BANKS OF ISSUE.—RESOLUTION. (Hansard, 10 February 1865)

§ THE CHANCELLOR OF THE EXCHEQUER
I rise, Sir, for the purpose of proposing two Resolutions, which, if adopted by the Committee, will be the foundation of a Bill which it will be my duty to introduce; and I will now proceed to explain in a few words the nature of these Resolutions. But first of all, I will make a few statements which will tend to obviate any misapprehension or exaggeration as to the nature of this proposal. In the first place, this is a proposal which does not bear in any material or palpable manner upon any of the important questions connected with the issue of bank notes. It is not properly to be considered as a currency measure. In the second place, it is 151 not a measure which will in any respect interfere with existing privileges or legal arrangements, except by offering to those parties who may be so disposed the opportunity of modifying their position when they think fit. The Bill will create a new legal position for those banks of issue which may be disposed to avail themselves of its provisions. And here it may be well that I should remind the Committee of the present state of the law with regard to the issue of bank notes in England and Wales by banks other than the Bank of England, as left by the Act of 1844. That Act left the issuers of bank notes in possession of the privilege which they had theretofore exercised, without giving them, however, the assurance of the continuance of its possession for any given time, and imposed upon them a limitation with respect to the quantity of the issues which they were at liberty to make. Connected, however, with the benefit of the power of issue were very serious burdens. Their banking business, which, but for the power of issue, they would be enabled to carry on without any restraints or limitations whatever, was placed by the provisions of that Act under very serious restrictions. What happened has been this. Some banks possessed of the right of issue found themselves so much hampered in the exercise of their banking functions by those restrictions that they have shown a disposition to escape, if possible, from their operation. I think about three or four years ago an application was made to the Treasury, requesting their sanction, in the case of an important issuing bank, for the removal of the banking restrictions imposed by the Act of 1844. The answer of the Treasury to that application was that we could not undertake to reconsider the restrictions imposed upon the banking functions of issuing banks by the Act of 1844 without also reconsidering their position with respect to issue, because the benefit of issue and the banking restrictions were correlative one to the other in the intention of the Act. At a later period a further application was made to me on the part of the National and Provincial Bank. That bank is invested with the privilege of issue to a very considerable amount, and it likewise carries on very large banking operations, which are widely diffused over the surface of the country. The National and Provincial Bank has signified to Her Majesty's Government its willingness and desire to purchase relief from the restrictions of the 152 Act of 1844, by consenting to modify their privilege of issue. Of course, it did not properly appertain to the Directors of that bank to speak on behalf of parties other than themselves; but finding no reason to decline the consideration of the question upon the general basis upon which it had been proposed, I felt it would not be possible to ask Parliament to pass a Bill for allowing that particular bank to place itself in a new position without offering a similar opportunity to such other issuing banks as might be inclined to avail themselves of it. That is a short history of the reasons which have induced me to lay the Resolutions upon the table. Now, what are the leading points of difference between the present position of issuing banks in England and Wales, and the new position that would be created by this Bill for such as may choose to act under its provisions? By the present law a bank in possession of the power of issue is prohibited from the transaction of banking business in London—that is to say, the transaction of business through a regular establishment. It is also prohibited from the issue of notes in London; and if it be a joint-stock bank, it is prohibited from the issue of notes anywhere within a radius of sixty-five miles from London. It is also prohibited, if a private bank, from extending the number of its partners beyond six, and consequently from resolving itself into or amalgamating with any joint-stock bank. The present issuing banks are also liable to the intervention of Parliament, at any moment when Parliament may think fit, for the termination of their power of issue. They have been so liable since 1844, nor have they any title to anything in the nature of compensation should Parliament interpose to stop their power of issue. They are also under a further restriction, which is that they are not permitted to transfer the right of issue which they hold from one issuing bank to another. That valuable privilege of issue to a certain extent is a privilege which they can enjoy themselves, but they cannot carry it over to anybody else. These are the burdens from which the Bill I am now introducing would release any bank coming under its provisions. For example, the National and Provincial Bank—which, I believe, I may with propriety speak of as willing and desirous to come under the provisions of the Bill—would have power to open a banking establishment in London, and to pay any of its notes in London, but not to 153 issue them there, or within three miles of London. It would have power to issue in any other part of England or Wales. Being a joint-stock company, it would be released from any restraint as to the number of partners, and any private bank pursuing the same course would be released from the same restraint. Further, the proposal of the Bill is that the banks coming under its provisions should take what I may term a lease of issue for a given number of years, with a provision that in case Parliament should see fit, upon any grounds of public policy, to withdraw that right of issue, within the term of years so fixed, it should only be withdrawn upon payment of a compensation for the loss which would be sustained by the withdrawal. The banks thus coming under the Act would likewise obtain power to purchase the right of issue possessed by other bankers; and when I said just now that this Bill would not affect the legal status of any persons, except those who place themselves under it, I ought, perhaps, to make a slight correction in that statement, for it would so far alter their status that every one of the existing issue banks would be empowered to sell its privilege of issue to any banks coming under the provisions of the Bill. Finally, in consideration of this lease, the banks coming under the provisions of the Bill, in lieu of the comparatively small sum they now pay as a compensation for the stamps upon their notes payable on demand and for their licence duty, would be required to pay to the State the sum of £2 5s. per cent upon the amount of their issues, to be ascertained from time to time in the manner directed by the Bill. These are the principal provisions of the measure which I propose to introduce. There is another provision as to the mode of dealing with this right of issue in the event of the bankruptcy of any bank coming under the Bill; but perhaps that is a point of detail to which I need not now refer particularly. I only mention it as a reason for the Resolution which I shall have to propose, making a charge upon the Consolidated Fund. In the event of the bankruptcy of any bank which has placed itself under the operation of the Bill, it is provided that a certain regulated amount of compensation should be payable to that bank in respect of its right of issue, rather than that it should be dealt with as an asset, which would be attended with great inconvenience; and as such compensation would, of course, be 154 paid at the expense of the State, a provision is necessary making it chargeable upon the Consolidated Fund. I do not know that I have any further explanation to give, and I will only now place before the Committee the first of the two Resolutions of which I have given notice— That it is expedient to make provision for empowering Country Banks of Issue to obtain relief from certain restrictions, upon payment from time to time of a certain charge in respect thereof.

§ MR. CAVE
asked for further information as to the proposed compensation for issues in the event of the bankruptcy of any bank which had availed itself of the Bill.

§ SIR HENRY WILLOUGHBY
thought that sufficient time should be given to every bank of issue to clearly understand the propositions contained in the Bill. He wished to know what steps would be taken to acquaint the banks with these proposals?

§ THE CHANCELLOR OF THE EXCHEQUER
In answer to the hon. Member for Shoreham (Mr. Cave), I may say that under this Bill a lease will be granted to the bank taking advantage of it—a distinct lease for a term of years. A distinct right, something in the nature of property of a definite character, would thus arise. If that be so, and such a bank became bankrupt, primâ facie that right of issue, during the remainder of the term, ought to become an asset available for the benefit of creditors. But there would be considerable public inconvenience in making it an asset purchasable by anybody, for thereby new issuers would be introduced into the field, and Parliament would have no opportunity of judging of the character of those parties. I do not think that Parliament would desire that the privilege of issue should be made an instrument for the starting of new bodies in that description of business. On the other hand, if we were to say "this is an asset, but it shall be only purchasable by those who are lawful issuers already," the practical effect would be to deprive that asset of all advantage. That being so, the most convenient course seemed to be to provide by law that the right of issue should not be treated as an ordinary asset, but that the assignees in bankruptcy should receive in respect of it a regular amount of compensation, payable on the same principle as the compensation now given to the banks surrendering the privilege of issue.

§ MR. CAVE
But surely—and become valueless? The right of issue would lapse upon bankruptcy?

§ THE CHANCELLOR OF THE EXCHEQUER
No doubt it would lapse. The matter is one which may, perhaps, be more conveniently considered hereafter, and it is entirely collateral to the main objects of the Bill; but if we constitute this leasehold interest, I think we ought, in fairness, to provide that it shall not become wholly valueless to the lessee simply on the ground of bankruptcy. In answer to the hon. Baronet the Member for Evesham (Sir Henry Willoughby), copies of the Bill will be ready for distribution upon the Report of the Resolutions; the second reading will be taken on an early day; and I should only propose to go into Committee after two or three weeks, so that time will be afforded for the consideration of these proposals. As I have said, it is entirely a voluntary Bill; but, of course, it is desirable that the provisions of the measure should be clearly understood, and that all those who are invited to come under it should have the opportunity of considering whether it is well adapted to effect the object in view.