HL Deb 14 April 1826 vol 15 cc210-8
The Marquis of Lansdown

rose, for the purpose of moving the second reading of a bill, the object of which was, to make bank notes payable where they were issued. He thought it would not be necessary for him to detain their lordships long in recommending or detailing a principle with which they had become familiar, in the course of the discussions that had taken place during the present session. That principle was, that a check ought to be provided against the over-issue of paper-money, and that that check should be founded on a metallic basis. Before, however, he proceeded to the discussion of the measure he now proposed, he would take that opportunity of correcting a misapprehension that had gone abroad respecting the intentions and operations of this bill. Owing to some error, certainly not occasioned by the terms of its provisions, it was imagined that this bill was intended to prevent bank notes being made payable at other places than those at which they were issued. That was certainly not its object. It was not intended to interfere in any manner with the number of places where bank notes might be issued, or where the parties issuing them might choose to make them payable. Its only end was, to secure to the public the means of converting those notes into cash at the place at which they were issued. This measure was one of considerable importance, as it related to two points. First, as it regarded the amount of the paper currency of this country, and in connection with its amount, the possible excess of the issue; and, secondly, as it was connected with the banking system of the country, which ought to be exercised in perfect freedom, and which should be preserved in all its parts, on a fair and equal footing. Their lordships had already determined, with respect to the first of these points, that some check should be afforded to the paper circulation, and that no check against undue circulation could be better than that which was founded on a metallic basis. As their lordships had so determined, of course they would wish that the intended check should operate as readily, as fully, and as completely as possible. To effect this, there were no better means than to give every facility to the inhabitants of the place where bank notes were issued, to take those notes on the first alarm immediately into the bank from whence they were issued, and to procure from that bank payment in cash for the notes so returned. The immediate payment in cash of those notes was what the community had an undoubted right to require at the hands of those in whom the legislature consented to vest the power and privilege of creating paper money, and circulating it through the country. No one could doubt, on referring to the events of last year, that it would have been very desirable if a greater facility had been afforded to the people of this country to keep such a check on the issue of paper money, and, by creating a salutary alarm, to prevent those who traded on insufficient capital, from carrying their speculations too far. These persons had, in fact, deluded both themselves and others by their manner of trading; and much of the evil which had arisen from this mutual delusion might have been avoided, if the system on which their business was transacted, had permitted the existence of a salutary alarm, which might have induced them, in the first instance, to contract their issues, and thus to avoid those dangers which afterwards overwhelmed themselves and their neighbours. To this system of speculation, a gradual and a certain check would be provided by the present bill, which made all notes convertible into gold at the place where they were issued. The proposition of this measure had already created a considerable sensation, not among those bankers who might be truly called respectable, but amongst those who entered into the important business of banking with an insufficient capital. As a proof of the effect which this bill might be supposed to have produced among the latter class of men, when they viewed it as a measure which would limit the amount of their circulation, he might mention, that there had been an instance of a banker, who, after making issues of his notes, had, for the sake of forcing those notes into circulation, entered into an arrangement with the paymaster of a regiment, to whom he agreed to give a per centage on such of his notes as he should force into circulation, by making them the medium of payment to the troops under his command; the amount of this per centage being proportioned to the distance of the place where the notes were paid away from that at which they had been issued. This instance clearly showed the importance which bankers attached to the circulation of their notes. He should now refer to the second ground on which he conceived this bill to be necessary; namely, with respect to the placing on an equal footing of liability all the banks in the country. In his opinion, the business of banking should be carried on in a spirit of free competition. Now, if some banks were to be made liable to be called on for payment of their notes in cash, and others were not to be subjected to the same liability, it was evident that the latter would possess a great advantage over the former, and the spirit of free competition be destroyed. In such an arrangement, it would always be in the power of one bank to ruin its rival, by creating a false alarm, and thus compelling that rival to pay its notes in gold. By this means, the bank that was under no such liability, might pump out the gold from the others, and, instead of preserving a reservoir of the precious metal for its own use, it might draw all it wanted from the reservoir of its neighbours. If their lordships did not prevent this practice, was it not clear that, in the course of events, we should arrive at a state of things in which the country would only possess notes payable any where but where they were issued? It was owing to this practice, that the notes of one bank in Ireland were at a discount, while those of another were at par; and one was obliged to procure gold to meet its engagements, while the other was constantly receiving it. To avoid such a consequence, and to arrive at a safe and equitable course of proceeding, he called on their lordships to adopt, if not this bill with all its present provisions, at least a bill with a similar object. He was aware that there were persons who did not object to the principle of the bill, but who thought there ought to be some exception as to the extent of its operation. He believed they were of opinion that Scotland should form the exception; and, certainly, after the many opportunities he had had of knowing the talent, the skill, and the judgment which the people of that country employed in the regulation of their commercial and civil arrangements, he should be the last to say that they might not have formed such a system of banking, as to entitle thereto be excepted from the operation of those rules which were imposed upon others. Of this, however, he was certain, that whatever might be the advantages of their system, if it was ever necessary to be defended, it would be defended with a degree of skill, of zeal, and, above all, of unanimity, which the people of the south were not accustomed to display on similar occasions. Before, however, he agreed to an exception, even in favour of a people, for whom he was free to confess he felt a sincere respect, he should require that the bill should be passed through its second reading, previous to any alteration being made in its provisions. He believed, that if passed, it would be found fully calculated to guard against a recurrence of those dreadful evils which had lately afflicted this country, through the imperfect and ill-arranged system of banking, by which over-trading was so much encouraged, and such mischievous consequences were incurred. He had the authority of some most respectable country bankers, for saying that such would be the effect of this measure. Those gentlemen were of opinion, that after the passing of this bill, no respectable banker would attempt to circulate his notes where he did not intend to make them payable in gold; or that, if any banker did so, such attempt would be defeated, as the people would only take those which they might at once, in case of necessity, convert into cash.

The Earl of Farnham

said, he had no objection to the bill, if it was meant to operate prospectively; but he Celt, that if it was to relate to the paper now in circulation, great difficulty, and indeed much injustice, might arise from the manner in which it was at present worded. As it at present stood, its effect would be, to oblige bankers to call in their notes and to re-issue them with new stamps. And here he ought to observe, that there would be some difficulty in defining what was meant by the word "issue." He would illustrate what he meant, by a reference to the bank of Ireland. Then issues were very large, and a considerable part of the circulating medium of Ireland consisted of their notes, which were made payable in Dublin. Now, if these notes could not be taken in Belfast or Cork, al the notes which were at those places would be thrown back into the brand banks, from whence they had been issued and these banks would be compelled to make an entirely new issue of notes, payable in cash, at each of these cities. The object of the bill was one which he had no doubt, all their lordships wished to support, but its provisions were no framed exactly as they should be; and when it came into the committee, some better means of attaining that object, hi thought might be discovered.

The Earl of Rosslyn

observed, that a the bill now stood, it would nearly pu an end to the circulation of the bank of Ireland; for every note must be called in, and dated from the place at which it was issued. According to the construction which he was disposed to put on the provisions of this bill, he thought it would not reach the banks of Scotland. It was intended to prevent the issue of notes by agents; but as it was at present framed, it seemed to him that it could not prevent the re-issue of those old notes which might come into the hands of the agent, unless, indeed, it was intended to affix to this bill such a heavy penalty as would put an end to the free spirit of banking altogether. If, however, the construction which his noble friend seemed to put on the bill was correct, it certainly would destroy the system of agency in Scotland. What effect it would produce with respect to agency in Ireland, he could not say; but he thought that with regard to that subject, their lordships had created a difficulty which this bill would not remedy.

Lord Melville

said, that though rather late in the day, he should now give notice of what he intended to move in the committee, instead of discussing the bill at the present moment. The noble marquis had supposed that Scotchmen would be unanimous in whatever they said on this measure. He believed that supposition would not be found to be quite correct; at least with respect to the question of what was fit to be done with regard to Scotland. But there certainly could be no division of opinion among them on a question of flagrant injustice. It was proposed to alter the Scotch system of banking, and to prohibit the circulation of all notes under 5l. That proposition had been referred to a committee, whose report could not be made for some time. Now, he could say positively, that all the banks in that part of the kingdom viewed the present bill with the utmost alarm. Their system might, perhaps, ultimately appear to be bad; but until that fact was established, he thought no alteration should be attempted; and he therefore hoped, that before their lordships passed this bill, they would make it a subject of inquiry; at least with respect to the effects it might produce upon Scotland. Their lordships had already determined to inquire as to one part of the proposed alteration; and he thought they ought to extend their inquiry to another. The system was new in England, and they might do what they liked with it. He did not know much of Ireland; but as to Scotland, he would say, that if their lordships made any alteration in the present system, they would compel the great banks to remove their branch banks from the different parts of the country: and therefore they should examine well what was proposed, before they decided on adopting a measure of such vital importance to the interests of that country. He hoped that the noble marquis would not object to delay legislating for Scotland until after the inquiry now in progress had terminated.

The Earl of Lauderdale

said, that, after what had fallen from his noble friend, he had no further objection to urge to this bill. Still, however, he must declare that he thought the title one of the most defective that could have been chosen. It appeared to him to have no meaning whatever; and, as to the bill itself, he believed that, if it was brought into a court of law, it would be found to be of but little effect. He had no difficulty in saying, that if Ireland had not been a part of the United Kingdom, this bill would have had no existence. Its object was, to make all notes payable where they were issued. Now, an issue to an agent, or to a partner, was, in law, such an issue as to come within the words of this act; and as all the notes of the bank of Ireland were, in that sense of the word, issued in Dublin, they must always be payable there, and this act would, therefore, produce no difference in the matter. He thought he could make the act more effective in this respect; but then he wished to know whether, to gain such an object, their lordships were prepared to run their heads against a greater evil? The Dublin bank had branch banks at Sligo and Belfast. Now, suppose he had business at Sligo, and received from the bank there, notes issued from the Belfast bank for a sum of 5,000l. These notes could not, if this bill was to pass, be made available at Sligo, but must be returned to Belfast for the purpose of being converted into cash. The late discussions had taught parliament some things in the management of the banking business, of which they were before ignorant. One of these was the fact, that the agents of the Belfast bank distributed the notes of that bank at fairs, for the accommodation of the people. Now this practice must cease altogether, if the notes were to be made payable at the place where they were issued. The effect of this bill would be, to make the branch banks act in rivalry of each other, instead of affording mutual support; and surely such a course would be a matter of greater grievance than the object proposed would be of benefit. The consequence in Scotland would be, that there would be no branch banks except in Glasgow, or in one or two other principal towns, which, however great in themselves, were immaterial when compared to the country at large. The noble marquis had said, that if this act was passed, no respectable banker would attempt to circulate his notes in any place in which he did not intend to make them payable; but surely that was little recommendation, since it was less the object of all laws to afford a guide to respectable men, than to compel men who were not respectable to act with propriety and correctness; or, in other words, laws were not usually made for good, but for bad men.

The Earl of Limerick

said, that at the first blush of the question he had thought this bill was a very proper measure; but, on further consideration, he felt some objections to it. He was inclined to adopt the same course which had been taken by the noble lord, who had recommended examination and inquiry. Noble lords from his own part of the United Kingdom were not generally so united as those who owned Scotland for their birthplace. He should therefore feel inclined to enlist under their banners, and take refuge behind the sanitary cordon which the latter had attempted to establish. He thought the present measure ought not to be precipitated. Examination ought to be afforded, and that examination ought to be instituted with respect to Ireland as well as Scotland.

Lord King

observed, that this bill was introduced to prevent disreputable practices, but it unfortunately extended to Scotland, and consequently it had the whole body of Scotch lords on their legs to oppose it. It put him in mind of a passage in Mr. Burke's celebrated speech on economical reform, in which he stated that lord Talbot had attempted to reform the king's household, but that the measure was defeated, because the king's scullion was a member of parliament. So, here, he found that all attempts at putting an end to the disreputable practice would be frustrated, because some Scotch banker happened to be a member of parliament.

The Earl of Caledon

hoped the noble marquis would persevere in his motion. He saw nothing to prevent the House from going on, even whilst an inquiry was taking place.

Lord Clifden

thought that, as the measure had for its object the restriction of paper issues, it ought to be adopted. He had seen the bad effects of the present system in Ireland; and, if bank notes-there were to be payable only in Dublin, the same evils might occur again. It was not men of fortune, but the lower orders who would be the sufferers. He believed, however, that, owing to the misery lately endured, the inhabitants at large would only have gold; and if so the evil would thus effect its own cure.

The Earl of Liverpool

thought the object contemplated by this bill a most desirable one, and he would, therefore, vote for its second reading; but then a great many difficulties presented themselves, and the House must take care that, in trying to remove one evil, they did not fall upon another. He would, therefore, suggest to the noble marquis the expediency of allowing a longer period to elapse than usual, before the bill was committed. He was in expectation of receiving important information on this subject next week; and the discussion, which the bill relating to provincial banks was undergoing in the other House, might also throw additional light on this subject. Under these circumstances he would vote for the second reading to-day, and suggest that the motion for referring it to a committee be fixed for Tuesday week.

The Marquis of Lansdown

said, in explanation, that he intended the bill to have a prospective effect, and he though the period from which it should come into operation, should be the 10th of October. With regard to the technical objection raised by a noble earl, he could state, that he had taken the advice of lawyers, who assured him that it was fully adequate to effect the object for which it was intended. He would avail himself of the suggestion of the noble earl opposite, and fix the committee for Tuesday se'nnight.

The bill was then read a second time.