HC Deb 25 February 1879 vol 243 cc1754-73

, in rising to call the attention of the House to the subject of deposits in the banks of the United Kingdom, and to move— That, in the opinion of this House, it is worthy of the consideration of Her Majesty's Government whether a moderate and discriminating scale of Stamp or composition Duties may, with advantage to the interests of the Country and of the Banks, he hereafter applied to all interest-hearing deposits in the Banks of the United Kingdom, and whether a Bill on that subject should he introduced to Parliament at an early date; said: The subject to which I desire to draw the attention of the House to-day is not one forced upon my own mind by the contemplation of those recent financial disasters which may be said to have culminated in, rather than to have commenced with, the failure of the City of Glasgow Bank. I feel it due to myself to say this, and to remind the House that in a period of profound repose— when no one dreamt of the failure of the City of Glasgow Bank, and none outside its walls suspected its solvency— on the 16th of May, 1876, I occupied the attention of the House for above an hour in demonstrating, or to the best of my ability in endeavouring to demonstrate, that the system of banking credit which prevailed in the United Kingdom was of a nature which of necessity must produce at irregular but constantly recurring intervals the panics and crises, with the appearance of which most of us are unhappily familiar. I have no intention of going over the same ground in the same terms as those which may be found in Hansard of 1876, because many of the results and conditions which I then predicted as likely to arise have so lately come to pass as to be actually within our present cognizance, and the recency of such occurrences enables me to dispense with all such arguments as were of the nature of foreboding in 1876. My main contentions are that the system of deposit credit which has grown up in the joint-stock banks of the United Kingdom is essentially unscientific and practically unsound, and that the tendency of the evil is to increase and not to cure itself, as some people imagine that such things are likely to do if left to themselves. There are, as I estimate, about £300,000,000 to £400,000,000 sterling of deposits held by the various joint-stock banks of the United Kingdom on which these banks pay interest to the depositors. The great bulk of these deposits is again lent by the banks, and employed by the borrowers in carrying on the trade, manufactures, and other enterprizes of the United Kingdom. If we were not to look beneath the surface, as we are now about to do, I admit that things in ordinary times look natural and sound enough; but when we examine the conditions under which these £300,000,000 or £400,000,000 are borrowed and again lent, we find a state of things singularly unstable, and, as it has always appeared to me, actually dangerous to the interests of the trading community of the Empire. The instability and the danger arise from the three following conditions, which are inherent in the present system:—First, the banks which borrow the £300,000,000 or £400,000,000 at interest undertake to repay the depositor in each case, either on demand or at a very few days' notice. Second, the condition under which the banker borrows the money being to pay interest upon it, he is necessitated to re-lend it at interest to someone else at a somewhat higher rate than that which he himself pays, or to invest it in some security on his own account. Third, there is not a sufficiency of solvent borrowers to take from the banker on discount of trade bills anything approaching the large amount which the banker has to lend; nor can the banker lend what he does lend on terms—as to repayment on notice—as stringent as those to which he has himself submitted. Now, these are the three conditions which constitute, or out of which arises, the unsoundness which needs legislative intervention. I maintain that it is unsound business for any man, whether banker or not, to borrow at interest money which he may be called upon to repay at an earlier date than he can be certain of having the means of repayment, and that which is unsound in principle on a single transaction cannot be sound by being multiplied into a thousand or a million of such transactions. But what the present system amounts to is simply the multiplication of the first unsound transaction by thousands or tens of thousands in reliance on an assumed and unscientific doctrine of chance, that while business is kept going there will be always sufficient coming in, or which may be made to come in, to meet outgoings and repay depositors. I grant that under the normal condition—a fair trade, and a clear political horizon—not only is there no difficulty, but there is a great ease in carrying on the business of the country under the system which prevails; but that very fact adds most seriously to the difficulties which arise in seasons unfavourable to the trade, manufactures, or agriculture of the Empire. People hope that a system which has gone on for many years doing much good may go on for ever doing but little harm. I do not take this view, quite the contrary; but, nevertheless, I say that it is still possible, without any great organic change, without any shock to credit—without any injury to existing interests—nay, with immediate and enormous benefit to those interests, to guard against and obviate the dangers and disasters which, if not guarded against, before very long will, I apprehend, prove inveterate and irremediable. It must not be supposed that the only evil, or even the chief evil, is that which is developed when a bank fails; a tremendous amount of injury is done to the interests of traders by the means which, under the present system, are had recourse to to prevent a bank from failing, and these means or measures become indispensable solely in consequence of what I will describe as the improvident system under which money is borrowed by the banks from their depositors, and the consciousness on the part of bank directors and managers that it is of vital importance to them, and, therefore, a kind of duty under the present system to maintain an appearance of prosperity in adverse times, lest their credit suffer in the minds of those whose moneys they hold, reclaimable with interest on demand, or at a few days' notice. I do not wish to repeat myself in this House; but if hon. Members desire to learn my views as to the origin and growth of the several financial panics of the last half-century, they will find them set out in Hansard's report of my speech in May, 1876. I have nothing to vary, and but little to add to the history there told. What has since happened in Glasgow, South Wales, and elsewhere, is in my opinion only a natural sequel to that history. The frantic efforts of the City of Glasgow Bank for the last 10 years to appear prosperous, originated, no doubt, from the consciousness of the directors that the bank was at the mercy of depositors who might recall their moneys at a few days notice. Even at a period when they may have been solvent, and before their capital was irretrievably lost, this reverse was by no means improbable if they confessed to any impairment. I will, however, treat the City of Glasgow Bank as an exceptional case. I found no argument, and point no moral out of it at present, save to this extent—that it proves the terrible expedients to which directors will have recourse to avoid reducing their dividends. But now the question arises, how are we to deal with a state of credit which has grown up about us, and how are we to deal with the business and interests of institutions of such importance as the joint-stock banks of the United Kingdom? Well, Sir, I think I see the way to do so without doing any violence to the principle involved in the right of private contract, and not only without injury to existing banks, but with great and incalculable advantage to those institutions whose interests I not only do not disregard nor underrate, but desire in every reasonable way to protect. Now, the process whereby the results, which I desire to bring about, may be reached is essentially simple, and it is one quite in accordance with the principles of our present laws of contract and of finance. We all know that a bill of exchange is not a lawful instrument in the United Kingdom, unless it has impressed upon it—or in the case of foreign bills negotiated in this country affixed to it—a stamp denoting a duty paid to the State at the rate of 1s. per cent—that is to say, at the rate of 1s. for each £ 100 of the amount of such bill without regard to whether the currency of the bill is for 10 days or 12 months. Thus a £100 bill pays a 1s. stamp duty, a £500 bill 5s., and so on. There is, however, another system of duty applicable to bills and notes by which the duty is not calculated nor levied upon the amount of each bill or note separately, nor represented by a stamp impressed or affixed. That other system is that which provides that a composition duty shall be levied in lieu of stamp duty on all bank notes in circulation, and on bankers' bills, which are permitted to be issued without any stamp impressed or affixed. The composition duty now known to the law is levied at the rate of 7s. per cent per annum on the average amount of the bank notes or bankers' bills which the bank has in circulation during the year for which the duty is payable. Now, what I recommend being done in the case of interest-bearing deposits is to adopt the principle involved in both systems to meet the varying conditions under which interest-bearing deposits are accepted by bankers. I wish to introduce certainty and forethought into the system of taking deposits. I start with the assumption that if any solvent man, banker or anyone else, borrows money on which he pays or agrees to pay interest, he must, in order to indemnify himself, invest the money in some security, negotiable or otherwise. I next say he should know absolutely when the money he borrows will become payable by him, and he should be prepared to pay it on the day of maturity. I assume that there is a period within which a banker will have time to turn his money—that is to say, to employ it profitably and to repay it without difficulty. I assume such a period to be three months. I assume that the great bulk of the deposits in the banks of the United Kingdom could and would be as well fixed by the depositors at renewable periods of three months as they are now at a few days' notice; but, although I assume this, I am not about to propose that any hard-and-fast line of three months, or any other period should be adopted. I simply propose to make it for the advantage of the depositor, if it be convenient for him to do so, to lodge his money for three monthly periods, renewable by him at his option, and without trouble of any kind. I will now endeavour to explain how all this may be done consistently with those principles of free contract which no hon. Member of this House would more jealously watch over than I would myself. The State has always exercised the right of imposing a tax on contracts in the nature of a stamp duty or a composition duty, in lieu of a stamp impressed or affixed. Ordinary bills of exchange pay a stamp duty at the rate of 1s. per cent, and this duty is quite as high on a bill payable at three days' date as on one drawn for three months. It is the practice of business that the man to whom credit is given by taking his bill, or one for whose accommodation a bill is issued, pays the stamp duty. In the cases of bankers' notes there is no stamp impressed or affixed; but the banker pays a composition duty in lieu of stamp duty on his notes and post bills in circulation, at the rate of 7s. per cent per annum on the average amount he has had in circulation during the year. I mention these facts, and the state of the law in these respects, in order to be able to show as I proceed that the changes which I recommend for adoption are no violation of the principle of freedom of contract, nor any innovation of principle whatsoever. If a banker pays a composition duty at the rate of 7s. per cent per annum on the bank post bills which he draws, payable at seven, or 10, or 15 days, or any other date, there is no violation of principle in subjecting him to a far lighter composition duty in respect to the average amount of credit which he may obtain by the issue of his deposit receipts. I confess, however, I have no object of raising Revenue in view. I simply seek to introduce a principle of order into the system of interest-bearing deposits, for the protection of bankers and the public alike from the fitful and panic-breeding conditions which have insensibly grown up throughout the whole of the United Kingdom. I propose that in future there shall be two classes or kinds of deposit receipts established by law for bankers—the one which I would call the statutable deposit should be issued repayable at three months from the date of the deposit, and if not demanded at its maturity should be again fixed as payable at three months from the day of maturity, and so on from time to time, being, in fact, a three-monthly renewable deposit. I would have the banker to pay some duty on all such deposits—say, for example, 2s. per cent per annum—that is to say, 6d. per £100 for each three months, as a composition in lieu of stamp duty on the average amount he held of money during the year on these statutable deposits. This impost would fall solely on the banker, and would be paid by him in the same manner that bankers now pay a compo- sition duty in lieu of stamp duty on their bank post bills or bank notes in circulation. I assume that in this new class of deposits the banker would derive sufficient advantage from the nature of the contract that he could well afford to pay the 2s. per cent per annum to the Crown on such transactions. But then the question arises, how are we to deal with these depositors who are not satisfied to lodge money at three months with their bankers, but who wish to lodge it at one month, or at 10 days' notice, or at some other currency? Well, there is nothing complicated in my plan. I propose that in all such cases the depositor, and not the banker, should feel the incidence of the duty, and that he should have 6d. per cent deducted from the interest payable to him by the banker for each period less than three months and as fixed by himself for which he had lodged his money. The banker would, of course, be merely a receiver of the duty to pay it over to the Crown, and there would, of course, be a provision that the duty should never operate as a greater charge than could be provided for out of the accrued interest. Now, that is the sum and substance of my plan, free from all mere technical detail. The advantages which I foresee would arise from this system are very great indeed. I believe the three-fourths, probably the seven-eighths, of the deposits now lying in the joint-stock banks of the United Kingdom would be converted into statutable deposits; and the immediate effect of such a translation would be to render it possible for every well-managed bank in the worst of times to provide for every demand upon it without requiring to raise money in any irregular fashion. The hon. Gentleman concluded by moving his Resolution.


, in seconding the Resolution, said, he thought his hon. Friend the Member for Youghal was entitled, under the circumstances of the case, to the thanks of the House for the able and clear way in which he had put forward his views on the question. It seemed to him, however, that his hon. Friend had underrated the value and importance of the subject by fixing the amount of the interest-bearing deposits in the banks of the United Kingdom at a sum of £300,000,000 to £400,000,000 I sterling. He (Mr. Collins), after careful investigation and examination, had come to the conclusion that they amounted to something approaching £1,000,000,000 sterling. There were in England and Wales 119 joint-stock banks, with a paid-up capital of £37,000,000; in Scotland 11 joint-stock banks, with a paid-up capital of £9,000,000; and in Ireland 9 joint-stock banks, with a paid-up capital of £7,000,000; and there were, having offices in London, 56 foreign and colonial banks, with a paid-up capital amounting to £44,000,000. In round numbers, that would amount to about £100,000,000 of paid-up capital. Then, again, there were 190 private provincial banks in the United Kingdom, and 50 private banks in London; and, on the same basis of calculation, he believed it would be found that the amount of capital engaged in the 240 private banks could not fall far short of £100,000,000. Then, with regard to interest-bearing deposits and current accounts, he could not find any authorized published returns of a reliable character on which to base a calculation; but in order to arrive at the best estimate in his power, he took the yearly reports of 20 joint-stock banks, and he believed he was safe in concluding that the interest-bearing deposits and current accounts together reached about six times the amount of the paid-up capital of all those establishments. From his own experience he would deduct for current accounts one-sixth of the entire sum which would leave £1,000,000,000 as the interest-bearing deposits of the United Kingdom. He had made a calculation as to what that sum would produce to the Exchequer, and he found that at the moderate sum of 1 d. per cent per month, or 1s. per cent per annum, it would produce a revenue of £500,000. He thought, however, that the proposal of 2s. per cent for every three months, which would produce £4,000,000 per year, was too high. [Sir JOSEPH M'KENNA said, his proposal was 2s. per cent per annum.] He was glad to find that he was in error. He and his hon. Friend were at one as regarded the principle of the proposal. There might be differences of view in regard to points of detail; but the principle involved in the question was of serious and grave importance, and deserved consideration. The great objects his hon. Friend had in view were to give increased security and confidence to the public, and to facilitate bankers in controlling the enormous sums with which they had to deal in the conduct of their responsible business, and in protecting them against the unnecessary and most injurious panics which, without cause or reason, at times influenced public opinion. The discussion of the question would at least have the useful result of directing public attention to it; and if opinion in the country were found favourable to its consideration, the Chancellor of the Exchequer might be the better enabled, if he thought fit, to embody in the measure, which it was said he had in contemplation, some provisions dealing effectually with the entire subject.

Motion made, and Question proposed, That, in the opinion of this House, it is worthy of the consideration of Her Majesty's Government, whether a moderate and discriminating scale of Stamp or composition Duties may, with advantage to the interests of the Country and of the Banks, he hereafter applied to all interest-hearing deposits in the Banks of the United Kingdom, and whether a Bill on the subject should he introduced to Parliament at an early date."—(Sir Joseph M'Kenna.)


said, he was sure the House would feel indebted to any hon. Members who brought before it the subject of commercial crises, and propounded any reasonable and just remedy against their recurrence; but if the House were to be misled into lending the high sanction of its authority to any scheme which was not wise, and which was not truly calculated to attain this object, it would do enormous harm by leading public opinion astray after a will-o'-the-wisp remedy instead of keeping fixed on the true principles which alone could save them from crises. It appeared to him that the proposal made by the hon. Member for Youghal (Sir Joseph M'Kenna) would be utterly inefficacious for the purpose aimed at. It seemed to be thought that the large amount of deposits in banks were more or less the cause of these crises; but it was not the fact of large deposits being in banks which led to bad banking or to crises; it was the employment of deposits by a minority of bankers and other persons engaged in monetary business that led to great evils, the consequences of which could not be exaggerated. He was glad to hear it said, for the credit of bankers generally, that the case of the City of Glasgow Bank was an exceptional case; it was due to the bankers that that should be said. Unhappily, there had been one or two other cases which could not be characterized as anything but discreditable to the persons concerned. But, on the other hand, if the House would remember how many hundreds, if not thousands, of banks and branches in England, Scotland, and Ireland had been conducted, some of them for more than a century, and many for more than half-a-century, without disaster, in spite of great fluctuations in credit, in the supply of money, and in the success of trade, we might congratulate ourselves that scandalous cases like that of the City of Glasgow Bank had been so few, and that, on the whole, our banking system was not unsound. The Mover and Seconder seemed to differ rather widely as to the aggregate amount of deposits in banks, and he had not seen any computation that could be relied upon; but whether they were £300,000,000 or £1,000,000,000, he did not concur in the opinion that bankers could not find enough good borrowers, and were tempted, by the very magnitude of their deposits, to lend on doubtful securities. He had never experienced any difficulty in finding borrowers; sometimes there was a difficulty in finding lenders, but there was never any in finding borrowers. He did not think the difficulty troubled most bankers, and he did not admit that the purchase of securities of a right kind was an improvident investment; it was a most wise and legitimate investment of those deposits; but well-managed banks did not rely upon them generally, and certainly not at a time of pressure. He did not see any reason why the banks should not have these large sums as deposits. As to the remedy proposed, if the unlucky depositor happened to forget to put down the date, his money would be locked up for another two months against his will; but the maker of that proposal reckoned without the public—depositors would be unwilling to submit to it. It was not proposed to place any restriction on the large amount of money deposited in banks, not at sight, but at call; and bankers might play ducks and drakes with that as disastrously as with money deposited at in- terest. In many cases money at call did bear a small interest; so the proposed distinction failed again. These restrictions and interferences could not do any good, and they were calculated only to deceive and trouble the public. No doubt, any act of their lives might be taxed; but that was not a sufficient reason for taxing special transactions or tradesmen unless due cause were shown. It was not urged as a primary reason for this proposed tax that it would produce Revenue. It was supposed that it would restrict deposits; but he did not believe it would have the slightest effect on them, any more than stamps had on bills. All bad bills had borne stamps, and bankers would be improvident with deposits whether they were stamped or not. As to there being no violation of the freedom of contract in what was proposed, there did seem to be a violation of freedom in preventing a man doing what he would with his own. The hon. Mover had entirely failed to prove his case, and he hoped the House would not lend its support to the Motion. Attention ought to be directed to a comparison of the state of this country with that of France, which had comparatively few changes in its rates of discount, and scarcely any commercial crises like ours. It was worth inquiry whether that was due to the large metallic basis of her currency, or to any other cause. He should be glad to co-operate in promoting an inquiry into that subject, as well as into the possibility of suppressing frauds by more stringent legislation, which he thought was wanted. Such inquiry would be worthy of the support of the House.


said, he must enter his emphatic protest against the House attempting to legislate as to the principles or way in which bankers should manage their business. Such action would, he was convinced, lead to great evil, and he was perfectly certain that it would be of no possible use. He protested, also, against bankers being taxed in the way proposed. No doubt it was the first duty of the banker, or any person receiving money on deposit which he engaged to pay back at a certain time, to take care that he had it when the time came; but to lay down a rule for a particular description of banking, although it might offer a bait to the Chancellor of the Exchequer, would be opposed to the principle of our legislation. He trusted, therefore, that the right hon. Gentleman would not rise at it. What did the hon. Member for Youghal (Sir Joseph M'Kenna) mean by banking? Did he exclude the Rothchilds, the Barings, and a dozen others, who, although not called bankers and not paying a small tax which the Chancellor of the Exchequer managed to get from bankers, were the bankers of half the great Powers of Europe and in all parts of the world? How did the hon. Gentleman propose to deal with those great firms? He (Mr. Hankey) was convinced that when the hon. Gentleman came to the point, he would find it almost impossible to define what was meant by a banker, when it was proposed that a particular transaction should be carried out in a particular way. He agreed with the remarks made as to the risks run by bankers receiving money on deposit and allowing interest, and yet subjecting themselves to have it recalled at very short notice, or at call, which was worse; but the matter was so fraught with difficulty that he was surprised to hear a banker of the hon. Member for Youghal's experience treat it in such a manner. Great evil resulted from the undue expansion of that risk; but the principle of allowing interest was sound, for bankers were but agents between lenders and borrowers; but he denied that on that account they ought to be singled out for taxation.


said, he had listened with great attention to the speech of his hon. Friend the Member for Youghal (Sir Joseph M'Kenna), and he was sorry to say he could not support his Resolution. There was nothing in the world to prevent banks at present agreeing to take deposits at fixed periods of one, two, or three months, at all events, so far as Ireland was concerned. The Resolution would do nothing to avert panics; because, at present, banks must base their calculations on the law of probabilities, and, if they were wise, should always be prepared to pay a certain amount of their liabilities, so that it really did not affect the facts of the case whether the money was taken for a fixed period or not. As to the other question, of placing a tax on deposit receipts, for money deposited upon short notice, he hoped the right hon. Gentleman the Chancellor of the Exchequer would not entertain the proposal; because, while it would fail to bring in a large amount of Revenue to the Government, it would most certainly very seriously interfere with the business of banking, by introducing into it certain elements of trouble which would most seriously affect it. For instance, it would materially lessen the banking fund on which the business of the country mainly depended. There was the competition between bank and bank; and it must also be remembered that the Post Office savings banks, and other similar institutions for the deposit of money, competed largely with the regular banks and tended to reduce the amount of the general banking fund. If the right hon. Gentleman were to tax the deposits at the bankers, it would be like taxing the raw material of the manufactures of the country, and would prove most injurious to commercial enterprize, without in any way preventing the recurrence of panics. The question of the means that should be taken for preventing the recurrence of panics had doubtless been well pondered by the Chancellor of the Exchequer; and he (Mr. W. Shaw) hoped that he would that week bring before the House some proposal which would touch the very source of the evil complained of. There was one branch of banking with which the right hon. Gentleman might fairly deal, and that was with reference to the note circulation of the country. He might look at the circulation of the country banks, and see whether he could not give facilities for the amalgamation of the small ones. He believed that in England especially an immense deal of the evil was due to the great number of small banks, for when there was anything like fear of a crisis they would make a special effort to prepare themselves for the evil. That, of course, pressed on the whole finances of the community, and often led to the very crisis which they dreaded, and which, but for them, would not have existed. He thought it would be wise of his hon. Friend not to press the Motion to a division.


said, the money on deposit in the banks was borrowed at 1 per cent below the bank rate and lent out at 1 per cent in advance of it, and the margin represented their profits. If they kept a sufficient sum in hand to meet the ordinary amount of withdrawals, there was no danger in that business. Where the danger did he was in the fact that the great banks were ready to receive from their customers amounts to the extent of £15,000,000 or £20,000,000, repayable at four or seven days, while they were in the habit of lending it on three months' bills. And then, again, these bills were maturing at different dates. He had listened with great attention to the arguments of the hon. Member for Youghal (Sir Joseph M'Kenna), but did not think that his plan would be acceptable to the public, or that it would effect the end he wished to attain, and therefore he could not support it. At the same time, he agreed that the rules of banking required consideration.


said, the House seemed disposed to give but scant justice to the plan laid before it by the hon. Member for Youghal (Sir Joseph M'Kenna). He (Mr. Courtney) thought, however, that if some plan could be adopted which would prevent deposits being made for short periods, bankers would be protected from the sudden calls to which they were now subject. He did not at all agree that the proposal of the hon. Member would diminish the savings of the country; but thought, on the other hand, that it would encourage deposits at a longer notice, and that deposits at short notice and at call would necessarily be abandoned. The idea that the savings would decrease was chimerical, for they would still accumulate and be the foundation of trade. Nor did he agree that it was a conclusive argument against the proposal that it interfered with the conduct of bankers' business. Banks had been interfered with time after time, and notably in 1844 by Sir Robert Peel. He must say, however, that he did not at all see how the proposal would work except upon the condition that stamped deposit receipts were to be given for all sums deposited. Neither was he convinced that it would avoid the evils which the hon. Member sought to avoid. The hon. Member was bound to convince them on both these points before he could expect them to support him. How could the Chancellor of the Exchequer secure the stamp duty on the deposit notes as they came in to be periodically renewed? He did not believe that the plan would prevent the recurrence of panics, inasmuch as panics had arisen over and over again long before joint-stock banks and the practice of receiving money at call or on deposit for short periods existed. Panics depended upon far larger causes than money being received on call. There was another reason which had been alluded to by the hon. Member for Plymouth (Mr. Sampson Lloyd)—namely, that if they gave any countenance to that proposal they would pro tanto interfere with that sense of responsibility on the part of bankers on which they must so largely rely. He thought they had good reason for relying on that sense of responsibility. No doubt, they had had the disastrous failure of the City of Glasgow Bank. But let them look at the vast number of banks which had so long conducted their business on just and sound principles, with a due sense of the responsibility that attached to them, and which were always ready to meet their engagements. It required stronger arguments than any yet adduced to justify the laying down of the proposition that if a man was willing to lend another a sum of money for a certain time the State should interfere because that bargain was likely to be injurious to the community. The hon. Member for Cork County (Mr. W. Shaw) had suggested that the Chancellor of the Exchequer should consider the advisability of promoting the amalgamation of the small banks. He (Mr. Courtney), however, hoped that the right hon. Gentleman would approach that suggestion with very great caution. Danger arose already from the fact that they had banks having hundreds of branches scattered over the Kingdom, and which were superintended by the directors of the central establishment, who often could not possibly exercise the control which was necessary, if the business was to be properly conducted, with so many separate branches. They could not have the directors of a bank in London excercising that due supervision over the borrowing and lending transactions of hundreds of country branches, without which the conduct of its affairs must sometimes be put in jeopardy.


said that, in the course of a long experience, that was the first time he had known a Member, and especially a Member of the Opposition, come forward with a proposal to increase taxa- tion. He must protest against that House assuming to itself the function of meddling in the management of the commercial, or, rather, imaginary commercial, affairs of the country. It would be practically impossible for any law to regulate deposits to work, and there was no more reason why they should interfere with the management of banking than with any other business. No doubt, there had been some very great swindles and most infamous frauds in connection with banking; but those cases were very exceptional, and it was one of the most wonderful things that, in spite of the want of confidence caused by the frightful calamity in Glasgow—one of the most wicked that ever occurred in the banking history of the country—and by the failure of a bank in the West of England, the great body of the banks in this country had so managed their affairs that nothing of importance had occurred to them. The arguments of the hon. Member for Youghal (Sir Joseph M'Kenna) went to discourage deposits. But deposits were the very things they ought to encourage. Those deposits, received by the banks and then lent out, judiciously, to those who wanted accommodation at the time, fertilized the whole trade of the country. An hon. Member had put the total amount of these deposits at £ 1,000,000,000 sterling, but he (Mr. Muntz) thought it must be nearer £2,000,000,000. Why were they to interfere with the accommodation afforded by the private banks, which had, on the whole, been prudently managed? The hon. Member for Liskeard (Mr. Courtney) said Parliament had been constantly interfering with banking, and he had quoted what was done by the late Sir Robert Peel. Now, Sir Robert Peel, no doubt, put an end to the capacity of the private banks to make money; for that was what their power of issuing notes really amounted to. He, however, knew of no plan brought forward by that great statesman and skilful financier for interfering with the management of banks. To suppress their capacity of making money was a totally different thing from interfering with the internal affairs of banks. The proposal now before the House would have a mischievous effect, because it would tend to check that confidence which he was glad to see now entirely restored.


said, that the people of Scotland would view with great disfavour any proposal of the kind made by the hon. Gentleman opposite (Sir Joseph M'Kenna) in his Motion. They, although few had suffered more, did not attribute what they had suffered from the failure of the City of Glasgow Bank to the system of taking deposits. That system had, he (Sir Graham Montgomery) believed, conferred incalculable benefit on the Scotch people. In 1826 it was estimated there were not more than £20,000,000 of deposits in all the banks of Scotland. Now, he believed, they exceeded £70,000,000. It might be said that it was a dangerous principle to encourage the deposit of money at call; but, as far as Scotland was concerned, it had answered extremely well, and he should be sorry to see any interference with that. Any proposal such as that now made to the House would, he was sure, notwithstanding all the suffering that had been inflicted by the great failure to which he had referred, be viewed in Scotland as a serious interference with the rights of banking; and he hoped that the hon. Member for Youghal would not persevere with his Motion.


presumed, after the discussion which had taken place, that the hon. Member for Youghal (Sir Joseph M'Kenna) would not ask the House to express any opinion on his Motion by a formal vote. But he thought everyone must feel that they were indebted to the hon. Gentleman for having brought on a very interesting discussion, and one which could hardly fail to be of value. He thought they ought also to make this acknowledgment—that the proposal of the hon. Member had not been made merely under a feeling of excitement, owing to particular events which had recently occurred, because, as they knew, that was a matter which had been in his mind for some considerable time; and before the close of last Session he distinctly intimated his intention of bringing forward the proposal embodied in his speech of that evening. At the same time, the sense of the House would, he thought, go entirety with the tenour of the remarks which had been made by so many hon. Members, by his hon. Friend the Member for Peterborough (Mr. Thomson Hankey) and others, on both sides of the House—namely, that it would be altogether indiscreet and incompatible with the Rules which should guide them in their Parliamentary proceedings that Parliament should undertake to interfere with the details of the management of a business such as banking. The hon. Member for Birmingham (Mr. Muntz) had, as he thought, most accurately distinguished between the course taken by Sir Robert Peel in regard to banking and the course now proposed. He (the Chancellor of the Exchequer) had always understood that the principle on which Sir Robert Peel proceeded was that banking, as banking, ought to be left as free as possible. But as to the power of issuing money, that was a matter which was properly under the control of the State, and one which the State ought to regulate. There was no doubt that, in regulating the question of issue to a certain extent, the liberty and the proceedings of the issuing banks were interfered with; but that was only as a subordinate part of the main object of that legislation, the regulation of the issue. Now, having adopted the proposition which he had laid down, that it was not a part of the functions of Parliament to regulate the details of a business such as banking, and having stated that it was undesirable that they should come to a Resolution on such a question, he thought he should be inconsistent with his own doctrine if he were to attempt to examine that proposal on its merits, because the ground he would rather take was this—that it was a proposal, although useful to converse upon, the merits of which they should not discuss too minutely. At the same time, he would say that it struck him that there was something rather inconsistent on the face of the proposal in one respect; because, as he understood the hon. Member's argument, it was this—Inasmuch as the necessity for making a sufficient profit out of the deposits on which interest was paid to cover the interest paid to the depositors and leave a margin, necessarily tempted bankers to invest in risky securities in order to get a high rate of interest, it seemed to him a rather curious remedy that they should add to that temptation by imposing a tax on the banker, who would not only have to cover the interest he had to pay his depositors and to get a little profit for himself, but also have to cover the tax to be paid to the Chancellor of the Exchequer. He did not wish, however, to discuss that point very much. He admitted that there was something very tempting in the suggestions of the hon. Gentleman who had brought this matter under the notice of the House. When they referred to the £500,000 a-year which he might realize as Revenue, he could not help saying, like the Governor in The Critic on his being offered £1,000—" Thou hast touched me nearly." If he saw any object of taxation which it was proper, and which it appeared convenient to tax, he should be right in proposing that a tax should be laid upon it for the purpose of raising a Revenue. But when it was proposed to impose a tax, not for the purpose of obtaining a Revenue, but in order to regulate a business, he was obliged to regard the proposal from another point of view. With respect to this particular question of a tax on deposits, many hon. Members might remember that in former times there used to be a tax on deposits. Up to the year 1853 there was a stamp duty on all receipts given for money lying at interest. In that year the tax was done away with. In 1870, when the consolidation of the Stamp Laws was effected, the Bill was so drawn that it contained a clause that would have imposed the tax again; and he believed that, on the Motion of the late Sir David Salomons, the House again decided not to re-impose the tax. In consequence, the Bill was so amended that the tax was not introduced. He was not quite sure, however, that the whole question of the stamp duty and of income tax on money derived from deposits was in an entirely satisfactory state. He thought the subject required consideration; but hon. Gentlemen were aware that the interest derived from deposits was liable to income tax. The banks did not, however, deduct that income tax, and therefore the recipient was left to pay the tax himself. That was not always a convenient mode of raising the money. He mentioned this fact, which was a separate one, incidentally, only in order to show that he had all these questions under consideration. With regard to the hon. Member's proposal, which was that they should introduce taxation so as to discourage the system of deposits, that was a matter with which the House had better not attempt to interfere, and in which he could not encourage it to interfere. A conversation of this sort was valuable on account of the opinions it elicited, even although the House might stop short of action in the matter; and what was said in the House might assist in dispelling misunderstandings elsewhere.


acknowledged the question was not quite ripe for decision. He should, therefore, with the leave of the House, withdraw the Resolution, at the same time thanking it for the attention it had given to the subject. He further hoped that the discussion would have the effect of keeping the public mind directed to banking.

Motion, by leave, withdrawn.

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