduct were brought forward, those who conducted their affairs would be found quite ready to meet it.


said, he could not allow the speech of the hon. Member for the City (Mr. Crawford) to pass unnoticed in one respect, namely, when he compared the Bank of England to the private commercial enterprise of his hon. Friend (Mr. Bass), which was open to the competition of the whole world-—when it was the fact that under severe pressure the Government were compelled to abrogate a law which had failed in its object—that object being to prevent panic, and to protect the commercial community from disaster arising from this cause. The next great point, in his opinion, would be finally to terminate the existence of that law, which was assailed by the universal clamour of the commercial public.


said, he was glad to hear that the provisions of the Bill did not at all bind the Government to maintain the privileges conferred exclusively upon the Bank of England. No doubt a good deal of dissatisfaction was felt respecting them in the country; and the value of money, from whatever cause, was certainly more uniform before the time when the Acts conferring their privileges on the Bank were passed than it had ever been since. He only regretted that the Chancellor of the Exchequer had made this arrangement for so long a term as twenty-five years.

Motion agreed to; Bill considered in Committee.

(In the Committee.)

Clause 1 agreed to.

Clause 2 (Payment for Management of Public Debt),


said, be would propose an Amendment to the effect that the arrangement should continue ten years instead of twenty-five years. It was his opinion that if the longer period were continued in the Bill it would be found to hamper future Chancellors of the Exchequer.


said, that in consequence of the twenty-five years clause there was a strong impression that the present arrangement in reference to issues and other matters was to continue as it then stood. There was also a general impression against the Bank of England having, as it virtually bad, the power of fixing the price of money in times of crises. That impression would be got rid of if a number of joint stock banks had similar power with the Bank, instead of the Bank of England having a monopoly. He should support the Amendment if the Government were not already committed to the bargain with the Bank, in which event it would be too late to alter it.


said, that any person who heard the discussion would suppose that some new privileges were to be granted to the Bank, though such was, in. fact, not at all the case. The arrangements in reference to the Bank were made solely with the view of consulting the public convenience. When loans were made to the Government it was for the convenience of the contracting parties that the arrangements connected with the payment of interest and transfer should be undertaken by the Bank of England; but the Bank was not a party in any other way to such arrangements. Money was obtained on better terms when it was known by the lenders that in all future time there would be one fixed place at which the business connected with those loans would be transacted—where the transfers would be made and the dividends paid. From 1808 to the present year the existing arrangement had continued in force, but the Chancellor of the Exchequer had now thought fit, on behalf of the public interest, to make a certain reduction of the charge for the management of the debt; and, instead of leaving the arrangement as it is now for an indefinite and uncertain time, he had fixed it for twenty-five years, and if, at the close of that period, it should be thought proper to make a further reduction in the charge, he would be able to bring the matter before Parliament and make a new proposal to the Bank. It should not be forgotten that the proposed arrangement had nothing to do with the Government deposits, and the Chancellor of the Exchequer would be at perfect liberty to bring before the House the whole question of the issue of notes. If it were considered that the Chancellor of the Exchequer had made an improvident bargain with the Bank as to the management of the public debt, the hon. Member for Derby (Mr. Bass) had a perfect right to complain of it, but he (Mr. Hankey) did not understand that the hon. Member made any such charge. On the other hand, it was not fair to criticise in the way uow done the conduct of the Bank of England with regard to its private transactions. Hon. Members might as well bring charges of the same kind against the London and Westminster or any other joint stock Bank. Whenever the Bank of England was arraigned in its public capacity he should be quite ready to enter into the question. He would not say that the proposed arrangement was not a very hard bargain for the Bank, but he would say that it was highly advantageous for the public.


desired to know whether the House was to understand that those gentlemen who represented the Bank of England were dissatisfied with the arrangement. [Mr. HANKEY: Hear, hear.] If so, let the House cry quits, and get rid of the bargain. [Mr. HANKEY: Hear, hear.] He had been rebuked for discussing mattersntot before the House, but the repre-sentaives of the Bank were not without notice that there was great dissatisfaction in reference to certain matters connected with the Bank. They might suppose, from what they had heard from hon. Members, that the Bank derived no advantage from their management of the public monies; but he (Mr. Bass) found that during the last two years the Bank had had about £7,000,000 of public deposits in their hands. He should be glad to learn what service they had rendered in return? He felt quite sure that they could not come to any other conclusion than that the Bank was the largest monopolist in the country.


said, that though he objected to the arrangement, he did not do so on the precise grounds that some hon. Gentlemen did. Instead of attacking the directors of the Bank, it would be better to attack the law under which they acted. It was Lord Overstone and his followers, with their theories of the convertibility of the note, who were to blame. In voting for the Amendment, he did so because he believed if they succeeded in limiting the present arrangement, it would be a step towards altering the present monetary system.


said, he was not sure that the Bank management was advantageous to the country at large. On the one hand, if the Bank charter were put an end to in the course of a few years, what would become of the proposed arrangement? But, on the other hand, if the arrangement was so hard upon the Bank of England, why should the Bank Directors object to limiting it to ten years instead of twenty-five?


said, he wished to separate the subject of issue from the general question. It was perfectly open to the House to deal with the question of issue and everything which related to it and the public balances when they pleased and as they pleased. He hoped that whenever they came to the subject of issue, they might adopt such legislation as would secure the full fruits which had already been achieved by the wise measures of former statesmen, and not undo what they had accomplished. He did not clearly understand the object of the proposed Amendment, whether it was that the arrangement was too favourable to the Bank, or whether it was supposed that it would hamper Parliament in any other transactions and arrangements of other kinds in future. If the bon. Member for Coventry feared that by implication the arrangement would tend to impair the freedom of Parliament, he could only say that that freedom was acknowledged by the Governors in their correspondence with him. The Governors accepted his letter to them as the understanding, and with fairness and moderation added that they were very much induced to accede to the reduction of charge by the fact that they would be enabled greatly to economize. Their letter was a complete acknowledgment of the separation which now, for the first time, was effected between this and other subjects in which the Bank discharged duties for the Government. The success of the Motion would simply have the effect of cancelling his labour, and reverting to the present Act, with which he believed the Bank were perfectly satisfied, as they obtained under it a greater profit by £50,000 a year. He did not consider that the terms imposed were bard terms. In his opinion they gave the Bank adequate and liberal remuneration, but he must say he believed it was the wish of Parliament and the commercial world that that principle should direct their proceedings. If the term of twenty-five years was an advantage to the Bank the public gained, in the first place, a clear saving of £50,000 a year. It likewise gained a material increase of service; and, thirdly, an advantage which he deemed of great importance—namely, that by this arrangement they entirely extricated the whole subject of remuneration for management from the influence of those complicated considerations which were involved in the structure of the Loan Acts. There had been a great change in the relative positions of the Bank and the Government since the Bank got its charter, and the Government began to borrow. Governments of all kinds, and especially a dynasty with a most unsettled tenure, were in exceedingly bad odour with the mercantile world. The monied men of those times would not believe the Government on its oath; and no wonder, seeing that not long before that worthy Sovereign, Charles II., had thought fit to lay big bands on the money of the London bankers. It was then the capital object of State policy to find a body of undoubted wealth, solvency, and character which would stand between the Government on the one side, and the possessors of money on the other, and would say to the moneyed men, "We will stand sponsors to you for the Government." It will be seen from the Loan Acts that the original position of the Bank was not, as now, that of the agent for the Government; but it was a sponsor and trustee for the Government, securing it that credit which it could not secure for itself. Though the position of the Bank had changed, the form of the Loan Acts had not changed; and those who looked even at the most recent Loan Acts would see that they not only constituted the Bank an agent to pay the dividends, but they continued it a corporation until the loan then made was paid off. The remuneration for managing the loan was given in the same Act. Under these circumstances it was open to the Bank to say, "This remuneration is part of the compact of the loan." That, however, would have been an extremely illiberal claim, and the Bank had shown a proper regard for its true and permanent interests in not pressing it. It was fair to the Bank to state that, some ten years after the arrangement in force was agreed on, both the Bank and the Government submitted to their respective legal advisers the question whether the bargain between them with respect to the remuneration was one which it was open to the Government to propose to Parliament to alter, or whether it could not be altered without the consent of both parties; and both the legal advisers of the Bank and the law officers of the Crown answered that the arrangement was a permanent one, which could not be altered without the consent of the Bank. Having made this explanation he hoped the bon. Gentleman would not persevere with his Amendment, and thus prevent a new arrangement being made which was equitable to the public and fair and liberal to the Bank.


said, he hoped, after the statement of the Chancellor of the Exchequer, his hon. Friend would not persevere in his Amendment. It appeared that the twenty-five years had had something to do with the bargain, and as it did not affect the issue department he hoped the Amendment would be withdrawn.

Amendment, by leave, withdrawn.

Clause agreed to.

Remaining clauses agreed to.

Bill reported; as amended, to be considered on Monday next.

House adjourned at One o'clock.