§ Order for the Second Reading read.
§ THE CHANCELLOR OF THE EXCHEQUER
, in moving that the Bill be now read a second time, said: It is now some time since the Bill was introduced, and since it has been before the House I have received a great number of communications both from Members of the House and from other persons. I think there seems to be a very general agreement among those who are interested, so far, at all events, as the banks are concerned, that it is desirable to pass, without any further loss of time, a measure for the purpose of enabling those banks which are now unlimited to re-register themselves as limited banks. The House is aware of the nature of the inconvenience which has been found to arise in many cases from unlimited liability. One of the effects of it has been to alarm a good many persons who had hitherto been willing to take shares in banks, and who, being persons of substantial character, have, of course, been very desirable partners in those concerns, but who are alarmed at the possibility of their being mulcted of the whole or the greater part of their fortunes by failure, and are very anxious that the banks to which they belong should have the advantage of limited liability. It being perfectly well understood that those banks might originally have been registered as limited, but have been in point of fact registered, as unlimited, it is now found that they cannot alter their position so as to obtain the advantages of limited liability. Therefore, the main point of this Bill was to enable banks in that position to convert their liability from unlimited to limited liability. Then it was a second point, that we thought it desirable, not merely to give such banks as might desire to avail themselves of it the power of limiting themselves on the principle of the Joint Stock Companies Act, which exactly limits the liability to the amount of the shares, but also to enable them to form themselves on the principle which would give them a certain fixed liability over and above the nominal 979 amount of the shares. For that purpose we introduced into this Bill the system of what are called Reserve Liability Companies. Upon that question, upon the use of the word "Reserve," and upon the question as to what limitation there should be to the power of fixing the amount of reserve, and as to the means by which different kinds of banks should avail themselves of that power, there has been a certain amount of difference of opinion. I think, however, that the difference is not very serious in reality, and that by a little discussion in this House we should find that we could come to a satisfactory agreement upon the matter. Still, undoubtedly, it is a question of some interest, and not altogether free from disputable points. With regard to some of the other provisions of the Bill—as to the mode of publishing the accounts, and the auditing of the accounts, I think there has been in substance a tolerably general agreement that it was desirable to have provisions of that nature, although there have been a good many criticisms on the particular form of account in the Schedule of this Bill, and, no doubt, it is open to considerable improvement. There is one point in the Bill which has caused a considerable amount of anxiety, and even agitation, in certain parts of the United Kingdom; and I see by the Notices which are on the Paper that all the opposition which is offered to this Bill on the second reading comes, in fact, from those who are interested in the Scotch and Irish banks. The proposal in the 8th clause of the Bill, that the banks availing themselves of this Bill should be registered in that part of the United Kingdom in which they have their places of business, is one upon which there has been a good deal of feeling, and I must admit that very strong objections have been urged against it. I could not undertake, at the present time of the Session, to go into this large question of the Scotch and Irish banks. We know that, in 1844, Sir Robert Peel dealt first with the question of the English banks of issue, and in the following year brought in a measure dealing with the Scotch and Irish banks. I think, therefore, under the circumstances of the Session, and the character of the obstacles that stand in the way of the passing of a Bill of this nature, it will be better that it 980 should be confined to England. I propose, therefore, to confine this Bill to England, leaving out everything we have proposed in the 8th clause with reference to the Scotch and Irish banks, and looking forward to next Session to be able to deal with the subject in a more comprehensive way, if it should be possible, with regard to the question of the Scotch and Irish banks. Under these circumstances, I hope that the House will agree to what I am about to propose—namely, that after the second reading, the Bill should be committed pro formâ, so that it may be re-printed with certain Amendments. The principal point which has been under consideration has been with regard to this reserve liability. I said, when we introduced the Bill, that we were not wedded to that particular title, and that I was ready to consider any other proposals that might be made to me on the subject. I am bound to say that my invitation has been very freely accepted, and a very large number of suggestions have been made, some of them wholly inconsistent with the proposal of the Bill, while others seem to me to vary very little from it. I am, therefore, prepared, subject to any decision in Committee as to the actual terms to be used, still to adhere to that title. The effect of it would be that we should have three classes of banks—namely, (1), limited banks; (2), unlimited banks; and (3), the reserve liability banks. I do not myself think that it would be very convenient to dispense with that third class. If you are to have a class of banks in which the liability should be not limited to the amount of the shares, and not unlimited, but something between the two, I think it is desirable that it should be distinguished by a separate name. But if it is to be so distinguished, then we have this point urged upon us. The unlimited banks say—"We may be ready to convert ourselves into reserve liability banks;" but the limited banks say—"We are not authorized by this Bill to turn ourselves into reserve liability banks, and, therefore, we may be in a position of some disadvantage." This objection of the limited banks has a great deal of force in it; and I, therefore, propose that power should be given to all classes of banks equally to avail themselves, if they choose, of this new provision. Then, comments have been made upon the de- 981 finition, or rather regulation, in Subsection 3 of the 8th clause which defines the amount of liability. At present, it states that the amount of reserve liability attaching to each share should be regulated by the amount of such share, and should be a sum equal to, or some multiple of, the nominal amount of the share in respect of which it is payable. What I should propose would be to provide simply that the reserve liability should not be less than half the nominal capital. Then, there are certain unlimited banks which are in this position, that they have a very large nominal capital and only a small proportion of it paid-up, and they say—"If we were to turn ourselves into Reserve Liability Companies, there might be some difficulty as to what the amount should be;" and a wish has been expressed, on the part of some of them, that they should have the power of reducing their nominal capital. I therefore, propose, that some such clause as this should be drawn—that, at the time at which any bank now registered, either as limited or unlimited, desires to re-register as a reserve liability bank, it should have power to reduce its nominal capital to an amount not less than twice the amount of the paid-up capital at that moment. I think that will be found to meet the case of several of these banks. I will not, however, ask the House to discusss this suggestion merely upon a statement made vivavoce. In accordance with what I have said, I think it would be convenient that I should be allowed to take the second reading of the Bill now, and put it into the shape in which I propose that it should stand, and then we will give time for its consideration when it is in print, and be able to have it discussed in Committee of the Whole House. If that course were adopted, I do not believe that it would take any excessive time to pass the Bill, and I think it would be for the advantage of the banking and mercantile community that such a Bill should pass.
§ Motion made, and Question proposed, "That the Bill be now read a second time."—(Mr. Chancellor of the Exchequer.)
§ MR. ANDERSON
Mr. Speaker, I am very glad, indeed, that the Chancellor of the Exchequer has enabled me to dispense with, moving the particular 982 Amendment which I have on the Paper by his withdrawing the 8th clause of the Bill; but I am not quite sure that the mode in which he spoke of withdrawing it will enable me to withdraw all opposition to the Bill. If I understood him aright, he stated that he meant to drop Scotland out of the Bill altogether, and, in that case, I shall certainly oppose the Bill to the best of my power. I do not see why Scotland should be precluded from adopting the principle of reserve liability altogether. The proposal now made by the Chancellor of the Exchequer is altogether and completely changed from what it was in the first instance. Formerly, the proposal was that any bank in England, Ireland, or Scotland, might adopt the principle of reserved liability; and now it is to be left only to the English banks to adopt it, while neither the Scotch nor the Irish banks are to be allowed to adopt it at all. Under these circumstances, if I have understood the Chancellor of the Exchequer's proposal aright, I think it becomes the duty of the Scotch and Irish Members entirely to oppose the passing of this Bill. There is another method in which the Chancellor of the Exchequer might very well have altered his Bill, and so have given us what we wanted—namely, he might have simply dropped out the 8th clause and nothing more. That would have been a very simple thing to do, and would not have prejudiced anybody. That is a clause which was objected to as being unjust and inexpedient, as putting upon Scotch and Irish banks a most unfair disability, as attempting to rob certain banks of a certain amount of business which they have created, and which is of great value to them, without any kind of compensation being given. The 8th clause was in every sense an unjust proposal, and all that we ask is that the 8th clause should be dropped out of the Bill. If that is done, we would not ask for any other changes. At the same time, we would not object to others, and I am bound to admit that the change which allows a limited bank to become less limited is a very good change, and one of which I quite approve; and I think it is also very likely that the change in the amount of the reserve liability, not being a multiple, is also an improvement; but, as far as it is to be a privilege which is 983 to be given to the English unlimited banks to take advantage of, and which is to be denied both to Scotland and Ireland, I feel bound to continue my opposition to the Bill just as much as before. I suggest to the Chancellor of the Exchequer that he should adopt this means of dealing with the question, and if he does so, I believe he would find the Bill would be passed with great facility; while, if it is not adopted, I believe we should be able to baffle him and prevent its passing, and I certainly shall do my best to carry this out. The Chancellor of the Exchequer says we oppose him in the interest of banks. Well, that is all very well; but I take my action in the interest of justice, and nothing else. I have no interest in any bank at all; on the contrary, I disapprove of the action of many of them.
§ THE CHANCELLOR OF THE EXCHEQUER
I did not intend to imply that the hon. Member was personally interested in any bank.
§ MR. ANDERSON
I simply want to say that I do not act at all in the interest or on the request of any Scotch banks; I act simply in the interests of justice, because the proposal to be made in the Bill was a thoroughly unjust one. I do not approve of the Scotch banks coming to London, nor of the Scotch banks having their monopoly almost intensified by their coming to London; but I disapprove of the principle of robbing them of the business which, under the law, they have established and created there. By coming to London, no doubt, they bring Scotch capital away from Scotland and employ it in London, and I cannot approve of their coming here to London and discounting at somewhere about ¾ per cent, while in Scotland they are discounting at some 4 or 5 per cent. I do not approve of Scotch capital coming here to be employed in favouring English merchants by discounting at ¾ per cent while Scotch merchants are made to pay 4 and 5 per cent. That is a wrong principle altogether, and one which I should be glad to see put a stop to. If their coming to London was the cause of that, I might have thought they should be prevented from doing so; but, unfortunately, they did it equally before there was any at tempt to prevent them from coming, and before they did come. As an instance of that, I may mention that one of the 984 Scotch banks lost a large sum of money by discounting some of the Messrs. Collie and Co's. paper, and at that time the Scotch bank that did so had no branch in London. I disapprove of them discounting here, because it enables them to keep up their charges in Scotland. Another change which I should like to see in this Bill would be to introduce a clause which should get rid of the bank monopoly in Scotland and enable us to have free banking there. The Scotch banks always talk very largely about free banking, and boasted of it in their Memorial to the Chancellor of the Exchequer; but they do not give us free banking, and we have not got it in Scotland. Therefore, I am in this position, that I want to prevent an injustice being done to the Scotch banks, while I do not approve of the Scotch monopoly which is established, and which I should be glad to see abolished. This, I am aware, cannot be done by this Bill; and, as the best that can be done, I, therefore, hope that the Chancellor of the Exchequer, in the present case, will agree to put all the banks in the United Kingdom on one footing by simply dropping out this obnoxious 8th clause, without dropping out either Scotland or Ireland.
§ MR. HERMON
thought this Bill would be much more acceptable to the public if directors, who were paid officials, and those who signed the prospectuses, were obliged to incur a greater amount of liability than the shareholders. When they recollected that it was generally through the bad and careless management or the misconduct of the directors that misfortune ensued, he thought there was a good case for making the directors liable to the shareholders for the losses they might incur. If the Chancellor of the Exchequer would introduce some clause in the Bill to provide for the liability on the part of the directors, it would give greater security to the public, and the public would have greater confidence in the undertakings; while the directors, by the stake they had in the success of a company, would pay greater attention to its affairs, and, on the whole, would conduce to the success of the undertaking. He wanted the public to have the additional security and assurance that their interests would be regarded, and to feel that by the knowledge of the fact that the directors would be mulcted 985 in accordance with the loss sustained by a company or a bank.
§ MR. FRASER-MACKINTOSH
said, he was greatly disappointed at the Chancellor of the Exchequer's proposal to exclude Scotland from the operation of the Bill. If there was one part of United Kingdom which more than another required a reform in the principles of liability it was Scotland. At the present moment, many of the holders of bank stocks, particularly trustees and executors, in consequence of recent decisions by the Law Courts, felt themselves in a very awkward position. One of the objects of the Bill was, apparently, to force the Scottish banks to give up their business in London. But, whatever might be the faults of these institutions in coming to London, if there were a fault, it was not fair that they should be compelled to withdraw, as it were, by a side-wind, especially as such a proceeding was not necessary to cure the evils complained of. A deputation of a very influential character had waited on the Chancellor of the Exchequer to represent the case of some of the Scottish banks. He wished it to be borne in mind that it was not the case of the Scottish banks alone that had to be dealt with by the House, but the case of the Scottish people also; and the Scottish banks were, in many respects, at issue with the Scottish people. The latter had suffered by the closeness of the monopoly enjoyed by the banks, as well as from the unlimited nature of their liability. They had, therefore, rejoiced to think that, in connection with this Bill, they had an opportunity of bringing their grievances fairly and distinctly before the House. The main question, however, was the giving power to change from unlimited to limited liability, and he (Mr. Fraser-Mackintosh) would confine himself to it; and if the Chancellor of the Exchequer, after learning the expression of feeling which was pretty general among the Scottish Members, did not withdraw his proposal for excluding Scotland from the benefits of the Bill, he (Mr. Fraser-Mackintosh) would be under the necessity of pressing to a Division the Amendment which he now formally moved—namely, "That this Bill be read a second time that day three months."
, in rising to second the Motion, said, that so far as Scotland 986 was concerned, the matter was not so easily dealt with as the Chancellor of the Exchequer appeared to imagine. It was an easy thing to drop out the 8th clause, intended to drive the Scotch Banks out of London; but the real difficulty of dealing with Scotland under these circumstances was that there were in Scotland another class of banks to which the Chancellor of the Exchequer had not referred, which had already their liability limited, but did not use the word limited as an appendage to their titles. There were the Chartered banks, which were already limited; but they did not require to change their name, and as long as they could dispense with the necessity of changing their name, the other banks could not afford to make a change which would lead the public to consider that they occupied an inferior position. The Chancellor of the Exchequer had dealt with the matter from a far too exclusive London point of view. When he came to deal with Ireland, he would find the same difficulty staring him in the face as that presented in Scotland. In Ireland there were also banks limited by Royal Charter, and unless the Irish banks were very different from the Scotch banks, the Chancellor of the Exchequer would have to find some other means of dealing with them. In the present Bill, three subjects had been dealt with in a very fragmentary and unsatisfactory manner, and the one subject which called most urgently for the Government to grapple with it had been left untouched. With regard to the proposed method of limitation, as he had explained to the House, it was a method which might be popular, and which might be adopted by banks here, but which could not be adopted in Scotland, and could not be adopted to any great extent in Ireland. That was one unsatisfactory feature in the Bill. He did not know whether under the Bill the right hon. Gentleman proposed that the reserve liability banks should be obliged on all occasions to parade the title of reserve liability after their name. Might he ask the right hon. Gentleman if that were so? [The CHANCELLOR of the EXCHEQUER: Yes.] It seemed to him (Dr. Cameron) that a very simple way out of the difficulty was open to the Chancellor of the Exchequer. He could not see why it was necessary to maintain the word limited at the end of the title of a limited 987 liability company. It was simply misleading. The great majority of the limited liability companies at present in existence had not that word appended to their names. There were railway companies which were limited; water companies, gas companies; and there were also a large number of banking companies which were limited without the necessity of having the word limited attached to their title. That was the case of three or four Scotch banks; with the Bank of Ireland; in fact, it was so with all the Chartered banks. As to the new proposal of limitation by reserve, it was really nothing more than that proposal contained in the Act of 1862, which provided for limitation by guarantee. But he was told that an interpretation of the law had been given to the effect that limitation by guarantee was personal only, and did not extend to future shareholders. That, however, was a difficulty which could easily have been got over by a short Declaratory Clause. He did not wish to attach any great weight to this point. What he did object to in this proposal was, that it introduced another form of liability to the already too complicated form of limited companies. There were already a great number of limitations, and now it was proposed to establish a limitation by reserve. It was quite impossible for the public to thoroughly understand how the liability of any given concern stood, and this was especially the case with the Chartered banks. He had, some time ago, desired to get a Return bearing on the subject, and he was told that the Charters were public documents. He had the curiosity to go to the Record Office for the purpose of investigating them. He found that the Charters were wound up in long rolls, and were of such a great length, that they could not possibly be completely examined in any office of ordinary size. When they had found out what they wanted in a particular Charter, they might probably find themselves referred to some provision in an earlier one of, perhaps, equallength. The system was so complicated and cumbrous, that they might spend a week in finding out the precise measure of limitation of a given bank; and yet it was now proposed to add another complication to this already far too complicated system. As to the liability of the shareholders, he was at one with the right 988 hon. Gentleman the Chancellor of the Exchequer. He agreed with him that unlimited liability occasioned a danger of frightening good shareholders out of the proprietary of banks. But the difficulty of both Scotch and Irish banks would be met by doing away with the necessity of using the word "limited" after the title; and this proposal would equally meet the requirements of England. There was one point painfully brought out in connection with the failure of the City of Glasgow Bank, and which ought to be dealt with in any Bill attempting legislation on this subject. Over and above the note issue authorized to the banks in Scotland and Ireland, the banks were allowed to issue any amount of notes on condition that they held a reserve of gold against that issue. Under the Bank Act of 1844, the Treasury were empowered to inspect the gold reserve. He did not know whether they ever had done so—["No"!]—but, at all events, when the City of Glasgow Bank came down, it was discovered that the gold was not there. Mark the effect of the system! You put a positive premium on false returns, and took no means to check it. If a bank kept half-a-million of gold against half-a-million of notes issued, they gained nothing by it; but if they did not keep it, they netted £25,000 a-year by the transaction. Any Bill in this direction should take steps to make this supposed security a real one, and not, as at present, a mere temptation to make false returns. Another important point was this. If the bank had gold in hand when it came down, it now appeared that that gold was part of the general assets, and was no more applicable to the redemption of notes than the bank building. This was a subject that ought to be handled in a banking bill, for it was of the utmost importance to the public interest. With regard to the proposed system of audit, that had been the feature in the Bill which had recommended it to the benevolent consideration of the public out-of-doors, yet, if the public out-of-doors only looked at the thing, they would see that there was not a greater fallacy, delusion—a sham, if he might say so—than the audit proposed by the Bill. Nine-tenths of the banks at present had all the audit they would have under the Bill, but no one was the wiser for it. The radical 989 defect in the present system was that the auditors were the nominees of the directors. He did not mean to say that they would willingly pass false returns, but they did not examine fully into the accounts. Things were made pleasant, and they found their salaries paid the more willingly the less work they did, and an audit took place which was popularly known as the "sherry-and-sand-wich" audit. This Bill provided for a little extension of that sherry-and-sand-wich audit, and nine-tenths of the banks had that audit already. He did not mean to say that auditors were not nominally in Limited Liability Banks appointed by the shareholders; but, in almost every case, the directors held proxies and controlled the appointment of auditors. The next provision in connection with this point was the publication of accounts. There was nothing more important for the security of the public than the publication of detailed accounts. Nothing that could be devised allowed the public so good an opportunity of knowing whether a concern was rotten or sound as a detailed, a minutely-detailed, system of published accounts. But statements of the kind proposed by the Bill might have been published by every one of the banks that had come to grief within the last 12 months without anybody being much the wiser. How was the City of Glasgow Bank brought to grief? Millions of money were given to some half-a-dozen different persons. The bank held its own shares to an enormous extent, thereby increasing the liability of its outside shareholders, and bolstering up the shares to a fictitious price, which utterly misled the public. Would a form of the kind proposed by the Bill have disclosed this? Not in the least; the bank would have come out of the ordeal equal to the best in the country. What was there to prevent banks being required to show how many of their own shares they held, and why not compel them to state how many debtors they had over a certain sum—say, £100,000 or £150,000? If that had been done, there would have been few cases in which the banks which had come to grief would not have been pulled up long before they really collapsed. Another and still more important point in connection with the City of Glasgow Bank was, how did it invest its money? Why, in Govern- 990 ment and other securities. But the "other securities" embraced wholesale investments in Australian Land Companies and American Railway mortgages, which were utterly unmarketable. Why not make it a necessity that there should be a detailed statement of these? Half-a-dozen banks already did this without any pressure. There was the Birmingham Joint Stock Bank, a perfect model in that respect, which issued details of every security held by them. The next example he would give as illustrating his position was the unfortunate Caledonian Bank, which came to grief through no fault of its own, but owing to a piece of carelessness which, but for the calamitous consequences, would have been thought venial. It held four shares of the Glasgow Bank. Now, if they had been compelled to publish a detailed list of securities, did they not think that almost to a moral certainty this would have been prevented? It held shares in most of the Scottish Banks, as well as the City of Glasgow. Its balance sheet would have been examined; anyone would have seen the risk; there would have been no inducement to leave money in such investments. The directors' attention being called to the fact that if any single Scottish bank failed, the Caledonian must be brought down, the bank would have been saved. Again, take the case of the West of England Bank. If it had been necessary to publish, a statement of the number and amount of accounts of over £100,000 or £150,000, it would have speedily been known to what an extent the money in the bank was locked up. If it had been necessary to publish a detailed list of securities, shareholders and the public would have known how deeply they were bound up in the Aberdare and Plymouth Ironworks scheme. Take two other banks, both, he was happy to say, still going on, and likely to, but which had had significant warnings as to the necessity of looking into their accounts. The Oriental Bank not long ago stood in a ticklish position. Their shares suffered a severe fall, and it came out that the bank held, classed among their "other securities," a large quantity of Chilian bonds, and it further came out that not sufficient allowance had been made for the rates of exchange. Why not require banks to state the rate of exchange 991 at which they took foreign money in their published accounts? Again, the Chartered Mercantile Bank of India suffered a severe drop in its shares shortly after the events in connection with the Ottoman Bank to which he had referred, and it then transpired that the bank had speculated extensively in silver, and held silver to an enormous value. The silver had fallen heavily; but nothing to indicate this appeared in the accounts, which were rendered still more misleading by the valuation of the rupee at much above its real price. And yet, with the Bill before them in operation, the Government balance sheet might have been filled in without the public receiving one additional ray of information as to the real state of things. For all the reasons he had given, the Bill seemed to him a very weak Bill altogether. The addition of the audit clause, and the publication of accounts, which made the Bill go down with the public, were really hardly worth the paper they were written on. Certainly, in the case of nine banks out of ten, as at present existing, they would not improve matters in the slightest; and to show the perfect absurdity of the proposition, it was only necessary to point out that this audit and publication of accounts did not extend to all banks—not to Chartered banks, not to ordinary limited banks, but only to those that might register themselves as limited by reserve, and to such banks as might be established after the passing of the Act. Other proposals in the Bill were harmless—they might have the effect of postponing effective legislation for some years to come—but probably that would be the effect under any circumstances. But, altogether, the Bill was brought in in a shape so as not to apply to that portion of the Kingdom where there was the most necessity for it. In England they had numerous limited liability banks and Chartered banks, and though they had a large number of unlimited ones—even the Bank of England was limited—in Scotland the number of unlimited banks was excessively great. But if the Chartered banks did change their title, the other banks would not. Why not adopt his suggestion that the law should stand so that every bank throughout the Kingdom should act as seemed best without consulting its neighbour? Why not do away with 992 the necessity that existed for a fraction merely of limited banks to append limited to their name? It seemed to him that, as a matter of fact, the larger number of limited companies at the present moment did not require to use the word limited after their name. What, then, was the necessity of keeping up a false presumption that every company not ear-marked as limited was unlimited? It was only this that prevented the whole thing being settled in a single clause in a way that would satisfy all English banks, while it would allow Scotch and Irish banks to come under it. Under the circumstances, he was inclined to second the proposal to reject the Bill with more warmth than it was proposed by his hon. Friend.
§ Amendment proposed, to leave out the word "now," and at the end of the Question to add the words "upon this day three months."—(Mr. Fraser-Mackintosh.)
§ Question proposed, "That the word 'now' stand part of the Question."
§ SIR JOSEPH M'KENNA
admitted that much of what he was about to say would be applicable to a Motion to reject the Bill. He hesitated, however, to condemn it altogether, so long as the House had the power and disposition to make it suitable to the circumstances of the country. He would be wasting time, if he were to enter on details to prove that the Bill was simply one outcome of the failure of the City of Glasgow Bank. He apprehended that there would be no serious contention on that point, and he would rather trust to the common sense of the House to concur in that proposition—namely, that the movement of the public mind which led to this attempt at legislation was occasioned by the panic or uneasiness consequent amongst shareholders of the unlimited banks on the failure of the City of Glasgow Company. The next consideration was to inquire what would have been the effect in the case of the failure of the City of Glasgow Bank if such a measure as that before the House had been passed by Parliament four or five years ago, and had been availed of by the City of Glasgow Bank two or three years before its failure? He would repeat that question in another form, for his main argument largely 993 turned upon it. What, he would ask, would have been the effect, what would be now the state of things, if the Glasgow Bank had, two or three years ago, availed itself of such a law as that which they were asked to pass? The answer was simple, that it would have varied and extended the area of desolation. It would have left almost scathless many wealthy men who had reaped large profits by the bank, and it would have impoverished an immensely greater number of persons who would now, as creditors, be paid in full. Who was to assess which result would be the less calamitous? No one could show that this measure could make banks more prudent than hitherto; and, as it could not do so, it could only vary the incidence of loss whenever a calamity occurred; it could only do this by shifting the burden of loss from those who were entitled to the profits, and by casting it on creditors who, as matters now stood, were tolerably safe from any such overwhelming calamity. As it happened in the present case, all this was capable of exact demonstration. What had occurred in the case of the City of Glasgow Bank might occur in the future in some other equally extensive bank after this Bill had become law. The capital of the City of Glasgow Bank was £1,000,000 sterling paid up. It failed in October last. Its constitution was one of unlimited liability. Let them now inquire what amount of reserved liability it should have provided for, in order to meet the claims and pay its creditors in full. The amount of reserved liability which should have been provided for in order to enable the liquidators of the City of Glasgow Bank to pay 20s. in the pound to their creditors should have been £27,500,000, and this notwithstanding that the total deficiency of assets to meet liabilities was £7,000,000 only. Let hon. Members reflect on what actually occurred in the Glasgow Bank case. The first call made by the liquidators was £500 for each £100 share. That call would have exhausted a reserve liability of a multiple of five times the actual capital—that was to say, a reserve liability of £5,000,000; but that call, though quite sufficient to impoverish a great number of the shareholders, fell lamentably short of what the circumstances demanded; so a second call had to be made of £2,250 in respect of each £100 share; and even when this was 994 done an appeal to the creditors had to be made to accept something short of 20s. in the pound. The next question was, what would have been the consequences to the creditors of the City of Glasgow Bank if it had been a reserve liability bank, with a reserve capital equal by computation to a multiple of five times its actual capital? Would they not have been disastrous? Had the right hon. Gentleman made up his mind that it would have been better, on the occasion of the failure which occurred, that the calamity should have fallen broadcast over Scotland, rather than that it should have fallen in the pitiable manner they knew of on the unfortunate shareholders? For his own part, he (Sir Joseph M'Kenna) believed that the greater evil had been averted; for if the thousands of creditors—a body immensely more numerous than the shareholders—had to suffer, distrust would have spread to all other credit institutions, and the evil effects would have been felt in this country, and in Ireland, perhaps, as much as in Scotland. There was another consideration which weighed on his mind, to which he would ask attention. No attempt was made in this Bill, either to limit the amount of indebtedness a bank might incur or the amount of dividend it might declare. But the solvency of a bank, and of banks generally, could only be maintained by continuous attention to the amount of actual indebtedness, and its ratio to the paid-up capital, and by taking care that the dividends did not exceed actual profits, which could only bed one by accumulating a fund out of apparent profits sufficient to cover the risk on current business in the worst of seasons. The Bill before the House touched none of these points, and yet he ventured to say they were as pressing and as important to the community at large as were those interests which the framers of the Bill desired to safeguard. Why should a trader, whether an individual or a Company, be allowed the privilege of contracting an unlimited amount of debt, and of dividing an unlimited amount of profit on the basis that he or it was unlimitedly liable; and then suddenly, when the business was in full swing, be allowed to restrict his liability for the future, without having placed upon him or on the Company any restriction whatever as to the extent of his or their future indebtedness, or as to the degree 995 to which they might year by year deplete their estates by inordinate distribution of apparent rather than of real profits? He was prepared for a certain species of answer to this question. He would be told that the present Bill proposed to leave all present creditors in the position which they now occupied of having their recourse as against shareholders of an unlimited Company; and that if they, the creditors, were to be placed in a different position with respect to future deposits, they must be presumed to know the law, and to take knowingly, with the inferior security—to take the consequences. But was this really so? Well, all of them knew what had been done. Was it not of the very essence of this legislation that it was intended to enable banks to limit the liability of their shareholders, and yet avoid being classed as limited liability banks? The existing creditors of the bank undergoing transformation were to have no formal notice of what was being done. It was to be inserted in The Gazette and in a newspaper; and the creditors would be told, probably at the same time, by the same newspapers, that they were all quite safe, for the Act did not limit the liability of the bank to existing creditors. He would now explain how all that would work. The period of vigilance being once passed, the depositor would come in at the end of the half-year to get the interest on his deposit. The old deposit and interest would be paid him in the usual pro formâ way, and he would get a new receipt for his principal money, possibly of the same amount, possibly for more or less than the old receipt. Whereupon the protection of the 5th section—sub-section 5—of the Bill was wholly gone, and the depositor would stand henceforth as a creditor, with inferior security, but without any consciousness of the change. He did not object to the limitation of the liability of the shareholders, if those concerned as creditors were made to understand exactly what was being done, and expressly consented that the nature of the obligation of the shareholders should be radically altered. There was nothing in the Bill to provide that such notice should be given. He had explained how the thing would actually work. There were numerous deposits in all the large unlimited liability banks, which were, in an equitable 996 sense, unchanged for years. Nevertheless, there were scarcely any which were, in a strictly legal sense, more than a year old; and for this reason they were, for technical convenience, continually being paid off and re-lodged, sometimes re-lodged with additions, sometimes only partly re-deposited. He wanted to know what provision was made that the creditor, who would pursue in the future the system he had been accustomed to do in the past, should know that a radical, and possibly a fatal, change had been effected in the character of the security on which he had relied? There was no such provision in the Bill. Quite the contrary. The 7th section of the Bill was that which prescribed the process whereby an unlimited bank might be transformed into a reserve liability company. It dispensed altogether with that species of intelligible notice which a Court of Equity would prescribe before it permitted any individual debtor to divest himself of liability to his creditor in whole or in part. All that was required in the way of notice was an advertisement in The Gazette, which few ever read, and the publishing an advertisement for four weeks in a local newspaper, in which it might so happen that there would appear contemporaneously an article to inform its readers that the change in question was a formal matter, which did not affect existing depositors, no matter how long they might keep their money on deposit. He wished the House to bear in mind that the local paper which published such an assurance would be only stating what was literally true, and yet essentially misleading; for, as he had already explained, the 5th sub-section of Clause 5 provided that the limitation of liability should not apply to any debts or liability of the Company contracted prior to its registration. This was the dangerous sedative which would be made use of to lull all apprehensions until the transition had been accomplished. Custom and routine of business would do the rest, and no one—perhaps he should rather say very few—would appreciate what had been done, or forecast the results, until a bad season produced a crash entailing a far more numerous set of victims than even the failure of the City of Glasgow Bank produced amongst its shareholders. He could not see any sufficient reason for 997 all this. Either the banks were safe, or they were not. If they were safe—that was to say, if the paid-up capital and the general assets of a bank were sufficient to enable it to pay its way—no harm could be done by allowing the shareholder to remain in the position he elected to occupy until he removed himself in the ordinary way. But if the banks were not safe, that was the very opposite to a valid reason for allowing the shareholders to divest themselves of their liability in a new and abnormal fashion. There were, however, some who said that the shareholders generally of a bank could not know for certain whether the banks were safe or not, and they—or so many of them as were good for anything—would sell out their shares if they could not limit their liability, and thus a less solvent class of shareholders would replace the present, and they would have a class of shareholders in future from whom, in case of emergency, less could be recovered than might be obtainable on the plan now proposed. He (Sir Joseph M'Kenna) doubted this altogether, and was quite convinced that it was wholly erroneous. There was no evidence—literally none whatever—to lead to any such conclusion. But, under the present system, let this be borne in mind—they had the security, such as it was, that the directors, who must be shareholders, were un-limitedly liable. Every director of an unlimited bank now knew that he was liable to his last farthing in the world, not merely for his own default, but for the misdeeds of his colleagues, if he trusted too much to them, and if they, from ignorance or otherwise, brought about a catastrophe. Were they about, also, to diminish the responsibility of directors? The present Bill, unless his (Sir Joseph M'Kenna's) Amendment to continue the unlimited liability of directors were accepted, would utterly sweep away the main source of such security as they had at present. If the present Bill were passed into law as it stood, they would have in the future directors of banks which had millions and scores of millions of money divesting themselves of all but the merest fraction of liability for the obligations which they had contracted. The directors of a bank ought to remain unlimitedly liable. They had the best means of knowing whether the Company was in a sound or 998 a dangerous condition. If they did not really know, they were unfit for their position—they were blind guides, and worse than blind guides, if they assumed to discharge the duties of an office in which vigilance was as indispensable as honesty. If some such condition as this did not apply to directors, he would regard the Bill as creating a new danger.
§ MR. HEYGATE
said, he had heard with considerable regret the remarks of the hon. Member who had just sat down; because he was sure that the Bill, in the modified form proposed by the Chancellor of the Exchequer, would meet a grievance which had been very generally felt, and that it would be very gratefully received by a large portion of the commercial community of the country. He thought the Chancellor of the Exchequer had done a very wise thing, after the last discussion, in eliminating that portion of the Bill which related to Scotland and Ireland. Let him remind hon. Members from Scotland and Ireland that no injustice whatever was done to them by the Bill being passed in reference to England alone. It would leave them in just the same position as they were before, and they would not be damaged in the slightest degree. Next year, if the Chancellor of the Exchequer proposed to attack the issuing power of Scotch and Irish banks as had been suggested, it would be found that English Members would be quite ready to come down and lend their assistance in opposing such a proposal; and he thought that Scotch Members would do very unwisely in attempting, at the present moment, to prevent England from obtaining what she wanted, merely because their own desires could not be quite satisfied. Such conduct would be a "dog in the manger" policy, and would do no good to either party. In the form the Bill would assume when it came to be amended in Committee, it would confer upon the shareholders of English banks a simple act of justice. Those shareholders did not ask for any special privilege or favour. What they did ask for was that an unintended disability should be removed. A law was now in existence which enabled all banks to adopt limited liability; but by one provision of that law those banks, which had been registered under it for some minor purposes, were unable to be re-registered so as to 999 obtain the benefit of limited liability. It was not a matter of favour or of generosity that was sought. What was asked for was, that that which was the result of accident and which occasioned what he had called an unintended liability should be removed. He would not follow hon. Members who had spoken through the details of the Bill; but was willing to admit that what had been said as to the auditing of accounts and the liability of directors was well worthy of consideration when they reached the Committee stage. He was no great believer in the safeguards which had been suggested, or in the possibility of the Bill providing against all danger of loss. He quite agreed that it was necessary, as had been argued, that "the public should be kept safe;" but what was required for true security was a solvent set of shareholders and a solvent and honest set of directors. The public would be much safer in having to deal with a substantial proprietary and directorate of a bank of limited liability than they would in the case of a bank of unlimited liability, the shareholders of which would, perhaps, be nowhere when calls were wanted. After the fearful disclosures that had lately been made and the panic which resulted from them, he did not think they would be able to retain or secure the substantial and solvent class of shareholders and directors which was desired if unlimited liability banks were not allowed to be registered, so as to limit the liability of their shareholders under the Joint Stock Companies Act, pursuant to the provisions of the Bill. He hoped that hon. Members from Scotland would not interpose in the way of a measure which was very much desired in this country, which would be simply an act of justice, and which certainly would not be in favour of any particular class, but for the general advantage of the community.
§ MR. RATHBONE
considered it very desirable that the Bill should apply to the three countries alike; but those who had listened to the able speech of the junior Member for Glasgow (Dr. Cameron) must have perceived the difficulties there were in the way of carrying out legislation on the subject in Scotland. The right hon. Gentleman, however, had promised to bring in a Bill to deal with the banks of Scotland, and he hoped the Scotch Members would 1000 not prevent the Bill being passed, but would give the measure under consideration the best support they could. He must say that any Committees he had sat upon for England had impressed him with the opinion that if they could bring the practical mind of Scotland to bear upon any one question a practical solution of it would be worked out of much benefit to England. When they heard from the junior Member for Glasgow how many difficulties there were as affecting the Scotch banks, one could not but think that the Scotch banking classes, if they would devote some time to the consideration of the whole subject, and give the Government the benefit of their deliberations, would work out an example which would be of the greatest advantage to the whole country; but, supposing this were not practicable, and that the Chancellor of the Exchequer saw a chance of dealing with the Scotch system at present, then he had a suggestion to make which would facilitate dealing with the question in Scotland, and make their banking system much sounder. By Clause 9, those banks which were banks of issue as well as of deposit, were allowed to adopt a limited liability on reserving an unlimited liability for notes of issue. That did not appear to be the right way of dealing with the question. He was quite sure that anyone who had been watching banks must have felt that there was a great danger in the present system of issue by private banks. When the power of issue was given to those banks a great many of them were very different from what they were now. A bank might go on, wealthy partners might retire from it, and the talent which previously carried it on might disappear; but still the bank might go on with its peculiar privilege of issuing notes not possessed by other banks. Now, supposing some of these banks, becoming weaker, and less well managed, and hanging by a thread, were to stop in such a time of crisis as last autumn? What would be the effect? There would be a crisis of the general banking system. Now, it seemed to him, when any of these banks desired to possess a new privilege, they had a right to ask that they be put upon a safer footing; and he contended that no bank should be allowed to possess this especial privilege (except the Bank of England, which 1001 gave security) without depositing with the Government, as in some other countries, Consols for the amount of the entire issue. Look what a great danger that would remove. If everybody who held notes—and those who held notes were the least informed part of the community, and most liable to make a rush on the bank—if they knew that there was Government security for every note they held, the danger of a run upon issue banks for payment of notes would be absolutely done away with. That great danger would be avoided. He believed a measure of this kind would be popular, being a security both to the banks and the people, and the 3 per cent that the banks would get on their Consols would pay them. This he ventured to throw out as a suggestion to the Chancellor of the Exchequer, as a sounder and safer mode of dealing with the banks of issue which desired to become limited. There was only another point to which he wished to advert—the question of the balance-sheets. Now, he confessed he did not place unlimited confidence in the issue of a balance-sheet; but, surely, the system ought to be one under which sound information should be afforded. If they were to issue a balance-sheet, they ought to make it thoroughly good; and he ventured to suggest to the Chancellor of the Exchequer, as a model, though it might not be perfect, the balance-sheet recently issued by the Union Bank. It gave an amount of detail not at unreasonable length. Such balance-sheets ought to issue at least every time the dividends were paid, and if the accounts were obliged, to be verified by a certain number of directors—if they were verified by the signatures of a certain number of directors that they themselves had examined the securities, and that they were as stated, there would be some security as to the genuineness of the information, especially if such a statement were in the form of a statutory declaration, so that in. case of intentional concealment, or culpable negligence, an indictable offence would be committed. He had no desire to detain the House on this important subject; but he thought the suggestions he had made were such as might be taken into consideration by the Government.
§ MR. GARFIT
said, that he apprehended the main object of the Bill was to enable unlimited Joint Stock 1002 Companies to carry on their business with a degree of limited liability, and it appeared to him to be a matter for regret that so many other questions which had nothing to do with the subject had been imported into the debate. It seemed to him that the House would have done better to confine itself to the object of seeing whether unlimited banks ought to be enabled to carry on their business as limited banks. He confessed that to him the Bill would not be a simple or a complete Bill unless Ireland and Scotland were included in it. With regard to that particular point as to Scotch banks coming to London, he thought they might be left in the same legal position as they were at present. If they had a legal right to be in London, let them remain there, always taking care that they did not issue in England, and that other banks were not allowed to come.
§ MR. M'LAREN
said, that in the expectation that the Bill would come on as originally proposed, he had given Notice of the following Motion:—That the compulsory exclusion of Scotch Banking Corporations from the right to carry on certain departments of their business in London by means of branches established there, would be a violation of the fundamental articles of union between the two kingdoms.The Chancellor of the Exchequer had, however, proposed very important alterations, especially with regard to the position of Scotland. He had listened with great attention to the speech of the hon. Member for Boston who had just sat down, and he believed that he would be able to approve of every word that that hon. Member had uttered. He had pointed out what was the right way to legislate in regard to joint-stock banks—namely, that the principle to be pursued was that what was good for England was good for Scotland and Ireland, and that what was bad for England was also bad for Scotland and Ireland. The hon. Member for Leicestershire (Mr. Heygate) seemed to think that Scotch Members were asking for special privileges for Scotland. Nothing could be more erroneous. No Member for Scotland had asked for any special privilege. They only asked that the Chancellor of the Exchequer, in leaving out many clauses, should also leave out the 8th clause. If the Chancellor of the Exchequer would leave out the 8th clause, and let the Bill apply to Scotland, then they 1003 would be perfectly contented. They would then offer no opposition to the Bill, but would endeavour to arrange all the clauses, and to come to terms in an amicable spirit, dealing equally with every portion of the United Kingdom. He held that the plan which had been proposed by the Chancellor of the Exchequer was altogether opposed to the spirit of the Act of Union between England and Scotland. When they were brought together to negotiate the Treaty of Union as a United Kingdom, Scotland demanded and was given the right of trading equally with England abroad, in London, or in the Colonies. They insisted upon that as a fundamental principle, and that fundamental principle the Chancellor of the Exchequer's plan now proposed to do away with. When Commissioners were appointed to negotiate the Union of the two Kingdoms, it was first of all agreed that all proposals were to be put in writing, and the Minutes were to be found in the Library of the House. The Scotch Commissioners commenced by laying down three propositions—one with respect to the Crown, the second preserving the Church, and the third requiring equal rights of trading to all parts of the United Kingdom and the Colonies of England. The English Commissioners wished to keep these principles apart, and would have left out the third for future consideration; but the Scotch Commissioners objected to this, and would have the three principles conceded together, first of all, and they were thus agreed to. Now, here was a Bill which did not acknowledge that great principle of entire freedom, of trade. The Chancellor of the Exchequer proposed, as regarded England, that he would, during this Session, allow all the banks to do certain things; but that, as to all the banks of Scotland and Ireland, they were not to be allowed to do the same things. The Chancellor of the Exchequer said that he would, next Session, bring in a Bill for Scotland and Ireland, and he had not the slightest doubt of the sincerity of the right hon. Gentleman; but it was one thing to bring in a Bill, and another thing to pass it, as they knew by sad experience. Well, this Bill for England would be passed; but the Bill next year for Scotland and Ireland might not be passed. The question would come up, why should this be? They asked for 1004 no special privileges whatever for Scotland; they asked for Scotch joint-stock banks to be allowed to do whatever English joint-stock banks were allowed to do, and with that they would be quite satisfied. That was so reasonable that if it were the intention of the Chancellor of the Exchequer to bring in another Bill, he must put the Scotch banks on the same lines as the English banks would be put by this Bill. But, in doing so, he would be incurring an enormous amount of labour, and wasting a deal of time, by discussing another Bill on the subject, when he could accomplish all by simply leaving out the 8th clause, and making this Bill to apply to all parts of the United Kingdom. The Chancellor of the Exchequer had not said that he would bring in a Bill on exactly the same lines—for anything they knew, he might bring in a Bill saying that the Scotch and Irish banks might have all the advantages which the English banks had, provided they would agree not to carry on their business in London. Where would they be then? England would have advantages which Scotland would not have. He held that that would be most unfair. Many Bills, it was true, were passed specially for Scotland, relating to feudal rights, questions of Scotch law, sheriffs, and all sorts of things; and in some matters the phraseology of an English Bill would not necessarily apply to Scotland. But in this Bill they were dealing with modern legislation, and the clauses would apply as well in Edinburgh as in London, and there was no apology whatever for not having the Three Kingdoms dealt with in one Bill if the Government really intended to introduce a similar Bill next Session applying to Scotland and Ireland. Some home hon. Members seemed to think that the speeches against the Bill were necessarily intended to bring about the insertion of clauses to remedy the effects of the recent failure; but no hon. Member had asked this. All they asked for was uniformity of legislation, and with whatever that might be they would be content. But still it was quite proper that the evils of the present system should be pointed out, and he would just mention one or two of them. He did not speak for the Scotch banks, but for the Scotch people. He spoke against monopoly, for the Scotch banks were the greatest trades unions in 1005 existence. A committee of three managers of banks in Edinburgh met, and decided what the rates of interest and for discounts should be, and all the banks, though not represented at the meeting, were bound by that small junta. The 11 banks of Scotland were practically one bank—not for the people of Scotland, but against them. He said that to show that he had no sympathy with anything done merely in the interests of the banks; but he had great sympathy with the people of Scotland. The state of matters was this. No new bank could possibly establish itself, and hence the monopoly. One reason of this was that the Bank of England had established no branches in Scotland. It had gone to Newcastle; but it had not gone to Edinburgh. It should have gone to Edinburgh, Glasgow, and other large towns, and then new banks would have been established issuing Bank of England notes. New banks were not allowed to issue bank notes of their own, and they had no means of carrying on their business, because they had not the Bank of England to fall back upon. They could only depend on other banks, and issue their notes, and this was to place themselves in a secondary and a humiliating position. He hoped that some day the Chancellor of the Exchequer would see his way to bring in a Bill, and carry it through, to abolish the monopoly which now existed to the great injury of the people of Scotland. He would now say a word about reserved liability. He spoke with diffidence; but his impression was that the Chancellor of the Exchequer had made a mistake in agreeing that a reserved liability would be obtained by increasing the liability by one-half of the paid-up capital. He understood the right hon. Gentleman to say that if a bank of unlimited liability had a capital of £1,000,000, it might secure a reserved liability by increasing its capital to £1,500,000. If he were right in that understanding, he thought the £500,000 was far too small a sum. In the case of the unfortunate City of Glasgow Bank, its capital was £1,000,000; the shareholders numbered 1,200; but it had 50,000 depositors. Sympathy was felt for the 1,200 shareholders; but no sympathy was shown in the Bill for the 50,000 depositors. If that had been a Limited Liability Bank, the result would have been that the other property of the 1006 shareholders would have been saved; but the 50,000 depositors would not have got a penny. No doubt, it was a very great hardship that the liquidators had called up 27½ times the amount of the shares of the bank, so that every man who had £1,000 worth of shares was called upon to pay £27,500 to meet the liability. The failure of the Glasgow Bank was a very great calamity—the greatest of the kind that had ever occurred in the United Kingdom. But what might have been the case? Suppose the gentlemen who, it was believed, were able to pay, had not been liable to calls, what would have become of the 50,000 depositors and other creditors? Would not the hardship have been still greater for them? With the directors and shareholders it was practically a system of gambling, and if the gambling succeeded they got the profits; but if it failed they would, under the Chancellor of the Exchequer's suggestion, lose nothing but the capital. He pressed upon the Chancellor of the Exchequer that when a bank had a paid-up capital of, say, £1,000,000, and an enormous number of depositors, the bank should not be entitled to a reserved liability freeing them from all consequences if they merely became bound for an additional capital of £500,000. It was an unjust proposal—unjust to the people—and it ought not to pass. A good deal had been said about the chartered banks, and that their liability was restricted. He knew that the opinion of Scotch lawyers was that the liability of chartered banks was a restricted one, and that they were free from all liability beyond their capital; but that question had never yet been decided in a Court of Law, either in England or Scotland. The Courts of Law in Scotland had held, by eight Judges against four, that trustees were not liable as shareholders, and one of the eight was one of the most distinguished men who ever sat on the Scotch Bench—Lord Colonsay; but the Lord Chancellor, on an appeal to the House of Lords, threw the opinion of eight Scotch Judges to the winds, and so it might be with respect to the assumed non-liability of the chartered banks, if the question ever came to the House of Lords. He cordially approved of the Motion that the Bill be read a second time that day 'three months, unless the Chancellor of the Exchequer would modify his pro- 1007 posal, and agree, in addition, to leave out all the clauses he had mentioned; also to leave out the 8th clause, and mate the Bill apply to the whole of the United Kingdom.
§ THE CHANCELLOR OF THE EXCHEQUER
said, he thought the discussion had mainly turned on the point to which it was likely to be drawn, according to the Amendments placed on the Paper; but it had taken a somewhat different range from that which it would have taken had it not been for the announcement which he made at the beginning of the debate. The point which had been urged both by the hon. Member for Edinburgh (Mr. M'Laren) and others who had spoken on the subject seemed to be this—that it would be desirable, and in some degree necessary, that they should deal with the United Kingdom as a whole in the matter of banking. He was quite prepared to say that, in the abstract, that was a very sound proposition, and there was nothing he should like better than to be able to deal with the United Kingdom as a whole; but hon. Members from Scotland and Ireland should consider what that implied. It implied a great deal more than the mere passing of a Bill of the character of that before the House. There were great differences between the banking systems of England and Scotland. Scotland and Ireland were very nearly on the same footing. England and Scotland were more prominently brought into comparison; and there were some points on which they must legislate if there was to be one united system. First of all, were they to have the same system of note issues? Were they to allow notes below £5 to be issued in England, or were they to curtail the issues of small notes in Scotland? That question, on both sides of which a good deal might be said, would have to be dealt with if both countries were to be placed on the same footing; but that was a small point in comparison with the question on what basis were they to allow banks to conduct their issues at all? In England banks were entitled to issue notes to a fixed amount, ascertained by a calculation made of their circulation in the year 1844, and they could issue no more than the sum thus set down to their credit; in Scotland they had not only a fixed amount they could issue, but an indefinite amount over that, against which they were supposed to hold a certain amount of gold; 1008 but that holding of gold as against notes, as the hon. Member for Glasgow had pointed out, was a very imperfect security, and one which required very careful consideration. If they meant to extend that power to England, it might lead to considerable difficulty. Were they to extend that system to England, or do away with it in Scotland? That was a difficulty they must deal with, if both systems were to be placed on the same footing. Then, as to the privileges of the banks. In England banks of issue were not allowed to have establishments in London, whereas Scotch banks claimed that right, and had it. This would be another difficulty in putting the United Kingdom on a common footing. But if there was not the same footing altogether, it was by no means an easy thing to pass any single Act which was to apply to them all. He did endeavour in this Bill to deal with the whole of the United Kingdom, guarding himself by the introduction of the 8th clause in the Bill; but he quite admitted that that mode of proceeding was one open to comment, and he was not at all surprised at some of the objections urged against it. He had, therefore, thought that it would be wiser and more prudent that they should deal with the English banks alone, and leave the Scotch and Irish banks to be considered by themselves. The hon. Member for Glasgow (Dr. Cameron), in his very able speech, pointed out one thing which showed how very difficult it would be to apply this Bill to Scotland, because he had said that if the Bill were law the Scotch banks would not come under it. He thought that had reference not to the 8th clause only, but to the general effect of the Bill, and the difference that would exist between the chartered banks, which already claimed to have limited liability, without the use of the name, and the other banks which were distinctly unlimited, and which had, according to the Bill, to take the title of limited. He understood one of the objections urged by the Scotch banks was that they would be obliged to take a title that would create uneasiness, and seem to place them in a position of inferiority to other banks that did not require to make a change of name, though claiming the privilege of limited liability. That was a difficulty which did not occur in the same way in England. If, then, the Bill was, as he hoped, fairly suited to the wants of the 1009 English, banks, and was not suited to the 'wants of the Scotch banks, was it not wiser to proceed in the way which had been followed hitherto, and to legislate for England according to English wants, and for Scotland according to Scotch wants? He agreed that there was a much more perfect ideal to be aimed at, and he should be exceedingly glad if they could see their way to attain it. Very important remarks had been made by the hon. Members for Glasgow, Inverness, and Edinburgh, who were opposed to the present monopoly of the Scotch banks. Those observations should guide the House in its policy of legislation on that subject; but this was too large and important a question to be entered upon at the present time. It was a matter which required to be dealt with, and he hoped to be able to deal with it in another Session. But he did not see why the leaving of that question over for the present was a reason for stopping a measure which was likely to be of advantage to English banks. He was sure that nothing could be further from the wishes of hon. Members from Scotland than to adopt a dog-in-the-manger policy, and to stop English banks from obtaining an advantage to their business, because it was not possible to deal with the Scotch banks. He would ask the House seriously to consider if it was possible to deal with the Scotch system of banking fully and properly unless in a Bill limited to Scotland, and if it was possible, at the present period of the Session, to inaugurate such a piece of legislation as that. He hoped the House would be willing to read the Bill a second time, and to commit it pro forma, and allow it to proceed as an English Bill, and not stop it because it was not possible at present to deal with the whole system of banking.
§ MR. SHAW
said, the object of the Bill was a very simple one—namely, to enable bank companies to transform themselves from unlimited to limited liability companies. The question whether the latter should be termed limited, or reserved liability, was quite another matter. The question of issue in Scotland or Ireland never entered into their contemplation at all as being part and parcel of the Bill; and he could not see why it should have been referred to now, except it were to show that hon. Members from Scotland felt there was a rod in pickle for them 1010 next year, when this question would again come up. There was no reason why the few clauses of the Bill should not be applied to the three parts of the Kingdom. He did not know whether banks would benefit by the measure in the long run, for its operation might be, in some respects, detrimental to business. But the most important matter now to be considered was whether they should make the change now asked for on so important a subject at a moment like the present. It was very doubtful whether, at this period of the Session, the Bill could possibly pass. He had himself proposed that it should be referred to a Select Committee, and, in doing so, he had anticipated that it would have been read a second time some months ago, so that he would have had time to have considered it. He feared, with all the difficulties that were cropping up, it could not now pass; and he doubted the wisdom of tinkering with the question in the present sensitiveness of the public mind about all matters of business, and particularly about banking. They were told they were to have a larger measure referring to the Three Kingdoms. Would it not be well to defer dealing with this question which, though a small one, would be large in its results? The Recess would not be lost, if the bankers devoted it to a full consideration of the subject. Reference had been made to the difficulties that were always met with when legislation was attempted on the question of bank issues. The Chancellor of the Exchequer had it in his power to give a quid pro quo, and to say—"You want to restrict your liability; do so by all means; but you must do something to meet my wishes. You cannot come into the privileged position I am about to make for you, except you can give up something yourselves." Why should there be three descriptions of banks? Why make more disturbance than was necessary? Why not invent a system that all banks could glide into, if they yielded to the proposals of the Government? For his part, he would not attempt to obstruct the Bill. He granted that the measure was one of importance for the interests of the country. He was told that the directors and shareholders in unlimited banks were very anxious for it, because they desired to free themselves from their liabilities. Still, the law of the land was such that they could 1011 not get away from its present operation for two years; and he again asked, would it not be wise, when business was in its present nervous state, and the country was in a condition bordering on collapse, to leave the question alone until next Session, when the Chancellor of the Exchequer could bring in a Bill to deal with the question in all its aspects? He, therefore, urged the advisability of postponing the Bill.
§ MR. PERCY WYNDHAM
regretted that the Government had abandoned the 8th clause, to which he attached great importance. The Chancellor of the Exchequer seemed to be sanguine of facilitating legislation next Session by the experience gained this Session; but next Session he would have to face the opposition of Scotch and Irish Members, accompanied with the avowed indifference of those who represented the banks in the Midland districts of England. It was said the Scotch banks demanded no privilege at all; but they had no need to make such demand, because they were already in possession of privileges. All that was required by bankers in the North of England was that they should be placed on equal terms. The Act of Sir Robert Peel was passed years ago, when the present condition of things, resulting from the increase of commerce, was not anticipated; and what the bankers of the North of England said was that the Scotch bankers should abandon their privileges and meet the English banks on equal terms. Did the House realize the anomalous state of things now existing? The Clydesdale Bank was a large and powerful Scotch bank, with branches in England, and it had a branch in the main street of Carlisle, close to the Cumberland and Union Bank; and there was this absurdity—that while the Clydesdale Bank could transact its London business through its own London office the Carlisle Bank could not, but was obliged to transact it where it could, or else give up its right of issue. Let the Scotch bank give up its right of issue and meet the Carlisle bank on equal terms; or, if it retained its right of issue in London, let it give up its branches in the country. The English bank could not cross the Border, but the Scotch bank could, because it was required to have less capital locked up. They ought to be placed on equal terms; and, on that account, he regretted that the Government 1012 had given way. He did not believe there was any great probability of next Session affording more favourable opportunity for legislation than the present. By giving way on this occasion, they would have created a feeling of great disappointment in the Northern counties, where all that was asked for was fair play and nothing more.
§ MR. CHILDERS
desired to remind the House of the circumstances in which the Bill came before them. If a Bill of this character had been introduced last year, he did not think half-a-dozen Members would have been found to say that such legislation was necessary. Limited and unlimited banks had gone through the panic of 1866, if with considerable danger in more than one case, without coming to Parliament to ask for such legislation as the present Bill provided. Again, several of the greatest banks had been much shaken at the time of the Collie frauds, when more than one had large amounts of their reserves taken away, and yet they never came to Parliament with such a proposal as this. If, again, at the commencement of the year money had been worth 1 per cent, as now, it would not have been thought necessary to entertain such a Bill. But the frauds that came to light last autumn in connection with the City of Glasgow Bank, and the consequent pressure experienced by banks in London and the country, had produced such a state of feeling with reference to the security of unlimited banks that the Government, at the commencement of the present Session, when the state of trade and the value of money were different from what they were now, were pressed on all hands to do something in connection with such banks, and that was the origin of the present Bill. If it had been proposed last year to deal with the banking question, the great majority of those who thought the subject called for legislation would have said that the question of issue was the paramount question to be considered by Parliament, and anything approaching to a proposal to pick out unlimited banks for special legislation would have been set aside, because hardly any unlimited bank would have desired to be put on the footing of limited liability, and no considerable part of the commercial world desired that unlimited banks should be so dealt with. This Bill was, therefore, especially the outcome of the panic of 1013 last year; and now that the panic was over, no one was surprised that the Chancellor of the Exchequer was obliged to modify it. However, the main provision which remained in the revised proposal was for enabling banks with unlimited liability in some manner to reduce it—and this was a matter of principle which could well be treated by itself—with the subsidiary provisions for the protection of the public in respect of note issue where unlimited banks issued notes. The other parts of the Bill approached more nearly to what had been called grandmotherly legislation, that most mischievous tendency to protect by law one member of the community against another in matters of purely voluntary business. Happily the Bill avoided many of the reckless and absurd proposals that were made in the Press during the Recess as to inspection and audit, and interference with banking at almost every stage. Still, the Bill dealt largely with those arrangements between directors and shareholders which, as a rule, were much better left to themselves; and in this respect he hoped some improvement would be made in Committee. But, as he had said, the main object of the Bill was to enable unlimited banks to become limited, and the Bill appeared to carry out that change in what seemed to him to be, perhaps, the most satisfactory way in which it could be effected. They could not conceal from themselves that it was by an oversight that the change could not be made under the existing law. Of course, the change ought not to be made to the detriment of the existing creditor by diminishing his security; and because the Bill was fair in this respect he thought it ought to receive a second reading. The Chancellor of the Exchequer could not expect that all the changes that he had shadowed forth would facilitate the passing of the Bill through Committee. For instance, he had proposed that limited as well as unlimited banks should have power to become banks of reserved liability; but every shareholder in a limited bank had definitely fixed his liability, and it ought not to be increased without his consent. This was a very different matter from saying that a majority of shareholders should be enabled to reduce their liability. As to the Scotch and Irish banks, he confessed to feeling some difficulty. He was not prepared to admit that the evasion of the Act of 1845 was unim- 1014 portant; still, it was a separate matter, and did not really touch the question of limited liability. On the whole, he was prepared to support the Chancellor of the Exchequer, if leaving the Scotch and Irish provisions till next Session would enable the important part of the Bill to pass now. But he would, at the same time, remind the House that the Bill merely dealt with the fringe of the banking question, so far as the public interest in the security of the note issues was concerned, and that this as a whole was now ripe for discussion. With these reservations, he trusted the House would pass the Bill.
§ MR. BIRLEY
said, he was very glad that the right hon. Gentleman opposite (Mr. Childers) was prepared to give his support to the second reading. It had been very truly said that the Bill was much desired by the banking community of England; and he thought that hon. Members ought to give credit to the bankers of England for knowing enough of their own business to understand the merits of this Bill. A good deal had been said about the panic out of which the Bill was supposed to have originated; but he thought the Bill might claim a more deliberative character. There were many points on which great differences of opinion existed, and he did not pretend to deal with all the clauses; yet, in the main, he was of opinion it would cure a very serious grievance. What was the real difficulty in regard to unlimited banks? It had arisen, no doubt, in great measure from the City of Glasgow Bank panic—that was to say, attention had been more pointedly called to the matter. It was now found that many persons who formerly believed they were not liable beyond the amount they had invested were aware that they were liable to forfeit their whole property, and it was also found that trustees incurred the same liability. Until the law was altered that must continue, not only to the injury of trustees and others, but to the prejudice of the proprietary of the banks. They could not expect to maintain a proprietary of a substantial character unless they could get persons of substantial means on the proprietary. See how this would affect a man of large fortune. The moment he died, if he himself had been a prudent man, or if his executors were prudent men, his shares must go into the market, and the consequence would be 1015 that shares in unlimited banks would be rapidly withdrawn. This in itself would be a misfortune, as it would diminish public confidence in the banks. He would not refer to other points, however interesting; but he could not sit down without expressing the hope that the opposition which had been raised against the second reading of the Bill would be withdrawn.
§ SIR JOHN LUBBOCK
hoped the Chancellor of the Exchequer would reconsider his determination to except Irish and Scotch banks. Failing that, they would have the whole discussion over again next Session. They might, he was sure, carry a Bill of this kind if they chose to do so. Of course, those who were opposed to private issues would, if the 8th clause was abandoned, become strong opponents of the Bill. He agreed that the English banks were placed at a great disadvantage in competing with the Scotch banks. If the Cumberland Union, or any other English bank, sent a cheque into Scotland a commission had to be paid; while, on the contrary, Scotch banks could collect cheques throughout England free of charge. The hon. Member for Glasgow had pointed out very clearly some of the disadvantages accruing to Scotland from the monopoly of the Scotch banks; but he objected that it would be unjust to turn them out of England. The Bill, however, now before the House did not do so; but coupled the new privileges to be given with a certain condition, and it would be optional with the banks whether they adopted the Bill or not. But it must be remembered that in coming to England the Scotch banks certainly broke not only the spirit of the law, but, in the opinion of high legal authorities, the letter also. There could be no doubt that Sir Robert Peel's intention was to apply the same principle to Scotland, and, in fact, the general opinion long was that he had done so. Nay, more, evidence was given before the Committee which sat upstairs on the question some four years ago that the Scotch banks in opening branches in England were o actually breaking the law. That was the opinion of Sir James Stephen, of Sir Henry Thring, and of Lord Selborne, who was consulted on the subject by one of the Scotch banks. The English banks felt that it was very hard that the Scotch banks should enjoy privileges which were denied to them. They only 1016 asked for justice. The English Country Bankers' Association had issued a Memorial on this subject, in which it was stated that they unanimously, and very naturally, asked that if Scotch banks desired to compete with English banks they should do so on equal terms. For his part, he thought it very important that this question should be settled now; and he believed it would be desirable that it should be settled according to the original form of the Bill and for the United Kingdom.
§ MR. CAMPBELL-BANNERMAN
confessed he had heard with regret that the Government proposed to confine this Bill to England, and he was glad to agree with the hon. Member who had just sat down, though for very different reasons. The Chancellor of the Exchequer seemed to think that he had disposed of the question before the House and vindicated the proposal of the Government, when he pointed out the great difference between the banking arrangements and laws in the three parts of the United Kingdom. It was true that the laws relating to issue, and, indeed, the whole circumstances of banks, were different in the three countries. It was true that there was a monopoly in Scotland; but that fact had really nothing to do with the question they had to consider. The Bill before them was one affecting the liability of proprietors and shareholders in banks, and applied to the conditions under which they should hold their shares. But it had nothing to do with the Scotch issue under the authority of the Government, or to any of those complicated questions to which the right hon. Gentleman had referred. His hon. Friend the Member for Edinburgh said that what was good for England was good for Scotland. He might have gone further, and said that if there was one part of the world in which this Bill was required it was Scotland. A great bank with unlimited liability, as they all knew, failed last autumn, and caused a stupendous calamity in Scotland. There was a desire, almost a universal desire, in the interest not only of the shareholders in banks, but of the general public, to see some limitation imposed upon the responsibility of shareholders in banks. The Government had to consider also their own interests, and as responsible for the issue they had preserved the full liability of banks in regard to issue in this Bill. They pro- 1017 posed that unlimited banks should have the power of converting themselves into limited liability companies; but the first thing the right hon. Gentleman did was, so far as Scotch banks were concerned, to attach to this privilege conditions which made it perfectly futile. He was not going to follow the hon. Member for Maidstone in discussing the 8th clause, as to the Scotch banks coming to London. This subject was considered before a Committee a few years ago, and if it had then been thought that Scotch banks should be excluded, why did the Committee never make such a recommendation? It merely reported its evidence. The hon. Member for Maidstone (Sir John Lubbock) said he had high legal authority for saying that the Scotch banks had no right to come to London; but there was high legal authority adduced before that Committee on the other side. The question was so difficult to settle in the direction of the hon. Member for Maidstone that the Committee made no Report; but merely reported their evidence, and no action had been taken on the subject since. But now the right hon. Gentleman, in not only a singular, but he might almost say a shabby way, wished to attach to this measure a condition which would exclude the Scotch banks from London. And yet—would the House believe it?—that condition would not have been applicable to the particular bank that had been mentioned. The bank never was in London at all. What happened was this—a certain bank failed, and caused a widespread calamity. Then it was said—"Let us prevent this for the future; let us have a limit to the liability of shareholders; and let us prevent Scotch banks from coming to London." But that bank never came to London. In fact, one strong argument in favour of excluding the Scotch banks from London was that it was said that they would enter into speculative business if they came to London, which they would avoid if they remained in Scotland. But the case of the City of Glasgow Bank showed that nowhere could such speculative business be conducted more completely and more ruinously than in Scotland itself. The hon. Member for West Cumberland (Mr. Percy Wyndham) complained, and very properly, of the position of the Cumberland Bank. The hon. Member said 1018 that the Clydesdale Bank was in Cumberland, and the Cumberland banks had restrictions, while the Scotch bank I had not. He agreed with him; but as to the remedy he would say, remove the restrictions from the English banks rather than impose them on the Scotch. He doubted whether Scotch banks had done wisely in coming to London; but having come, it would be unfair to remove them and deprive them of a lucrative business. The Government having thought it impossible to go on with the 8th clause, they then proposed to confine the Bill to England, and there was at least some consistency in their conduct. Their original proposal was to turn the Scotch banks out of London because a bank had failed which never came to London at all; and their present proposal was, because a Scotch bank had failed and. spread ruin around it, to confine their remedial measure to England alone. They were consistent in this—that both proposals missed the point of the case. Now, the House was asked to wait till next year for similar legislation for Scotland and Ireland; but they did not know what might happen next year, or what sort of Bill would be introduced. For his part, he did not regard the Scotch system of banking with perfect admiration; and so far as the position of the Scotch banks at present was concerned, he believed that if the Government would deal with that great, important, and delicate question, they would receive considerable assistance from all parts of the House. But, in the meantime, they wished to secure for these banks the advantage of this Bill, which had nothing to do with the question of issue; and he was afraid the Chancellor of the Exchequer, in confining it to England, would find the Scotch Members little disposed to assist him in passing it.
§ MR. MUNDELLA
thought it would be very much to be regretted, in the interests of commerce, if a Bill were not passed this Session dealing with the liability of banks. It was a pity, he thought, that the Chancellor of the Exchequer should have mixed up the two questions of issue and liability; he seemed to connect the two questions in his mind when addressing them on the subject, as well as in the Bill. He thought it would have been better if the Bill had been confined to the one question of liability, and extended to the 1019 Three Kingdoms alike. If it were admitted, for the sake of argument, that the Scotch had a considerable advantage over the English with respect to issue, it would not increase that advantage that they should be placed on an equality with their neighbours regarding liability. What was more, there was no use contending that they would accomplish anything by attempting to thrust the Scotch banks out of London. The fact was, that the banks doing the largest business were Scotch banks of limited liability, and in no respect affected by this measure; so that, while Parliament were endeavouring to drive a bargain on this matter, they were creating a feeling of soreness on the part of the shareholders of the unlimited banks of Scotland, and doing nothing to satisfy the greed, or at least the grievance, which the London banks had against the Scotch banks. It had been said that the public mind was in a peculiar condition on this subject. Well, he thought that if a Bill was passed dealing with one branch of the question it would go far to allay any feelings of that kind. They did not want grandmotherly legislation; but it was fair to expect that the Government would facilitate any change from a condition of unlimited liability, which was found, after all, to limit the business of the country, to one of reserved or limited legislation. He did not see the difficulty of effecting a change from unlimited liability to reserved liability. In the majority of cases, he thought the change would not be so difficult as had been supposed. In any case, he hoped that they would all, English, Irish, and Scotch Members, facilitate the passing of the Bill this Session, in order to restore the confidence of the country.
§ MR. LAING
thought the speech of the hon. Baronet the Member for Maid-stone (Sir John Lubbock) must be a sufficient proof that Scotch Members were not actuated by mere vague apprehensions, nor pursuing what was called a dog-in-the-manger policy, if they objected to partial legislation, which would leave the fate of Scotland to be decided in another Session. There was no doubt that in the Bill, as originally introduced, Clause 8 was really an instrument for deciding by a side-wind a great banking controversy brought up in that House and the country a few years ago, as to the admission of Scotch bankers to London. That was a very large ques- 1020 tion, upon which a great deal was to be said; but the practical result was to lead to a combination of London banks for the purpose of excluding Scotch bankers from London. Whatever legal opinion they might have obtained as to the existing law of the case, they had never ventured to test that opinion by bringing it before a Court of Law. A Committee was appointed to consider the subject, and, practically, the result was nil—they reported evidence, but offered no opinion. He was not going to argue now whether it was a right thing that Scotch banks, under these circumstances, should be allowed to come to London or not. There was something to be said on both sides of the question; but, looking at it from a public point of view, he thought it was impossible to deny that it was for the benefit of the trade and commerce of London and the Empire generally that a portion of the vast deposits which were attracted into Scotch banks by the system pursued there should be able to find some employment in a discount business in London, because they could not find legitimate employment at home to the full extent, without being driven into wild speculations, such as those which proved ruinous in the case of the Glasgow Bank. At any rate, it was not found possible to persuade a competent Committee of that House to report in favour of the exclusion of the Scotch banks, or to induce the Chancellor of the Exchequer to introduce a Bill directly attacking the system, and putting an end to it; and, therefore, the members of Scotch banks had great reason to feel alarmed when they found an attempt by a side-wind to do that which the Government were afraid to do directly. There could not be any reasonable doubt that if the Bill were passed in its present shape, and confined to England, the Scotch banks next Session would find themselves in great jeopardy of having the question of coming to London not decided upon its own merits, but made one of the conditions of availing themselves of a certain privilege. The jealousy which Scotland felt in this respect was not confined to bank managers and shareholders; but the people of Scotland generally felt attached to their existing system of banking. The very basis of that system had been that, owing to the power of issuing notes, especially £1 notes, the banks had been able to multiply and extend their branches in 1021 that country to an extent which was quite unknown in England. Well, no one who was at all practically acquainted with Scotland could doubt that that had been one of the main causes of the great prosperity of Scotland. It had been the main cause of those habits of thrift in the Scotch character which had been the foundation of the great progress which that country had made. Why, in the most out-of-the-way districts in the Highlands, they found in some small town of 2,000 or 3,000 inhabitants two or three banks doing a large business, attracting a large amount of deposits, and doing exceedingly useful work in that part of the country. That system had always been viewed with a certain amount of disfavour in England, and had been exposed to repeated attacks. To go as far back as 1828, they all knew that the Scotch £1 notes were only saved from extinction owing to the panic which then ensued by a series of able letters published by Sir Walter Scott, which excited a strong national feeling on the subject. Again, in 1844, they all knew that if Sir Robert Peel had had his way, and some of the political economists who supported him in the Act of that year, they would have restricted or prohibited the issue of paper altogether in Scotland. There had been not merely a quarrel between the London bankers and the Scotch bankers as to establishing agents in London, but there had been a long and persistent jealousy of the Scotch system of banking prevailing among influential classes in England; and, therefore, it was a matter of considerable anxiety in Scotland that any Bill touching the banking interests of the country which was brought forward should be not partial but comprehensive in its character, and introduced at a period of the Session when it could be fully considered and discussed by the country and that House before any measures were finally adopted. As regarded the necessity of proceeding with any measure at all at this period of the Session, he must say he disagreed so entirely with the arguments of his right hon. Friend the Member for Pontefract (Mr. Childers) that he would hardly have thought of repeating them to the House if it had not been that he disagreed with them. His right hon. Friend argued that the Bill was one which no one would have thought of introducing or 1022 supporting, if it had not been for an isolated catastrophe to a Scotch bank which created a panic; and then he went on to state, with great truth, that the panic had in a great measure passed away. On that point, he (Mr. Laing) should wish to bear his humble testimony as far as it went, because he had heard it asserted very broadly in that House that this was a measure imperatively called for by the present interests of commerce. He did not agree with that conclusion. He thought this Bill was called for by a certain number of nervous shareholders; but as regarded the general commercial world, there never was a time when there was less banking panic or less distrust in the great banks than at the present moment. They had just completed a period when a number of these banks had submitted their balance-sheets, and made reports for the half-year; and he ventured to say there was not one of the balance-sheets issued by those great institutions which had not given very great satisfaction to the commercial community. As regarded the suggestion which had been made of Government interfering and laying down a stereotyped form of audit, he would say, read the City articles in the newspapers for the last fortnight, and what did they find? They found articles commenting on different systems of audit introduced by the different joint-stock banks, condemning one and commending another, and showing how a very great emulation had been going on amongst those institutions in order to improve the form of balance-sheet and inspire confidence in the public. The Union Bank had brought its balance-sheet as near to perfection as the complicated system of banking accounts would admit. And how much better was this state of things than to have one stereotyped system under an Act of Parliament, admitting of no improvement, and inspiring a false confidence on the part of the public, from the idea that there was no possibility of loss under it. He must say that if ever there was a subject to be approached deliberately it was the great question of banking, and any Bill which touched that question should be referred to a carefully-chosen Select Committee to be discussed in all its provisions. He positively denied that there was anything like a necessity for proceeding with 1023 the Bill at the present time, and did not think the slightest harm would be done in any circle of legitimate business if the consideration of it were to stand over till next Session. He did not see why, subject to existing liabilities, any bank in future might not go upon the principle of limited or reserve liability, provided only these two conditions were observed—first, that if it was a bank of issue it must make proper provision for its notes; and, secondly, it must so register the condition of its capital and the liability on its shares as to give perfect information to anyone who might to disposed to deal with it. If he might venture to advise the Chancellor of the Exchequer, he would suggest that he should not encounter the opposition which he would have to meet from important interests connected with Scotland and Ireland for the sake of passing an imperfect Bill for which there was no hurry, but withdraw this measure and introduce another next Session, the details of which might be carefully elaborated in a well-constituted Select Committee of the House.
§ MR. GOLDNEY
expressed his belief that if they allowed the Bill to be read a second time, as had been suggested by the right hon. Member for Pontefract (Mr. Childers), they would give very great satisfaction to the whole commercial community, and especially to the banking portion of it; and they might take the discussion as to whether the measure should extend to the Three Kingdoms or not on going into Committee.
§ MR. W. HOLMS
confessed he had listened with very great surprise to the announcement of the Chancellor of the Exchequer, that he proposed to withdraw Scotland and Ireland from the Bill, more especially as an opinion had been expressed in that House, over and over again, in favour of having uniform legislation for the Three Kingdoms. It appeared to him that the Bill, which contained only two provisions,—namely, that for limiting the liability of Companies on the one hand, and for providing a Government audit on the other, was so simple that it might equally apply to the Three Kingdoms. Moreover, it appeared to him that the true reason why the Chancellor of the Exchequer had withdrawn Scotland and Ireland from the Bill was to be found in 1024 the fact that the Government believed they could not carry this Bill with the 8th clause in it. For his part, he distinctly objected to that clause. Practically, the Bill, if passed with that clause, would put the three countries in this position—it would provide that unlimited Companies in England might unconditionally accept all the provisions of the Bill; but as regarded Irish and Scotch banks they should only obtain them on certain onerous conditions, because conditions were surely onerous which would compel great Companies to give up lucrative businesses which were now being carried on in England. He ventured to characterize the 8th clause as a London banker's clause; and it was unfair to Scotland and Ireland that the Government should have, as it were, smuggled into this Bill a provision which had practically nothing to do with the real object of the Bill. They were told that if they would only agree to this Bill now they would have two Bills introduced next Session—one for Scotland, and the other for Ireland—but what sort of Bills would they be? They would, in all probability, be very much upon the same lines as the 8th clause, which had nothing whatever to do with the principle of the measure. If the Chancellor of the Exchequer would withdraw the 8th clause, and allow the Bill to apply to Scotland and Ireland as well as to England, he (Mr. Holms), as a Scotch Member, would give him his hearty support in carrying the Bill. As to the amount to which the liability of shareholders should be reduced, he expressed his conviction, from the experience afforded by the failure of the City of Glasgow Bank, that the shareholders in unlimited banks would be only too glad to be called upon to pay five or even ten times the amount of their original capital. He would, therefore, suggest that in any Bill which might be proposed, whether for England or for the Three Kingdoms, reserved liability should not be one-half more than the paid-up capital, but three or four or even five times that amount. He thoroughly agreed with the right hon. Member for Pontefract (Mr. Childers) that this was not a question to be dealt with in a hurry. The present Bill was in the nature of a panic Bill; it was brought in in consequence of a panic; and it would not command the confidence 1025 of the public, unless it was based upon thoroughly sound principles. Under all the circumstances, he hoped the Chancellor of the Exchequer would carefully re-consider the question, and take the course originally proposed of having only one Bill for the Three Kingdoms. The people of Scotland and Ireland would otherwise not consider themselves fairly treated. The hon. Gentleman was proceeding to point out that the result of the failure of the City of Glasgow Bank was greatly to the credit of the shareholders from the manner in which they had surrendered their property, and to the people of Glasgow who had voluntarily raised no less than a third of a million to alleviate the suffering, which had been occasioned when— It being ten minutes before Seven of the clock, the Debate stood adjourned till this day.