BANK ACTS (SCOTLAND). (Hansard, 11 February 1864)

§ THE CHANCELLOR OF THE EXCHEQUER
in moving a Resolution, That it is expedient to make provision for replacing the lapsed issue of bank-notes in Scotland upon payment from time to time of a certain charge in respect thereof, said, it would be obvious to the Committee that the proposal which he was about to make was a very small one, and touched only a very limited portion of an important subject. It involved no general discussion either of the principles of currency, of the provisions of the Act of 1844, which formed the basis of our system, or of those of the Act of 1845, which applied those principles in a modified form to Scotland. Its object was to make an arrangement of a subsidiary and provisional character, which had no claim to the attention or favourable consideration of Parliament, other than that it would be useful and convenient as far as it went. It asserted no principle of a novel character, but was only an assertion of that principle which was clearly established by the Act of 1844, that lapsed issues of bank-notes—that was to say, bank-notes issued by private issuers who in course of time had from circumstances lost their right to issue them— should only be replaced by other issues put forth for the profit of the State; in fact, 468 that lapsed issues were the property of the State. Everything else the Bill left precisely as it was. There were some hon. Gentlemen who were at all times ready for a discussion on the currency: the passing of this Bill would neither accelerate nor postpone that discussion. He was informed that a desire was entertained in Scotland for a general inquiry into the Banking system:—he did not know how-far that desire extended, but if Parliament should think proper to sanction such inquiry there was nothing in the present measure in any degree prejudicing such an investigation. The circumstances were these:—when Sir Robert Peel's Bank Act of 1845 was passed, he embodied in that Act certain provisions under which the banks issuing notes in Scotland were to state to the Revenue Department their claim to do so; and the Commissioners of Inland Revenue having ascertained from the bankers' returns what was the average amount of notes they had issued within a certain period, that Act became the standard for fixing their rights as to the issue of bank-notes and also of the amount of the authorised issue for Scotland. The amount of the authorised issue was something above £3,000,000. During a monetary crisis in 1857 one of the Scotch banks entitled to issue about £337,000 of that amount unfortunately failed. The issues thus lapsed could only be replaced by the issue of notes representing a corresponding quantity of coin in the tills of the existing banks. The Bank Act of 1844 contained provisions, so far as England was concerned, for replacing under certain conditions a given proportion of lapsed issues of private banks, and those provisions had been acted upon in two instances—but there were no corresponding powers embodied in the Scotch Act. Sir Robert Peel, in introducing the Act of 1845, explained why no such provisions had been introduced in relation to Scotland; and, in reference to a contingency of the very nature which had since arisen, suggested a remedy substantially the same as that which was now being submitted to the House. Sir Robert Peel said:— I may very fairly be asked the question, Suppose, from any similar circumstance, a void should occur in the circulation of Scotland, how would you supply it? It may be said, Suppose a bank should fail, and, in consequence, £200,000 be withdrawn from the circulation, you will have restricted the circulation for Scotland to that extent; or you will impose on it the necessity of getting an additional supply of gold."—[3 Hansard, lxxix. 1313.] 469 Sir Robert Peel referred to another point with which it was not necessary to trouble the House—namely, that private issues in England, unlike those in Scotland, were not allowed to amalgamate, or to become joint-stock banks, and went on to say:— Permitting the issues of the united banks to be equal to the issue of the two banks, if separate, I think you will take ample security against such a possible diminution of the circulation as I have adverted to. If any sensible diminution were to occur—if the total circulation of Scotland were suddenly to fall below the £3,000,000 to such an amount as to require the intervention of Parliament, there would then be no objection on the part of the Government to devise, or of Parliament to adopt, some other remedy. I believe, however, that for such a remedy there will be no necessity, for I think the permission we propose to give to unite and incorporate two banks will meet the difficulty."—[Ibid. 1344.] A difficulty such as was foreseen by Sir Robert Peel had actually arisen, and the remedy the Government proposed was supplied in this Bill;—it was the same remedy substantially which was already applied to England. There were lapsed issues to the extent of £337,000, and the Government proposed to authorize the banks which were now the issuers in Scotland to issue notes to that amount on payment to the State of £2 7s. 6d. per cent on the amount of those lapsed issues, relieving the banks, however, from the composition of 8s. 4d. per cent, which they were now liable to pay in respect of stamp duty. The consequence of this arrangement would be, that for those lapsed issues the Scotch banks would come under a new burden of nearly 2 per cent, to be received by the State, in addition to its present receipts, under the head of composition for stamp duty. It was proposed to divide these issues among the existing banks of Scotland, adopting as the standard of distribution the respective proportions in which during the last twelve months the several banks of Scotland had held coin against their bank-note circulation. Now, what was the state of the gold reserve in Scotland? When the Act of 1845 was passed, it was considered a matter of public policy to make some provision for the accumulation of a metallic reserve in Scotland, a certain proportion of which was allowed to be in silver, there having been no provision whatever for such a reserve either in respect of notes or of deposits before that period. For the four weeks ending the 3rd of January, 1846, there was in the possession of the several Scotch banks a metallic reserve of £997,000 in gold; and in silver £183,000, 470 making a total of £1,180,000. By the last return it appeared that for the four weeks ending the 9th of January, 1864, the returns of gold were £2,048,000, and of silver £302,000, making together £2,350,000. So that the metallic reserve of Scotland had almost doubled in the interval between those two periods. This large metallic reserve was, of course, a very heavy burden upon the Scotch banks, and it was very desirable that relief should be extended to them if it could be done to the general benefit and advantage of the State. Their metallic reserve was, as he had shown, £2,350,000, and their total circulation being only about £5,000,000; that was a larger metallic reserve in proportion than was required by banking establishments in England. At the same time, the diminution he proposed did not extend beyond the £337,000, and therefore the provision for metallic reserve in Scotland world be ample for all purposes of safety. He had spoken of the effect of this Bill as diminishing the metallic reserve to the extent of the issue authorized under the proposed Bill. Still, that would not be its direct effect. There was in the Bill nothing that required the diminution of the reserve. Still, it would be cheaper for the Scotch banks to issue Bank Notes at a percentage of £2 7s. 6d. to the Government, than upon the condition of keeping an equal amount of gold and silver in their coffers. The effect of the Bill would be to release a sum of £387,000 now locked up, and to make it available for the general purposes of the country and the world. There was a Bill, not yet before the House, but deposited at the Board of Trade, which was brought in by "the London Banking Company of Scotland," and the objects of which were twofold. The Bill sought to obtain a power of issue in Scotland as against coin similar to that which the present issuers of Scotland enjoyed over and above those authorized issues with respect to which they were not obliged to hold coin. The second object of the Bill was to lay hold of, so to speak, of the £337,000 of lapsed issues, and to grant to this particular company, the right of issuing notes to that extent. It was a very serious question whether any of the provisions of the Acts of 1844–5 ought to be touched by a private Bill. He was not prepared to give an opinion one way or another in regard to that Bill, except to say that it was not possible to recognize the principle that a lapsed private issue should be taken up by 471 a private body of persons, who could plead no traditions or vested rights. Nor did he think they would be able to show that the profit of this lapsed issue ought to belong to them rather than to the other members of the community. It would be the duty of the Government to object to that claim. He believed that the measure he now proposed would be acceptable to the banks, and to the public of Scotland. The measure simply applied to Scotland the principle already adopted in England—that the issue of paper notes was the property of the State, and that any lapsed issue was to be replaced only on condition that the profit should belong to the State.

§ MR. FINLAY
said, he could not agree with the Chancellor of the Exchequer that his proposal was likely to be acceptable to the people of Scotland. It seemed to him that it would only sanction and perpetuate the existing monopoly of the Scotch banks, which was very injurious to the public. This was a matter deeply affecting the people of Scotland, and he trusted that sufficient time would be given to enable them to judge of the scope and effect of the measure, and that the second reading would not be taken until a distant day. The people of Scotland viewed with great jealousy all interference with their banking system. Ever since Sir Robert Peel's legislation in 1845 they had lost the confidence in the banks which formerly existed, so that the Scotch banks no longer kept pace with those of other countries. He objected to piecemeal legislation on this subject, and thought it would be far better to deal with the subject by a general measure. He would suggest that the Bill should be referred to a Select Committee.

§ MR. KINNAIRD
wished to know, whether the Act would apply to all existing banks of issue?

§ THE CHANCELLOR OF THE EXCHEQUER
said, that all the existing issuing banks of Scotland would enjoy the privilege on the payment of £2 7s. 6d. per cent per annum. In reply to the hon. Member for Argyllshire (Mr. Finlay), he did not think the effect would be so large as the hon. Gentleman supposed. It would have no direct effect on the people of Scotland at large. The amount of circulation 472 would be the same after the passing of the measure as before; the only difference would be, that the sum of £337,000 would cease to be represented in its present costly manner. He proposed to take the second reading in ten days, and to allow a further interval before the committal.

§ MR. CAIRD
asked, Whether, in consideration of this payment of £2 7s. 6d. per cent, there would be involved any guarantee by the Government?

§ The CHANCELLOR OF THE EXCHEQUER
said, the note circulation in Scotland was so adequately secured that it would bear the limited change now proposed. The question of a public guarantee for the note circulation in Scotland was of a very extended nature, on which it would be impossible to enter except at a period when the House was engaged on the general subject of issue in Scotland.

§ SIR FRANCIS CROSSLEY
said, that he quite approved of the proposition before the Committee. It was sound in principle that the State, and not private firms or companies, should have the advantage of the interest of the circulating medium, which would go in reduction of the taxation of the country. When the Bank rate of discount became high, he suggested to the right hon. Gentleman the desirableness of allowing one pound notes to circulate in England. One pound notes had been of great service to Scotland, and he believed that if such notes were introduced into England the commercial classes would be greatly relieved thereby.

§ THE CHANCELLOR OF THE EXCHEQUER
was afraid that he could not engraft into this measure such a proposition as that made by the hon. Baronet. That was a very large question, and he was afraid it would occupy more time than the House would be disposed to give to it at the present moment.

§ MR. HUBBARD
understood the right hon. Gentleman to say that the circulation of the Scotch banks was adequately secured: he (Mr. Hubbard) never heard that the circulation in Scotland was secured at all, except so far as it was provided for by the large property engaged in the banking business of that country. He would take a currency to he adequately secured when based on a similar foundation to that of the Bank of England. There was no such security in Scotland. Of course, the banks in Scotland were popular; but so were all banks till they failed; and we had known Scotch banks fail ere now—in fact, the 473 very cause of the present Motion was the failure of a Scotch bank with a note circulation of £337,000. He would like to know in what way the right hon. Gentleman conceived the circulation in Scotland adequately secured.

§ MR. DALGLISH
said, two of the Scotch banks had failed; but the best proof that the Scotch banks were secure was the fact, that every farthing owed by those banks had been paid.

§ MR. CRUM-EWING
said, there never was a bank in Scotland which did not pay in full.

§ THE CHANCELLOR OF THE EXCHEQUER
said, he had no intention of stating that the circulation in Scotland rested upon the precise basis which he should desire, if the matter had been res integra, and they had had an open field to adjust everything. He had spoken merely with reference to the practical working of the system since the Act of 1845, and he believed the people of Scotland were satisfied with it.