HC Deb 29 July 1879 vol 248 cc1537-63

Order read, for resuming Adjourned Debate on Amendment proposed to Question [22nd July], "That the Bill be now read a second time."

And which Amendment was, to leave out the word "now," and at the end of tile Question to add the words "upon this day three months."—(Dr. Cameron.)

Question again proposed, "That the word 'now' stand part of the Question."

Debate resumed.


said, that last week he, in common with several other hon. Members, opposed the second reading of the Bill. He and they did so because they believed that Scotland had been unfairly treated in connection with that measure. The Chancellor of the Exchequer had evidently thought it impossible to carry the Bill as originally proposed, and had, therefore, come down to the House with a proposal to the effect that Scotland and Ireland should be excluded from the provisions of the Bill. That was a proposal which was eminently unsatisfactory both to Scotch and Irish Members; but now that the Chancellor of the Exchequer had decided upon withdrawing the 8th clause, and to include Scotland and Ireland within the scope of the Bill, he, for his own part, should withdraw the opposition he had offered, and as he thoroughly approved of the principle of the Bill he should give it his hearty support.


said, that the declaration that the Chancellor of the Exchequer had made when he moved the second reading, supplemented by the other declaration that Scotland should be put on an exact equality with England, was satisfactory so far as Scotland and Ireland were concerned; and he could only express his regret that the Government should ever have allowed themselves to be induced to introduce a clause which practically would have had the effect of turning all the Scotch business out of London. He regretted that the Government should have adopted such a course, he believed only in deference to a section of the banks in London, which, no doubt, had put strong pressure on the Government; because he believed it was recognized by the public in London that whatever might be the case as to Scotch banks in Scotland their advent to London had been very advantageous to the business of that City. He thought, however, that the Bill required some further consideration in the public interest before it was proceeded with. He believed that some great principles were involved in the passing of that measure, which was brought forward apparently in the interests of the public, but really in the interests of the shareholders of banks. What was the state of matters with which the Bill proposed to deal? They had many large banks which, by giving the assurance of unlimited liability on the part of the shareholders, had induced the public to put very great confidence in them; and, as a consequence, they had received from depositors and others very large sums of money. Now, in consequence of the great confidence which the public had placed in them, those banks had been able to pay very large dividends upon their capital. They had ranged from 10 to 20, and even more, per cent per annum, besides making large additions to the reserve funds. Well, a business which paid at that rate was not, as a rule, unattended with risk to its shareholders, and what was now proposed was this—that those banks which commenced with unlimited liability, and having secured the confidence of the public, having large deposits placed with them, could now turn round and limit the responsibility of their shareholders. Now, the grounds upon which that proposition was made were somewhat to this effect. The shareholders in unlimited banks—not only the City of Glasgow Bank, but others—had become aware that they were incurring considerable liability in being so; and it was alleged that men of substantial property would not now consent to be made shareholders with that undefined liability hanging over them. But surely it was a very great insult to the intelligence of men of business to suppose that up to that time—the time of the failure of the City of Glasgow Bank—those banks were not perfectly well aware of the very great responsibility which they incurred. Every business man must have known that he, as a shareholder, was responsible to the fullest extent of his means for the obligations of that bank. What really was now asked to be done by the Bill was to maintain the price of bank shares in the market. It was proposed by the Bill to relieve the responsibility of shareholders of unlimited banks, the consequence of which would be that the price of bank shares would be maintained in the market. As it was, the shareholders of these banks having raised the price to such an amount, a dividend of 15 percent, might be, would only return 5 per cent, or at the most 6, upon the market price. There were two cures for the present state of matters. It was quite true that business men and men of common sense would not hold bank shares, while they could sell them at such a price as would only bring the purchasers 4 or 5 per cent. They would reflect that if, instead of holding these shares on which they were getting 20 per cent, they could sell them at a corresponding price, and re-invest the money in some security on which they would get 4 or 5 per cent, and with no liability whatever, it would be much better for them. The price of bank shares had risen in the market. The expected higher dividend had been discounted, and the bank shares were now at their present high price, not so much for the dividend the shareholders had got, as for the dividend that they expected to get. If this Bill passed, they would have bank shares higher still in the market. The real difficulty which had occurred was this—that they put the price of bank shares too high in the market, and the Bill was introduced for maintaining that price. The remedy for the difficulty was that the price of bank shares should go down in the market to such a price as would pay their purchasers a dividend of about 6 or 8 per cent, in which case the shares would be purchased by men of substance, who would be willing to incur the amount of risk which would be entailed by a dividend of 6 or 8 per cent. With regard to the proposal as to reserved liability, he did not think that it would be found to be satisfactory in practice, or, indeed, practicable. The difficulty which arose was this. If they organized a limited or reserved liability bank with a capital consisting of £50 shares, and another £50 liability upon them; if the first £50 was called up, although the shareholders should have some reserve to meet their liabilities, the objection was that the remaining £50 was not available for the purposes of the bank until the bank suspended payment. It would be much better that the bank should be organized with a smaller amount of paid-up capital, so that the public could see how much uncalled capital there was, and that that uncalled capital should be available for the bank at the time of difficulty. He thought that, for the purposes of reserved liabilities, it was hardly worth wasting such a Bill; because he believed that if the public had an opportunity of organizing a bank with limited liabilities they would not do so, but would prefer a bank which would leave a proportion of the capital not called up in the manner he had suggested. There was, however, another question connected with the measure he wished to call attention to, and that was the privilege which was to be continued to unlimited banks which became limited or reserved of still maintaning their issue of notes. That was a point which created very considerable complications with regard to the Bill in carrying out the principle which was supposed to underlie its provisions. The Chancellor of the Exchequer in his speech had said that this Bill provided that the shareholders should, in addition to their reserved liability, be also responsible for the full payment of the notes in circulation to the general body of creditors of the bank. Now, he thought that introduced an abundant element of uncertainty in regard to the shareholders. It might be quite true that the reserved liability was united to a certain amount, when there was no issue of notes; but when there was an issue of notes the shareholder could not possibly learn the amount of his liability. It seemed to him that the clear and broad principle to lay down with regard to the note issue would be that if an unlimited bank became limited, by the fact of its doing so it should lose altogether its right to a note issue. If that principle were not adopted in the Bill, the effect of it would be to still further augment the privileges and increase the monopoly of banks. The Scotch tankers and the monopoly they possessed had been very frequently alluded to in the course of the debate; but, up to recently, that monopoly had not been complained of to any very great extent. But he thought he was expressing what was becoming a general opinion in Scotland, to the effect that Scotch banks were beginning to exercise their monopoly to an extent which was injurious to the trade in Scotland. One particular complaint which the people had as to the Scotch banks coming to London was that the Scotch banks were receiving deposits all over Scotland, that they brought the money to London, and actually lent it there on the Stock Exchange, or at discount, at a much lower rate of interest than they would have charged in exactly similar transactions in Scotland. He considered that that was a point which was deserving of the consideration of the House; because, until the note issue was taken away from the Scotch banks, it would be hopeless to attempt to institute any new bank in Scotland to compete successfully with the present monopoly. He should wish further to call the attention of the House to the State policy in regard to the note issue. The question was raised by the right hon. Gentleman the Member for the City of London (Mr. J. G. Hubbard), when a Bill was introduced on the subject in 1875. In the discussion on that Bill, the right hon. Gentleman the Member for Greenwich (Mr. Gladstone) said— Sir Robert Peel proceeded steadily on the principle that where the law proposed restrictions on issuing banks, these restrictions ought to be maintained; and, moreover, Sir Robert Peel did that with reference to a wider principle still—namely, that the State ought ultimately to get into its own hands the whole business of issue, and that that course ought to be taken upon the first favourable opportunity."—[3 Hansard, ccxxii. 1985.] The Chancellor of the Exchequer, rising afterwards, said— I believe this to be the truth, of the case—that as far as England at least was concerned, Sir Robert Peel looked forward to the time when the provincial issue should be absorbed, and come into the hands of the Bank of England as the agent of the State."—[Ibid. 2020.] He thought, therefore, that the present would be a favourable opportunity for providing in the measure now before the House that any unlimited issuing bank which availed itself of the powers of the Bill, and became limited, should lose altogether its right of issuing notes. It appeared to him that the present was a favourable opportunity for the State to demand of those banks of issue which availed themselves of the advantages of that Bill that they should abandon altogether the right of issuing notes. Then, as regarded the provisions of the Bill as to notes, they seemed to him to be altogether unsatisfactory. According to the last Acts—namely, the Companies Acts of 1862 and 1867—notice of an intended change had to be sent to every special creditor of the company which converted. itself into a limited liability company. But banks which intended to convert their liability into that of a limited character would immediately take the opportunity of changing the deposit receipts; so that a creditor, without being aware of the fact, would find that he was only a creditor from the date of his new deposit receipt. For all these reasons, he should support the Amendment moved by the hon. Member for Glasgow.


said, the whole subject was one of extreme complication, and it was so because the interests affected were distinct ones, and had been erroneously connected when they were absolutely and entirely different. Banks performed two functions, one the Imperial function of issuing notes, and the other the legitimate business of banking, and the only remedy for the evils which attended the present system was for the Government to assume for the State at the earliest opportunity the absolute exercise of the Imperial function of issuing notes, a step which need not involve any injustice to issuing banks. Why was the Bill introduced? What had been the provoking causes of this proposed legislation except the failure of the City of Glasgow Bank? Barring that failure there was nothing in the world to disturb the confidence of shareholders or depositors—nothing but that failure, which had opened a vista of the possible failures of other banks. But what was the case with many of the other banks? They were asked to permit them to diminish their liability; but in whose behalf was that request made? It was a petition on behalf of the banks. On whose side ought the House to consider it. He thought it ought to be on the side of the depositors, who were as 100 to I compared with the shareholders, while much more depended on the money put into the bank than on the capital subscribed. For himself, he had no faith in subscribed capital; while the capital of a bank ought to be in proportion to the amount of business done. Then, with regard to audit, he had no great faith in periodical audits; but he had faith in a true candid statement made in a shape that the public could understand. Nothing was more unsatisfactory and more calculated to mislead than the way in which many of the banks presented their accounts at present, for they mixed up "cash" with "money on call" and with "convertible securities," essentially different things. He believed a great deal might be done hereafter with regard to putting banks under an obligation to make their accounts more straightforward and satisfactory. If the House legislated for the purpose of the present measure they legislated in a panic, and without due consideration of the subject; and it was impossible to deal with the subject properly as long as the operations of issuing and banking were conducted for the advantage of the same bank, because, for mere banking, the most absolute liberty was required, and the issue of paper money was a function which ought to be exercised for the State alone. He thought the Government would find, in the fact of the many objections to the measure, that they could hardly expect to pass such a Bill, and he suggested that they should leave the subject to another Session and deal with it in a larger and more comprehensive manner.


agreed that this was a panic measure, and nobody could doubt that the panic had resulted from the unfortunate case of the City of Glasgow Bank, a case which was different in its circumstances from many of its English compeers. Although the House of Lords had now decided the contrary, yet there was good ground for believing that the position of trustees who happened to be shareholders in the Scotch banks was, by an Act of Parliament, somewhat more favourable than that which they were known to occupy in respect of the English banks, and a very large number of gentlemen had been caught in the toils of that litigation, and had been ruined. They thought the terms in which they had actually registered as shareholders in that bank freed them from any personal liability, and that the liability attached to the estate which they represented and not to themselves. That created, very naturally, great alarm, and a great amount of suffering, and then the London unlimited banks began to perceive that the moment there was panic there was a great rush to get rid of shares. The natural tendency of this was, of course, that weak holders took the place of strong holders, because the person who, under the circumstances, would take a share in an unlimited bank was a person who had nothing to lose but the interest in that particular investment; and, no doubt, there had been a tendency in that direction. He believed that to some such circumstance as that the great pressure, which it was notorious had been put upon the Government, was to be attributed. As far as allowing an unlimited bank to become a limited bank, if it was so minded, he, for his own part, saw no objection. The Act of 1862 gave that power; but the banks then were far too proud of their credit and position to condescend to take advantage of it. It was not on that account that he ventured to submit there was an objection to their Bill, and that the matter required to be further considered. He understood that it was quite settled that Clause 8 should be omitted; but he did not know how far Clause 9 was to remain in the Bill.


We retain that clause.


said, it became important that he should call the attention of the House to the great difficulty which resulted from the retention of that clause. They had at present limited and unlimited companies, and companies incorporated by Act of Parliament and incorporated by Royal Charter, and that was, surely, enough. But the Bill proposed to create a kind of Joint Stock Companies. The banks reserved liability, and he understood that the necessity for this legislation resulted from one circumstance only—namely, that there were a large number of banks with unlimited liability who had paid up the whole of their share capital, and, inasmuch as there was no reserve or share subscribed capital, the directors did not see their way to persuade the shareholders to increase their subscrip- tions, without which they could not get credit on the footing of being registered as an unlimited company. The Government stepped in to help them, and proposed a new category of Joint Stock Companies to meet that particular emergency or difficulty—that was to say, they proposed a class of banks where the liability should arise, not while the bank was a trading concern, but the moment it came into liquidation. In other words, they did not propose to intrust directors with the power of calling up the reserve from the shareholders for the purpose of trading; but they kept it as a fund to which the creditors might look in the event of the company eventually coming into liquidation. At first sight, there did not seem to be a great deal of harm in that; but what he wanted to point out to the Government was this—How many banks were there in that position? What was the necessity for any change in their companies' laws? Unless the necessity had been clearly proved, it seemed to him that there was the strongest possible reason why the Government should not call into existence a new class of companies with new incidences. With every new institution, possessing new rights, rose up a vested interest which made it more difficult hereafter to legislate in regard to the whole subject upon a broad and comprehensive principle. He would submit to the Government whether it was worth while to put on the Statute Book this year an Act which would create two distinct classes of new companies, and add confusion to the existing state of confusion in regard to their Joint Stock Companies' law? He hoped that the Government would be satisfied with the fair discussion which had taken place, and defer legislation till next Session, when the subject might be more satisfactorily grappled with as a whole.


thought there was something peculiar in this chorus of opposition, arising from the particular quarter from which it came. He was surprised at the speech of his hon. and learned Friend the Member for Coventry (Sir Henry Jackson), who had referred to the 9th section as introducing a new series of complications. Now, considering the distinguished position which his hon. and learned Friend occupied, both in the House and elsewhere, he was the last person from whom he should have expected to hear that observation. If he had looked out the first two lines of the section, he would have seen a reference to the clause in the Companies Act of 1862, which in another form did the very same thing but imperfectly. If the Bill were liable to the charge brought against it by the hon. Member for Forfarshire (Mr. J. W. Barclay) in two particulars, it certainly would not deserve the support of that House. That hon. Member objected, in the first place, that the measure was not in the interest of the public; and, in the second place, that it altered the liability of present shareholders to their existing creditors, and that by some peculiar process, which, no doubt, he understood himself, it was likely to keep up and even to increase the price of bank shares. But was not this a public question? They could not go on without banks any more than they could without Water Companies and Gas Companies. They were a part of the necessities of business life, and anything which put their relations towards the public in a better, a more solid, enduring, and healthy condition was worthy of the consideration of the Legislature. The experience they had had in this matter had been narrowed to the failure of the City of Glasgow Bank; but it had been forgotten that since then a very considerable English bank had failed, and spread disaster right and left to such an extent as to create a second panic in England. The public had got to look to the healthy condition of the joint-stock banking system, as a part of the great business of commercial life in this country; and the present condition of affairs was such that but for the probability of this Bill becoming law there would have been a general stampede of all the men of fortune, and property, and of common sense from the unlimited banks, because no man who desired to sleep comfortably in his bed, or make a will for the benefit of his family, would consent to remain under such liability as existed at the present moment. It could not be said that that was a state of things beneficial to the public. He maintained that the question was a public one. The hon. Member for Forfarshire could not have read the Bills and Banks Act, for it was as plain as the way to the parish church that the liability at present existing on the part of the banks could not be affected by this Bill. Therefore, they were doing no such outrageous thing as narrowing the liberty of existing shareholders. The Act of 1862 had not been taken advantage of by the banks on account of its cumbrous machinery. By that Act the banks were compelled to give individual notice to the depositors of their intention to change from unlimited to limited liability, which would operate most prejudicially to all concerned; whilst the present Bill enabled the directors to make the change by publishing notice of their intention in the public newspapers and in The Gazette. The suggestion that the operation of the Bill would be to increase the value of shares, and that in that way small investors would be tempted to seek larger dividends, was not consistent with the avowed object of the Bill to encourage richer men to allow their capital to remain in banking concerns. The House was not considering the Bill in a panic, but under the pressure of demands deliberately made in such a way as to render it the duty of the Government to throw upon the House the responsibility of rejecting a measure for the relief, not of shareholders only, but equally of depositors and of the whole banking community. No doubt it would have been satisfactory it there had been time to send the Bill to a Select Committee, in order that it might be considered whether the object could be attained without creating another class of banks; but, having regard to all the circumstances of the case, he trusted the House would be loyal to the principle of the Bill, which up to that time had been received with general assent, and not only pass it through Committee, but secure its becoming law without any further waste of time.


begged to say that he was rather vexed that this Bill should be brought forward at the present time. He would have preferred a measure that could have been more maturely considered, and that greater time could have been allowed to work out this important question. He was sorry, after what they had heard, that this Bill should be pushed forward. In Scotland, it was said, the banks had a great monopoly, and that they exercised their power over the public as they liked. They charged what rate of interest they pleased, and the public were, practically, helpless in their hands. It was a serious accusation for a Scotch Member to put before the Chancellor of the Exchequer. There was a galling monopoly in Scotland, which could not be touched. There was no monopoly so great as this bank monopoly, and there was no question at all that it was a very serious thing that this state of affairs should exist; but still he was sorry, when the Chancellor of the Exchequer had undertaken to legislate on banking, that he had not done what he proposed at the beginning. Some people from Scotland would not let the Bill pass unless they got their way, and others unless they got theirs; and it seemed to him that the Bill would dwindle down to a very small thing on limited liability. They were legislating, as it seemed to him, entirely on behalf of banks, and were neglecting those who were depositors in those banks; and he confessed he did not like that people should run away with the idea that Parliament was endeavouring to save those who were bankers, and leaving those who were depositors in their unprotectedness. A banking company was simply a commercial company, intended to make money for the shareholders. Why should Parliament continually throw around them the mantle of protection? Why should they not be subject to the same rules as other commercial establishments? What about private banks, of which there had been more failures than of public banks? The Scotch wanted monopoly at home and liberty in England; the English wanted a fair field and no favour. Let there be but one denomination of banks, and let them all be under one law. Above all things, they ought to consider the confiding public, whose trust was wonderful and astonishing, and who ought not to be deceived by names and distinctions they could not understand. He did not want to oppose the second reading of the Bill exactly, because it was right to give some consideration to those who had enormous risk on their shoulders; at the same time, he could not say he approved of the Bill.


said, it would be wise to pass the Bill this Session, because he feared that if the question of allowing unlimited banks to become limited were not dealt with until the question of issue was considered, the day would be far distant when liability could be limited. He was a Member of the Committee on Banks of Issue, and he remembered that the Committee was flooded with schemes on the currency question. That was a subject it would take a very strong Government to deal with, and he did not believe that in Scotland they wished to have it dealt with. The sympathy of some hon. Members was confined to depositors; he thought some consideration should be shown to shareholders also; and he would, therefore, be very glad to see the Bill, with certain modifications, passed. He hoped the House would have a statement from the Government as to what portions of the Bill they meant to retain, and what to abandon; and that the Chancellor of the Exchequer would see his way to allow banks, simply by advertising in The Gazette and in certain newspapers, to make the change from unlimited to limited liability, instead of requiring them to write "Limited" on their doors. A good deal had been said about the monopoly of Scotch banking. He did not believe there was any such monopoly, and he was quite sure that Scotch banks had been a great advantage to the country. He believed there were over 600 branches scattered all over Scotland, every small village almost having its branch bank, and that had been of untold advantage to the people; and there could be no doubt that every person who could give reasonable security would have the necessary facilities afforded him by every banker. He hoped the clause as to auditing would be kept in the Bill. He believed that a system of auditing and a particular form of accounts would prove a great advantage both to the banks and their customers. If, in the case of the City of Glasgow Bank, there had been auditors chosen by the shareholders, and a proper supervision by accountants, the organized fraud of directors and officials of that bank would not have occurred. He did hope the House would agree to pass the second reading of the Bill; and he hoped some Member of the Government would show exactly how the Bill would stand if it did pass, and what alterations would be made in it in Committee.


cordially supported the Bill, observing that the Chancellor of the Exchequer had a task of the greatest difficulty in legis- lating for the shareholders of a bank, and, at the same time, doing it in such a way as not to injure the interests of depositors. He looked upon the position of banks as peculiar. The capital of those in Scotland was only about £10,000,000, while the deposits were £80,000,000; and he did not see what harm could arise to these banks if they were only limited to their shares. There were several banks in Scotland of limited liability, which had maintained themselves side by side with unlimited banks, and with great success. He considered that the two interests were not irreconcilable, and if they could obtain equal security as before for depositors, it would be for the public interest that the liability of the shareholders should be defined. For his part, he shared the expectation that this measure would induce persons of responsibility and position to come forward in the management of those banks more readily than they had hitherto done, and thus give some security for good management. This was what they must mainly look to for the security of shareholders, apart from the vigilance of the shareholders themselves. No doubt, there might be a good deal of difficulty in the transition; but it could be got over. The point on which the Bill had been attacked by the hon. and learned Gentleman (Sir Henry Jackson) was a great merit. It was owing to a panic that it had been introduced; but the very circumstance that there was a panic justified the Government in coming forward. If nothing was done, a shock would be given to many concerns which they could not easily weather; and, therefore, it was in the interest of depositors as well as shareholders that there should be legislation in the matter. He was anxious, however, to press on the Government and the House that legislation ought not to stop there. The Scottish banking system was not a monopoly, as had been stated popularly in conversation. There was no legal restriction in the establishment of any bank; but there was a social restriction, inasmuch as no bank had any chance of being established in Scotland that had not the power of note issue. It was now about 15 years since endeavours were made to find a remedy for this, by allowing all banks to be established on the ground that they should deposit gold in respect to every note that was issued. The pro- posal met with little support from Scotch Members. However, in the absence of such a scheme, he would be glad to see facilities given for the establishment of banks where the public would have some security for the solvency of the notes that were issued, and where, at the same time, a degree of freedom would be given that was now wanting to the banking transactions of the country. If they were to wait until all issue banks were swallowed up, they would have to wait two or three hundred years. If care were taken to satisfy the public as to the convertibility of the notes, that was all that would be wanted. He did not think that Scotland laboured under any very serious evil owing to the present limitation of banks. Though they had come down from 30 or 40 banks some 20 years ago to 10 or 12 now, there was a sufficient number to satisfy the wants of the public. The grounds for legislation was, therefore, not extortion from the existing banks, but the danger arising from the whole circulation and business arrangements being thrown on a limited number of banks, so that it was impossible to fill up a gap when a great failure occurred. Perhaps some such suggestion might find more favour, if the Government would clear their heads of the notion that there was some great profit to be made out of the circulation. It had been contended that the privilege of issue should be enjoyed by the State alone; but the amount of profit on the whole was so small as to be scarcely worth considering. The whole note circulation of Scotland was scarcely more than £3,000,000, and the whole profit of that would not amount to more than £80,000 or £90,000. That was not a matter which it would be necessary to entertain; but he thought that in any steps they took there should be full security for the interests of the public, and the freedom of banking throughout the whole country.


said, that as this Bill embraced Joint Stock Companies as banks, and as it was received with almost universal approbation, he hoped the House would allow the second reading. Those banks which availed themselves of reserved liability did so at their own risk, and would have to notify the same to the public. With regard to the shareholders, there was no doubt that they ought to have protec- tion as well as the general public. As far as the City of Glasgow Bank was concerned, there was not a shareholder there who was aware of the enormous liability to which he was subject when the bank went down. He believed that the passing of this Bill would give confidence to the public mind, that it would reflect credit on the Government, and that it would allay a great deal of outside alarm.


said, that the discussion which had taken place had shown the great difficulty of the question, and how dangerous it was to interfere with institutions of this kind. They were told that certain clauses were to be inserted in, and others taken out, of the Bill, so that they hardly knew what the nature of the measure was. He could see no reason why banks should not be allowed to register as limited banks, if they objected to the great responsibility of being unlimited. The object of the Act of 1826 originally was to give an unquestionable and unlimited security to depositors; but now they were told that the interests of the depositors were quite a secondary consideration, and that the object of the measure was merely to protect the shareholders of unlimited banks. The first object of the Bill was to allay the panic which grew out of the failure last autumn. If they were to legislate, they ought to legislate so as to meet the requirements of the unlimited banks that desired to escape from their responsibility; but they ought, at the same time, to protect the depositors, who, in his judgment, were not protected by this Bill. If the Government wished to pass the measure simply in order to give a limited liability to the unlimited banks with ample security to the public, he should be glad to vote for the second reading. But nothing could be more unfair than to allow people to get rid of their liability to depositors, without acknowledging it openly by the adoption of the title "limited;" and if it were the object of the Bill to enable London banks, under the new-fangled name of "reserved liability," to get rid of their liability, while they were ashamed to own it, there would be a fraud committed on the public, and the Bill ought not to pass. The clause had now been withdrawn. The Government had better withdraw the whole of the Bill, excepting the part of it which enabled un- limited liability banks to take steps for making themselves limited. He could not vote for the second reading of the Bill, unless it was curtailed in some such manner.


thought he went further in opposition to this measure than almost any Member who had spoken on this subject. As he understood the principle of the Bill, it was a measure to make it more easy for laymen and lay women to do the business of bankers, merchants, and traders, without knowledge, skill, labour, or risk; but there must be risk, and so it had to be put on somebody else. The Bill, therefore, was a Bill to relieve the shareholders and directors of a responsibility which they had assumed of their own free will, at the expense of depositors and creditors. Now, that was a very serious extension of a system of the working of which he had not a very high opinion, so far as it had hitherto gone. He did not assert that this Bill was a piece of panic legislation; but it certainly was introduced in consequence of panic, and in order to avoid, if possible, fresh returns of panic. He did not feel sure that they were entirely free from signs of panic at present. When they saw money at 1 per cent it was a sign that people were afraid to employ their money in anything that involved risk. He did not think they were in a safe position to proceed with legislation which would shake the credit of the country, and he believed the passing of this Bill would damage that credit. If hon. Members looked at the position of the City of Glasgow Bank before its stoppage they would find that, according to its reports, there was hardly a bank in the country in a better position. Its whole capital was paid up, and it was stated to have 45 per cent in reserve. Could anybody say to him that there would have been the slightest difference in the position of that bank had it been a bank of limited liability? Would there not have been the same difficulty to shareholders and depositors—to the persons who had their money in, and who trusted the bank? Persons in London who trusted that bank would have lost their money, although they had given it on the faith of a return issued by directors believed to be honourable, responsible, and well-to-do men. They were told, that if this Bill were passed there would be better and more responsible shareholders. But were they so sure of that where there was limited liability? Was it not the fact that they did not under such a system get men who understood the banking business? The whole joint-stock business was rotten from top to bottom. The system worked upon was simply this—A bank was started. It was desirable, in order to make large profits, to call up as small an amount of capital as possible; but, in order to give confidence, there must be a large amount of capital subscribed. The larger their deposits were, in proportion to their called-up capital, so much the larger would be their dividends on the money invested. That was one false principle. Another false principle was that these banks allowed interest to depositors, and, in order to do so, were obliged to employ their money in more risky underakings than those on which the old-fashioned unlimited liability banks employed their capital; and there they got to the bottom of the City of Glasgow Bank difficulty. They took risks, in order to pay 15 per cent, that no bank not paying interest would have dared to take. There was a further evil. Shareholders were induced to put into shares money out of proportion to their capital, so that, when a call came, many had no money to meet it. He maintained that it would make no difference to many of these banks whether they remained as at present or were limited, without providing for the cutting down of nominal capital. But even supposing this Bill enabled them to obtain a respectable class of directors for banks they would generally have a managing director. Now, a man who dealt with his own money would naturally take more care than one who dealt with the money of other people. He would know that if he failed his fortune was gone altogether. But a managing director of a bank might ruin the shareholders and the creditors, and might be appointed to manage some other concern if he had shown himself to be very clever. He would mention another point. A great many banks had lately been doing business in accepting bills on shipments to foreign countries, and against shipments from foreign countries. Where the banks had a large capital those bills were taken in London and in the Con- tinental market very freely. But supposing those banks, to protect themselves, became limited, would there not be a great deal of inquiry and distrust aroused? If the directors and shareholders were so very anxious to become limited this year, did it not seem natural to suppose it was because they thought that something unpleasant was going to happen this year? Therefore, if the directors of a bank now proposed to make their bank limited, they would be raising against themselves a disagreeable amount of inquiry. And this might produce exactly what they were trying to avoid—a panic. With regard to the 8th clause, he could only echo what had been said by the right hon. Member for London (Mr. J. G. Hubbard). He thought that what was sauce for the goose should be sauce for the gander. If the Scotch banks came to London, the English banks ought to have equal advantages. The hon. Member for Edinburgh (Mr. M'Laren) said that by the Act of Union England and Scotland were to be treated as one country. Let that be carried out and England would be satisfied. The 8th clause was left out to please the smaller country. It ought to be reinstated to please the larger country.


felt that if this Bill had been introduced to allay panic there was good reason that, now it had produced all the good it was likely to do, the Government should rest satisfied and withdraw it. If it was was not withdrawn, they should deal with this subject on some principle which the House could understand, and which might benefit the public. The truth was, that the failure of the City of Glasgow Bank and the West of England Bank, and the rumours regarding other unlimited banks had created throughout the country a desire on the part of shareholders to have their liability limited; and he had no doubt, if the Government had confined their Bill to enabling unlimited companies to become limited under prescribed conditions, there would have been no such discussions as those to which this Bill had been subjected, and such a measure could have been retained. If the measure was not to be so limited, he thought the Government should not, at all events, seek to create distinction between the classes of banks by maintain- ing the 4th clause, which provided for the formation of banks of reserved liability. He could not, indeed, conceive in what way it would be possible to distinguish between the limited liability of banks which were in existence, and the reserved liability of banks to be formed under the Bill. In the one case, the liabilities must be determined according to some multiple of their capital. In the other case, it was in the same way a multiple of a prescribed capital, for which the shareholders in a limited company were liable, and there was no real distinction between the two cases. If the Bill should go into Committee, he would propose to strike out the 4th clause altogether, and thus refuse to sanction the reserved liability provision. In reply to the hon. Member for North Lanark (Sir Edward Colebrooke), he would say that if the business of banking in Scotland were restricted by legislation, surely that made it a monopoly. A bank could not be carried on in Scotland according to the mode in vogue there without the right of issue. That mode had been a great advantage, and ought to be continued, unless it could be shown to be detrimental to the State. Some hon. Members who preceded him endeavoured to show that the Government should take the whole right of issue and circulation into their own hands, and make it a source of profit. But by what means was the State to benefit, if it benefited at the expense of the population of the Kingdom? He did not know what the State meant, if it did not include the whole of the Kingdom; and what would the State benefit by taking from the present banks the right of issue, by means of which they conferred advantage on the population? So far from acting on this idea, the Government ought to regard the promissory note for 20s. as the same as the note for £100. He deprecated the perpetuation of the system of monopoly. He deprecated the provisions of the Bill, which proposed to increase the classes of banks. It would be an advantage if they were all placed under the same category. He did not admit that there could be any advantage to the country derived from limited liability in commercial concerns. He protested against limited liability anywhere; but the Legislature, having recognized it, would do well to confine this Bill to the clauses that provided that an unlimited company might be made a limited company, notwithstanding the restrictions placed upon it by the Act of 1862. He thought that if that were done the Bill might be of use. Whether it would be an advantage to the State to have that limited liability was another question; but, seeing that the State had recognized limited liability in other trading and mercantile concerns, there was no reason why it should not be applied to banks. He quite recognized that the failure of the City of Glasgow Bank was not caused by ignorance on the part of those who administered the affairs of that establishment, but by the fraudulent practices the directors and officials indulged in. They could not, however, protect shareholders from fraud on the part of the directing and managing body. Any attempt to do so would fail. He did not object to that part of the Bill which provided for the audit of the accounts of limited liability banks. He believed it could do no good, but it could do no harm. He did protest, however, against the time of the House being occupied in the discussion of a measure which was not urgently called for by any section of the community; and he was of opinion that the Government should delay the Bill, and all discussion in regard to it, until they could deal with the subject of banking as a whole, and place it in a position satisfactory to the country. He hoped the Government, therefore, would not press the measure this Session.


said, the hon. Member for Falkirk (Mr. Ramsay) had given, the Government two pieces of advice which were hardly consistent with each other. In the first place, he advised the Government to drop the Bill altogether; and, in the second, that they should only retain the clause of the measure which would enable unlimited banking companies to convert themselves into limited ones. He entirely agreed with the hon. Member that it would be unwise of the Government to attempt to deal, during the present Session, with more than the clause by which it was proposed to empower the unlimited banks to come to an agreement with their creditors by which their liabilities should be restricted. It was too late in the Session for the Government to attempt to bring in a complete measure dealing with the whole law relating to banking; and he desired to point out to the right hon. Gentlemen opposite that one or two proposals in their Bill would certainly excite discussion—not to say opposition—if they were pressed. For instance, the proposal of the Government to enable banks of reserved liability to be established was looked upon in the district with which he was more directly connected with more wonder than approval. Everybody understood what a limited and what an unlimited liability meant; but no one exactly comprehended what was meant by banks of reserved liability. Then, again, although there might be much to be said on the question of issue between Scotch and English banks, that was a large and difficult question which might fairly be put off till another Session. He, however, was far from thinking that it was desirable that no measure whatever on this subject should be passed. He had listened with interest to the able speech of the hon. Member for South Essex (Mr. Baring), who had so much experience on this subject; but one remark which fell from that hon. Gentleman had surprised him more than anything he ever heard. The hon. Member had said there was no difference between the position of the shareholders in unlimited banks and of those in limited banks; and he had pointed, in illustration, to a bank with which he (Mr. W. E. Forster) happened to be connected. That was a limited bank, and knowing that his liability was restricted to five times the amount of his share, he felt that his position was immensely different to what it would be if every penny he had in the world was at stake. For the hon. Member, with the facts of the City of Glasgow Bank failure staring him in the face, to say there was no difference between limited and unlimited liability was an extraordinary assertion. Hon. Members must be acquainted with case upon case in which wealthy shareholders in the City of Glasgow Bank, who could easily have paid five times the amount of their shares, would now be utterly ruined. It was desirable, therefore, in his opinion, after what had happened, to make the proposed change, and to enable all the unlimited banks to do what some of them were able to do. He had not been aware that the unlimited banks generally, under existing legislation, could not agree with their creditors and clients to turn themselves into limited banks; but it turned out that, though in some cases they could, in others they could not. He could not see the injustice of giving the same permission to all of them. In fact, he could not see the justice of withholding the permission. What right had they to refuse people the power of agreeing together as to how they should do their business? Of course, if they gave power to the directors or shareholders to say to their creditors, "You shall accept our limited liability whether you like it or not," it would be unjust; but this Bill gave creditors the option of refusing to agree to such an arrangement. It was a natural anxiety on the part of shareholders, after what had occurred, to wish to limit their liability; but it was also a step which would be immensely advantageous, not only for the banking interest, but for commercial interests generally. He was speaking now with some little degree of knowledge of what happened in his own district; and he believed that if they left the law in its present state the joint-stock banks would deteriorate in soundness. Gradually the rich shareholders—the people who would be perfectly able to pay five times the amount of their shares—would withdraw from those banks, and they would get in their places an unlimited number of men of straw, who would probably not be able even to pay up the value of their shares. He suggested to the Government that they should be satisfied with doing this Session what was useful, and not be ambitious to do more. If they passed a Bill containing the one clause to which he had referred—and the exact wording of it might be considered in Committee—they would confer a benefit on the community generally. Perhaps it might also be well to go into Committee on the audit clauses; although, like the hon. Member who spoke last, he was not very certain of any good resulting from them. They seemed to him to trench on that rather dangerous line of placing private affairs under the management of the State. But in regard to the main proposal of the Bill, he approved of it, believing the law was unjust which did not allow debtor and creditor to agree together in a way mutually advantageous, and he could not see why they should not at once remove that blot.


remarked, that there were several ways of approaching a measure when it was desired to destroy it, and some of those means had been resorted to in this discussion. Thus, the right hon. Member for the City of London (Mr. Hubbard) had advised the Government to wait until they could bring forward a complete measure dealing with the whole question of banking, while other hon. Members had attacked the measure by minutely criticizing its provisions in a way more suited for Committee than for the second reading. He did not intend to touch upon the one or the other, but to state broadly the principles of the measure, and why the Government thought it should pass. One word, however, as to what had fallen from his hon. Friend the Member for South Essex (Mr. Baring). He agreed with the right hon. Member for Bradford (Mr. W. E. Forster) that the arguments of the hon. Member for South Essex had been rather extraordinary. There had been running through the whole of that hon. Member's speech a dislike of the joint-stock system of banking altogether, and it came out when he spoke about persons becoming bankers who knew nothing about their business. The hon. Member had also said they must take care how they limited the liability of persons who put their money into banks; but that was a matter which ought to have been discussed when they originally sanctioned the establishment of limited banks, and upon that he would only remark that limited banks, established under the Act of 1862, had been as prosperous as any. He (Mr. Assheton Cross) admitted that mischief resulted from men becoming directors who knew nothing about banking, who were misled by the managers, and who did not see where they were going till it was too late. It was also true that there ought to be great caution in the selection of managers or managing partners. They had enormous powers intrusted to them, and it was important that the utmost possible care should be exercised in their appointment. Another danger which the hon. Member had touched on was also real—namely, that the persons who invested in banks did not consider really what they were doing. People would buy £100 shares, of which only £10 had been paid up, and forget all about the £90 which remained to be paid up. It was this class of investors who were referred to by the hon. Member, who said that it was practically of no importance to the shareholders whether the bank was limited or not. He (Mr. Assheton Cross) had been much startled at what had fallen from the hon. Baronet the Member for Finsbury (Sir Andrew Lusk), who said they could not deal with this question till they passed a law placing all banks on the same footing. Why, they might as well talk of passing a law that there should be only one denomination of religion. It was a principle in this country that they should carry on trade as they liked. He did not know whether the hon. Baronet meant that all banks should issue notes, or that none should do so; but the idea of making all banks alike was an extraordinary one. The hon. and learned Member for Coventry (Sir Henry Jackson) had argued on Clause 9 as if it were a perfectly new thing; whereas, in point of fact, it was only a clause of an old Act, newly drawn. Now, what was the real principle of this Bill, and what were they legislating about? It was said they were legislating in a panic. That he most entirely denied. No Government could have approached a question with greater calmness and consideration than the Government had approached this, nor did he think the House was in a panic, for they had discussed the matter with a due sense of the responsibility which attached to such a discussion. That the unfortunate failure of the City of Glasgow Bank, followed by that of the West of England Bank, had undoubtedly pressed the question on the notice of shareholders, the House, and the country, was true. The effect of those failures had been to make all the shareholders of banks look to their own position, and, having looked into that position, they had discovered that, in reality, they were subject to liabilities which they had never thought of before. Their danger had been brought home to their minds, and when the hon. Member for Forfar (Mr. J. W. Barclay) talked about this being a Bill in the interest only of bank shareholders he denied it. He did not say they were not benefited to a certain extent; but it was the benefit of the public generally which the Government and the House had to consider. It was to the interest of the public to retain the present class of shareholders—such men as the right hon. Gentleman (Mr. W. E. Forster)—and to give them such protection as would induce them not to withdraw their investments, which he believed they would not be so likely to do if they knew the full extent of their liability. On that ground, the matter appeared to him to be of sufficient importance to justify the intervention of Parliament. When they passed the Act of 1862 they gave all the banks the choice of registering themselves as limited liability companies; but, at the present moment, they had the greatest difficulty in so doing, and the object of this Bill was to restore to them absolute freedom to make themselves limited if they liked. Although many banks, when the Act of 1862 was passed, did not avail themselves of it, yet, if time and experience had shown them the desirability of doing so, they ought to have the same facilities for effecting that object now as they had in 1862. The hon. Member had surprised him, by arguing that those who had deposited money in unlimited banks would suffer if they had only limited liability companies to fall back upon; but he seemed to forget that the change could not be made without the concurrence of the creditors themselves. He wished to say a word or two about the audit and the form of accounts. Nothing would induce the Government to impose upon the banks any interference as to their management. The experience with regard to Insurance Companies would be sufficient of itself to deter anyone from such a step. They wished, however, to secure that there should be an independent audit. It was, undoubtedly, true an independent auditor could not go through the securities held by a bank and put an accurate value upon them; but he would be able to prevent the fraud in such balance sheets as those which had been issued by the directors of the City of Glasgow Bank. If the banks were honest, this would be a check upon inaccuracies; but if they were dishonest, of course, it would be difficult for any audit to defeat them. Then, again, under the present law, all limited banks were bound to publish detailed statements every six or twelve months; but the form of account thus provided was not proper or good enough. Of course, they were not bound to adhere to the form which had been placed in the Schedule of this Bill; but it was necessary, as a security to the shareholders and the public, that there should be some adequate form of account, which the banks should be bound to publish. He hoped the House would consent to read the Bill a second time. If this were done, it was the intention of the Government to commit it, pro formâ, in order that it might be re-printed in its amended form. Some Amendments would be introduced, but none of vital importance; and, with the exception of the 8th clause, the measure would, practically, remain in its present form.

Question put, and agreed to.

Main Question put, and agreed to.

Bill read a second time, and committed; considered in Committee, and reported; to be printed, as amended [Bill 264]; re-committed for Thursday: