HC Deb 18 April 1866 vol 182 cc1599-609

Order for Second Reading read.

SIR COLMAN O'LOGHLEN

, in moving the second reading of this Bill, observed, that although it was not a large and comprehensive measure it was one which to some extent affected the prosperity of the country. The banking interest in Ireland was subject to very improper and unfair restrictions, and this fact supplied one mode of explaining why the resources of Ireland had not been properly developed. It was calculated that in England, with a population of about 20,000,000, the issue of bank notes was about £26,000,000, and in addition there was a large circulation of gold, amounting to at least one sovereign for every head in the kingdom. In Scot- land, with a population of 3,000,000, the circulation of notes was about £4,000,000; while Ireland, with a population close on 6,000,000, the actual circulation of notes was only £5,500,000. The small notes in Ireland had put sovereigns altogether out of circulation, and bank notes actually represented the present circulating medium in Ireland. The object of this Bill was first to make Bank of England notes a legal tender in Ireland; and secondly, to remove some restrictions on banks of issue in that country with respect to their notes. At present there was no legal tender in Ireland except gold, while in England bank notes were a legal tender. In Ireland gold had to be given for notes, and the consequence was that in times of panic or excitement it was necessary that considerable importations of gold should take place from England into Ireland, and this involved a serious tax on the bankers of Ireland. Every £100,000 of gold cost the Irish banker 7s. per cent, or £350, for insurance and other charges. He now proposed that bank notes should be made a legal tender in Ireland, although he should prefer that Imperial notes should be made a legal tender in England, Ireland, and Scotland, That would be the proper principle—that there should be one department for the issue of Imperial notes, just as there was for the coining of gold. We might still preserve a metallic basis for notes, and banks of issue would not be prejudiced, because they might get Government notes on certain terms. It had been suggested that the notes of the Bank of Ireland might be made a legal tender, but there were several objections to that proposition. In the first place, the Bank of Ireland was a private bank, and it was not bound, as was the Bank of England, to issue notes for gold. The Bank of Ireland might decline to issue a single note, and the note of no bank should be made a legal tender which the public could not claim to get as a right in exchange for gold. Moreover, the past history of the Bank of Ireland was not such as to give them any claim for a preference for any privilege of their notes. In place of acting as a banker's bank, which ought to have been their policy, their issue had always been from a million to a million and a half under their authorized issue. On a question of this kind the interest of the public and not that of any particular bank should be regarded. It would be of the greatest advantage to make Bank of England notes a legal tender 111 Ireland, as they were now frequently at a discount of from ⅛ to ½ per cent in that country, and the Bank of Ireland had refused to take Bank of England notes, which they could not have done had such notes been made a legal tender. It had been objected against his proposition that there was ready communication between England and Ireland, but he did not see the force of that observation, as Dublin was now practically nearer London than were many parts of England in 1834, when the Bank of England notes were made a legal tender in England. The alteration he proposed would lead to free trade in banking in Ireland, instead of banks not of issue in Ireland being completely at the mercy of the Bank of Ireland. They were told that the Bank of England did not ask for the concession made in 1834, and that the two directors of the Bank who then enjoyed seats in Parliament said it would be of no advantage to them. But as the Bank of England possessed great rights, it had also great duties. The Bank was bound to issue notes for every bit of gold brought into it, and it obtained a profit of 1½d an ounce upon the transaction. At one time the Bank of England note was a legal tender in Ireland, according to the opinion of the Law Officers of the Crown which was taken upon the question. He would conclude his observations on this part of the Bill by remarking that the proposed change had been approved by the Royal Bank and the Belfast Banking Company, and a petition in favour of this Bill had been presented from the last-named bank, which had more branches in Ulster than any other bank. The second object of the Bill was of a less extensive character. Under the Act passed in 1828 banks of issue in Ireland were obliged to make their notes payable at the place at which they issued them, and this had led to serious inconvenience. At the time that Act was passed the Bank of Ireland enjoyed a monopoly of issue within fifty miles of Dublin, and the main object of the provision was to prevent any evasion of the rights of that bank. But in 1845 the monopoly of the Bank of Ireland within fifty miles of Dublin was done away with, and, therefore, there was now no object in requiring banks of issue in that country to make their notes payable at their branches, more particularly as such a provision acted most injuriously on the banks of issue and on the country at large. By the present system banks of issue were compelled to keep £120,000 in gold lying idle for every £100,000 of notes issued, to the great loss of the bankers. If such banks were authorized to make their notes payable at their head offices only, they would keep all their gold at that office, and they could then use it with profit by issuing notes against it. This system also prevented the opening of branch banks, because if notes were issued at a branch bank that establishment must be open every day to receive; its notes when presented, though perhaps in many small towns the ordinary business of the place would not require the bank to be open more than two or three days a week. By the proposed change, the law of Ireland in this respect would be assimilated to that of Scotland, and thus a great restriction on banking facilities would lie removed. The effect of the difference in the state of the law in Scotland and in Ireland in reference to banking was clearly shown by a Return laid before Parliament last Session, from which it appeared that while in Ireland, with a population of nearly 6,000,000, there were only 101 branch banks of issue, in Scotland, with a population scarcely more than 3,000,000, there were 594 branch banks. The Irish system did not give any increased value to notes issued there, whilst there was considerable disadvantage in times of disorder, in having depôts of gold scattered over the country. In 1837 a good deal of evidence was given before a Committee by important men, who all agreed as to the inconvenience of the present system, and he for his part could see no great reason in adhering to it. In bringing forward this measure, he felt bound to state that he did nut wish to stand or fall by any portion of the Bill; and should the Chancellor of the Exchequer not see his way to accepting the first portion of the Bill, he should be quite ready, in the event of the Bill being read a second time, to abandon either that portion in Committee, or to withdraw the present Bill and to bring in a fresh one having reference to the second portion only, which related to the restriction of the banks of issue. In case the pressure of public business had been so great as to prevent the Chancellor of the Exchequer from considering the question, he should not object to postpone the discussion on the subject for a month or six weeks. But if there* was not time to carry the measure during the present Session, he did not see what chance there would be for it during the ensuing Session.

Motion made, and Question proposed, "That the Bill be now read a second time."—(Sir Colman O'Loghlen.)

THE CHANCELLOR OF THE EXCHEQUER

, while acknowledging the courtesy of his hon. and learned Friend in offering to postpone the discussion upon the Bill for the convenience of the Government, was afraid he could not conscientiously acquiesce in his proposition to postpone this Bill to some future period of the Session, inasmuch as he could not see any prospect of the horizon of public business being any way clearer a month or six weeks hence than it was at present. He was in no degree surprised that his hon. and learned Friend should feel some impatience with reference to the present state of the law of banking in Ireland, and that he should be prepared to resist the dilatory plea that they were too busy just now to deal with the matter. He could, however, assure the hon. and learned Gentleman that the Government, in conjunction with gentlemen who had paid great attention to this subject, had carefully considered the provisions of the Bill before the House. Had it been in their power consistently with their duty to the public to have assented to the Bill they would undoubtedly have done so, but he would proceed to state the reasons which had unfortunately led them to refuse their assent to it. His hon. and learned Friend said he was willing to enter into an engagement either to drop the first portion of the Bill in Committee or to withdraw the Bill altogether, and to introduce a fresh Bill having reference to the second portion only of the Bill. It would, however, undoubtedly be a very objectionable proceeding were the House to assent to the second reading of a Bill with the view of casting out its principal part in Committee. He would briefly state the reasons which he thought were conclusive against both portions of the Bill. In the first place, as to the proposal to make Bank of England notes a legal tender in Ireland, the hon. Baronet said that in order that the Bank should have no just cause of complaint, he did not propose to oblige the Bank of England to open any branches in Ireland, and he thus deprived that Bank of any proprietary or commercial objection to the Bill by which otherwise it might have been seriously affected. But he (the Chancellor of the Exchequer) considered that, as regarded the interests of the public generally, such an arrangement ought not to be established. Indeed, it appeared to him that the hon. Baronet had, by his own speech, cut the ground from under his feet, because he said that it frequently happened when the Irish market for stock did not afford a purchaser, and when it was the interest of the seller to send his stock to London for sale, he obtained in London Bank of England, notes in payment, and that arriving in Dublin with those notes he was obliged to submit to a discount of one-eighth per cent. That, in itself, was a sufficient answer to the first portion of the Bill. He was anxious, however, to show that the Government meant more than mere empty words when they said that the state of the banking law of Ireland required some modification. He entirely agreed that by the present system the operation of the banks in Ireland was much restricted, and that there was ample reason for approaching the question. He would, however, remind the hon. Gentleman that the question was not one which could be approached with advantage at all times. Upon a recent occasion he drew a distinction between questions which ought to be treated upon local grounds, and such as ought only to be viewed upon Imperial grounds. Now the Bill before the House involved a question of a strictly Imperial character. It was quite true that there were three different systems of laws in operation in England, Scotland, and Ireland, and he was far, indeed, from saying that those systems might not be reduced to one with advantage to the country. Parliament could not settle the law in any one country without considering how it would affect the state of the law in the other two, and consequently any proposal in regard to the currency in Ireland must be considered not merely in regard to its effect there, but also to its effect in Scotland and England. The last successful legislation upon the currency took place in 1844, and was one of the principal achievements of the late Sir Robert Peel, at a time when he was at the head of one of the strongest Ministries that had existed in England for many years; but even to him it was a matter which tasked his strength and the strength of his Government to the uttermost to carry through the Acts of 1844 and 1845. It was plainly impossible to deal with the question of currency at large at a period when not only was the time of the House taken up by matters of absorbing interest, but when likewise false issues would necessarily enter into and darken and disturb the calm and impartial views with which they ought to consider a question of this kind. Thus much he had said in justification of the Government for continuing to delay the attempt to settle these questions. For himself, he must say that there was no one subject which he should have been so desirous of bringing under the consideration of the House during the present Session as the state of the law with regard to banking and the currency had he not felt the claims of other and higher questions to be such as to put it quite out of the question. His hon. Friend asked him, "Will you, or will you not, assent to a proposal for releasing Irish banks from their present obligation to make their promissory notes expressly payable in gold to the bearer on demand at the place where the same were issued?" His hon. Friend proposed that these banks should be only compellable to pay their promissory notes in gold at the head offices, and he thought he had established a case for the adoption of such a proposal when he showed that gold was now required to be kept at the branch banks which would not have to be kept there if the law were relaxed. He added that a certain expense was entailed on them by the requirement, and that he had the countenance and support of most of the respectable bankers in Ireland in the proposal he now made. He (the Chancellor of the Exchequer) did not. wish to dispute any of these propositions, though he might observe that Mr. Murray, whom his hon. Friend had quoted, when examined in 1848 before the Select Committee on Commercial Distress, said that this provision was a hardship, not because it necessitated the keeping of large stocks of gold at the branch offices which for their own security they would always do, but because it necessitated the constant transmission and re-transmission of notes of different branches to the place of issue. Mr. Murray entirely disclaimed the notion that a greater quantity of gold had to be kept in the branches in consequence of this proviso. He could not admit with his hon. Friend that it was self-evident. or anything near self-evident, that some relaxation ought to be introduced in the obligation of the Irish banks to pay their notes in gold at their branch banks, for such a proposition appeared to him a very disputable one, to say the least. It was obvious that the first tendency of his hon. Friend's proposal would be to impair the convertibility of the notes. Now, let them consider what the law was. It was not excessively severe. It did not require banks which had branches, perhaps, all over Ireland to meet their notes in gold wherever they had places of business, but it bound them to meet the notes at the place where they issued them. His hon. Friend, however, complained that in Scotland there was no obligation upon the banks to convert their notes into gold at the places where those notes were issued. But his hon. Friend must recollect that whenever the Scotch system was made the subject of adverse comment the defenders of that system invariably replied, and replied, he believed, with truth, that, whatever it might be in the abstract, it had in practice peculiar defences, which were known nowhere, else, those defences consisting in the plan of periodical and constant communications and interchange among the different banks of the notes which they respectively issued. Whether that was a sufficient argument under all the circumstances to show that the Scotch system was a good one, he would offer no opinion upon, but he must say that it established a very broad distinction between Scotland and any other country where that arrangement did not exist. He now came to England, and what was the ease here? The Bank of England was compelled to pay the notes which it issued at its branches, either at those branches or in London, and with respect to the country banks he believed he was correct in saying that, though the local issues were under no legal obligation on the subject, they found it necessary for the safe conduct of their business to make the notes they issued at their branches payable either there or at the head office. The rule, therefore, which his hon. Friend sought to remove in Ireland existed in practice in England likewise. He might, indeed, be told "Put us under no obligation, as you have none m England;" but he must not be expected to admit that whatever existed in England or Scotland was to be cited as a pattern for legislation in Ireland. The legislation of Sir Robert Peel did not proceed upon that principle; he did not attempt to make the entire details of the currency system conform to abstract principles. All he aimed at, even with the great effort he made under such favourable circumstances, was to secure as most vital and most essential the convertibility of the Bank of England note and security against excessive issues, with the good regulation of foreign ex- changes. The system which he found existing in the private banks he was compelled to compound with upon the best terms he could make; and therefore the Government must not be expected to admit that because one country happened to have an exemption which the others did not enjoy, therefore the exemption ought to be extended to all. His hon. Friend had put forward an argument which rather rested upon an oblivion of what was the main governing circumstances in all these questions relating to private issue. If there was private issue with an open system, if there prevailed what some people called, though he did not, "free banking"—every man being allowed to issue as many notes as he pleased, and to get all the people he could to accept them—then the supporters of this Bill would be able to say that the issue of notes was thrown open to general competition, and the trade being so thrown open ought to have every facility Parliament could give it. But this was not the case. That general competition had been entirely put an end to by Sir Robert Peel, and at present a monopoly existed. Monopoly was an odious word, but it was the only expression which would indicate the fact. An exclusive privilege existed in the hands of certain parties, and those parties were not in a position to come forward and say, "These provisions pinch us a little here and a little there; take them away; it will do no harm, and the public will get the benefit." If there was an open trade, his hon. Friend might be justified in saying, "Relieve these branches from the expense of transmission and of keeping so much gold, and the public will reap the benefit;" but, it being strictly of the nature of a monopoly, the primâ facie ground for asking Parliament to enter upon a partial examination of the law entirely disappeared. His hon. Friend did not attempt to meet the whole of the case. He argued that private banks ought to be allowed to come to London and pay their notes and transact their business here without the intervention of agents, and he (the Chancellor of the Exchequer) quite agreed with him. That, in his opinion, was a much clearer proposition than that propounded by this Bill. Whether any relaxation could be introduced into the law on this subject he was not now prepared to say, but it was most important that a man who had received a note should be able to exchange it for gold at the same place. Any change in the law, however, which would enable every bank to do business wherever it pleased, and would enable country banks to transact business in the one grand centre of monetary business for every dealer in money throughout the three kingdoms, was the most important subject to which the attention of Parliament could be drawn. He hoped he had said enough to show his hon. Friend that the Government were not unreasonable in stating that this was a question to which they must apply the same principle that they applied in analogous, if not strictly corresponding, cases. They could not undertake to deal with any portion of the law bearing upon the position of bankers until they were able to review the position as a whole. He need not go into the details of the scheme, but he was perfectly certain that the Bill would immediately raise questions from Scotland, and probably from England also. They would be dragged on to legislate from point to point without reference to any general principle. The result would be that, instead of making their currency system more consistent and harmonious, more conformable to sound principles, and at the same time better adapted to promote the free banking, which he agreed they ought to promote as far as possible, they would lose much of the ground that they had already gained, and would be plunged into a sea of perplexities. He could assure his hon. Friend that Her Majesty's Government were as anxious as he was for the time to come when they would be able to legislate for the subject as a whole, but they were unable to agree to the second reading of this Bill, and he trusted the hon. Gentleman would not be disposed to press it to a division.

MR. THOMSON HANKEY

said, that if any objection had been raised by the Bank of England with regard to this subject it would have taken the form of an official communication from the Governor to the Chancellor of the Exchequer, but no such communication had been made. Begging the House to understand that he was only expressing his individual opinion, and without reference to his connection with the Bank of England, he wished to make a few remarks upon some observations offered by the Mover of the Bill. He appeared to have an idea that the Bank of England were rather anxious to evade the kind of responsibility devolving upon them in consequence of the privileges they en- joyed of supplying notes for the whole kingdom. Now, the Bank of England were undoubtedly bound to supply any quantity of notes that were required in exchange for gold, and they did not at all shrink from that obligation. His hon. Friend, however, seemed to think it would be an advantage to the Bank to have their notes made a legal tender in Ireland, as it would necessarily lead to the establishment of a branch or branches in Ireland where those notes should be exchanged. He believed, however, that the Bank of England, while much obliged to the hon. Gentleman, were quite willing to confine their operations to England, and had not the least wish to incur the serious expense of an establishment in Ireland. Their interest in their circulation was limited to fourteen or fifteen millions, and every shilling of their circulation beyond that was an expense, though it might not be a heavy one, for they were obliged to keep gold under their charge, and to have a constant system of coinage. He should like his hon. Friend to look over their bills, and sec whether such an establishment could be carried on at a less expense than nearer £300,000: than £200,000 a year. To introduce a large number of their notes into Ireland would involve additional expense, though, if they were bound to do so by their charter, they would not flinch from it. The hon. Gentleman appeared to have a notion that the more bank notes he could get into Ireland the richer Ireland would become, but the idea of the hon. Gentleman was altogether chimerical, Bankers did not create capital, and if the capital of Ireland increased, an increase of circulative capital in the shape of notes or gold was sure to follow. The banking interests of Ireland were sufficient to afford facilities for carrying on the trade that at present existed, and if more English capital was introduced into Ireland it would be easily made available. The first part of this Bill proposed to make Bank of England notes a legal tender in Ireland, and the second part proposed to make notes issued in one place payable at another. But the Chancellor of the Exchequer had so fully stated his objections to the Bill, that it was not necessary for him to say more.

SIR COLMAN O'LOGHLEN

said, that after the observations of the Chancellor of the Exchequer, he should not proceed further with the Bill.

Motion, by leave, withdrawn.

Bill withdrawn.