§ The Earl of Ripon
moved the second reading of this Bill, and said it would be unnecessary to trouble their Lordships at any length. He would, however, give a brief explanation of the grounds of this measure. Their Lordships were aware that in the course of the last Session two Acts had been passed for the regulation of the banking system of England—one relating to the Bank of England, the other to Joint Stock Banks—and he believed it had been admitted that the principles upon which these two laws had been founded were wise, just, and consistent with the public interests; and he had reason to think that the anticipations which had been formed of the results of those measures had been realized. These circumstances naturally led to the consideration whether it was not advisable to propose to Parliament the adoption of some measure with a view of regulating the currency—not so much the currency as the banking system—of Scotland; not with the intention of assimilating one with he other, because the system which prevailed in Scotland, and which had existed there many years, had not produced any serious mischief or inconvenience. At the same time it would be a great advantage, as re- 1023 garded the general banking system of the country, if there was some approach to a rational assimilation, as far as circumstances admitted, between the systems in each part of the country. Upon this principle the present measure was founded, and he would state shortly the nature of the measure. It was proposed not to deprive the banks of Scotland of that privilege which they had not abused, as compared with other parts of the United Kingdom, namely, of issuing notes below 5l.; it was not intended to interfere with that; it was not desirable to push an abstract principle to excess; but it was thought expedient to impose something in the shape of a limitation of the amount of issue by the banks in England. The effect of the Bill would be to give a species of monopoly to about nineteen banks of Scotland for the issue of notes. But in order to prevent an excess of issue occurring in that part of the country, it was proposed to limit the issue of notes by these nineteen banks. The principle was this:—an average statement was taken of the issues of all the banks, collectively as well as separately and individually, for thirteen months, between the 1st of May, 1844, and the 1st of May, 1845; and it was proposed that the average of the total issue in these thirteen months should be the maximum amount of the issues of each and of all the banks, as far as depended upon securities. But it was proposed by this Bill, in order to enable the Scotch bankers to give still further accommodation, should it be necessary, to allow them, in addition to issue any amount of notes they pleased in proportion to the quantity of coin which, within a period of four consecutive weeks, might be in the coffers of each bank. Each bank, therefore, could not only issue notes to the amount of its average paper issue for the year which the Bill took as the standard of future issues, but might also make an additional issue of notes in proportion to the quantity of bullion in its possession at a given period. He might be allowed to explain to their Lordships the practical effect of this measure upon the amount of currency in Scotland. It appeared that the average circulation in notes of Scotch banks might be taken at 3,063,000l., and that would be the maximum amount to which they could continue to issue upon securities; but there was no doubt that considerable inconveni- 1024 ence might arise at particular times if they possessed no facility for extending their issues beyond that amount; for circumstances might occur which would render an increased issue not only not detrimental, but a positive advantage to the public interests. It was therefore provided that they might make a further issue based upon the quantity of coin in their possession. It appeared, that the average amount of bullion held by the banks in Scotland might generally be taken at one-fifth—though in some cases it was one-fourth, and in others, he believed, even as high as one-third—of their total issues; so that if the issue they could make upon securities was 3,063,000l., and taking the average amount of bullion on hand at one-fifth of that amount, they could make a further issue to the extent of 600,000l.; and their total issues would, in that case, amount to 3,663,000l. Now, this amount of 3,663,000l., which they might issue without obtaining any further stock of bullion, was, in fact, much larger than had been issued during any month of the year upon which the average was based. It appeared that the largest amount issued by the Scotch banks in any one month of the year ending April, 1845, was 3,486,000l., in the four weeks ending September 7; and under this measure the banks, without obtaining additional gold, would be permitted to issue to the amount of 3,663,000l. He considered, therefore, that there was no reason to apprehend that any inconvenience would arise from the operation of this Bill; but that, on the contrary, it would be productive of great advantage. It must also be recollected that one of the main securities these Scotch banks had had against danger to themselves was the power and the solvency of the Bank of England; for whenever any difficulties occurred to the Scotch banks they must draw the supplies necessary to meet them from the Bank of England. That being the case, and there never having been manifested on the part of the people of Scotland any desire for a gold circulation, Scotland had never been exposed to those evils which had been experienced in this country by the circulation being excessive, and, as had been the case, the gold in the coffers of the banks being reduced to almost nothing. It was considered by the Government most desirable that the banking establishments of Scot- 1025 land should, like those of England, be placed on the safest footing practicable, and it was with this view and on this principle that the present Bill had been proposed, and was now recommended to their Lordships' consideration. There were several clauses providing for the due execution of the Act, with which he would not then trouble their Lordships, as the period for considering them would be when the Bill was in Committee. He had stated, he hoped, with sufficient explicitness the grounds on which he proposed the measure, and he would now move that it be read a second time.
§ The Question having been put,
The Earl of Radnor
thought the Bill a most unnecessary and gratuitous interference with the Banks of Scotland. 'Let well enough alone,' was a maxim as applicable to public as to private matters; and as the system of banking in Scotland had gone on in the most satisfactory manner, and given perfect satisfaction and security to the public, he did not see why it should be interfered with. The framers of the Bill ought to have stated the grounds upon which it had been brought forward, and explained the grievance it was intended to remedy. No application had ever been made, either by the banks themselves, or by the people of Scotland, for any such measure; and the proposed interference was looked upon generally as most annoying and uncalled for. It was true, the measure had not met with so much opposition in the other House as had been anticipated; but the reason of that was, that the interference was found to be not of so bad a character as it was reported it would be. The interference was thought by many to effect so little change in the working of the system as to be scarcely worth opposing. But why interfere at all with a system of which no one complained, and which had received the highest testimony in its favour? There had been no extraordinary cases of failure to justify such a step. On the contrary, the Scotch banks had been at all times remarkable for their stability. In 1842 there had been two failures, it was true; but at those periods, when the whole of the United Kingdom was suffering from pecuniary difficulties, the Scotch banks had remained firm, and no cases of failure had occurred. From the year 1808 to 1820, 113 banks had failed in England, but not one in Scotland. In 1826, a Com- 1026 mittee of their Lordships' House was appointed to inquire into the practice of issuing 1l. notes in Scotland, and that Committee having investigated and considered the whole system of banking in Scotland, bore in their Report the strongest testimony in its favour. Subsequent Committees had also deprecated all legislative interference with that system.
The Earl of Radnor
That was the subject of the inquiry; but the recommendation of the Committee referred to the system generally. The Bill gave no additional security to the public; on the contrary, if it had any effect at all, it would be to tempt the banks to make imprudent issues; for the gold, which the noble Earl admitted they now thought it necessary to keep in their coffers, in amount equal to one-fifth of their whole paper circulation, they would by this Bill be encouraged to make the basis of further issues. If the banks were now so prudent, as it was admitted they were, to keep this large amount of gold by them to meet any sudden demand, why interfere at all, especially when the effect of that interference would naturally be to induce them to depart from that prudent line which they had of themselves adopted? What did the Government fear? Did they suppose the paper circulation of Scotland, if left unchecked, would become too large? Why, it had been proved before a Committee of the House of Commons, that, notwithstanding the population, the commerce, and the wealth of this country, had gone on increasing to a great extent, the paper currency had diminished, and was still diminishing. The increase in the number of the branch banks gave such great facilities for making deposits, that money was not kept in hand as it used to be, and the result was, that the paper currency had decreased. Another objection to the measure was, that its tendency was to encourage monopoly. In the first place, it gave to each bank a monopoly for its own purposes, and as no new bank was to be established, the system would become in the end one of monopoly; and surely this was not the time to establish monopoly. Another result of the measure would be, that the attempt would be made to get rid of notes altogether and substitute gold. The noble Earl concluded by moving, as an 1027 Amendment, that the Bill be read a second time that day three months.
also protested against any legislative interference with the existing system of banking in Scotland. He objected to the measure as tending to limit the circulation of Scotland. In fact, the noble Earl himself admitted that it would do so to the extent of 400,000l. The limit, exclusive of the issues on bullion, was 3,063,000l.; but the noble Earl had shown that ill the four weeks ending December 7, the total circulation was between 3,400,000l. and 3,500,000l., and this increased circulation of notes during certain periods of the year was most beneficial to the highland and rural districts. He feared that this slight interference (slight it was admitted to be) would, by limiting the circulation to that extent, be most injurious to the country. He could see no grounds for the introduction of this measure whatever, and could only suppose that it had been brought forward because, as it was found necessary to interfere in some degree with the Irish banks, it was thought by the Government that it might be as well to connect the Scotch banking system with the Irish measure.
The Earl of Dalhousie
thought the absence of the great majority of noble Lords Connected with Scotland, was of itself a proof that the measure was not, considered calculated to operate injuriously on the country. The noble Earl had stated that the system of banking in Scotland worked well, that it gave sufficient accommodation, and at the same time sufficient security to the public, and that the people were attached to it. The opinion which the Government entertained of that system was best shown by the measure itself, which neither interfered with the practice of issuing the 1l. notes, nor with the mode of conducting the business of the several banks, while the averages had been taken upon the twelve months, including those periods during which the issues had been the greatest, without requiring any security. The banks might, after the passing of this Bill, continue to issue up to the full amount of their average issues without security; all that was required was that any excess should be based upon gold or silver in hand. The noble Earl had spoken as though there was no doubt at any time of the solvency and sufficiency of the system: but within 1028 his (the Earl of Dalhousie's) recollection there had been periods of extreme difficulty amongst the banks in Scotland; and if, in general, the difficulties at times of pecuniary pressure were not so great in Scotland as in England, the reason was that the Scotch banks had the opportunity of coming upon the Bank of England, and thereby increasing the force of the demand for gold upon it. It was with the view of enabling each part of the Empire to meet its own difficulties that the measure was brought forward. He denied that there was any reason for saying that the Bill would operate as a temptation to the Scotch banks to make improvident issues. All the Bill did in this respect was to enable them to increase their issues on the one-fifth of gold, in proportion to their circulation, or whatever it might be which it was said they usually kept on hand, and which they might now made the basis of further issues.
The Earl of Radnor
The banks now thought it prudent to hold the one-fifth of gold in reserve; but under the Bill, if they wished to increase their circulation, they might do so, to the full extent of that amount, without any additional security whatever.
§ On Question, that "now" stand part of the Motion; Resolved in the Affirmative.
§ Bill read 2a.
§ House adjourned.
- "I. Because this Bill, proceeding on the assumption and staling in the preamble that it is expedient to regulate the issue of bank notes in Scotland, alleges no ground or reason for that expediency, neither that the issue has heretofore been excessive, nor that it has been made on inadequate security, nor that it has been attended with loss or inconvenience to the people of Scotland, nor that the people of Scotland complain of it or desire such regulation.
- "II. Because I hold it inexpedient to regulate such issue, inasmuch as,
- "1. It is an unnecessary legislative interference with private concerns, and such interference is contrary to all sound principle of legislation.
- "2. It will in this case be productive of inconvenience both to the bankers, whose concerns it is intended to regulate, and to the people in general; and,
- "3. Is quite uncalled for, and altogether deprecated by the people, of Scotland.
- "III. Because the Act of last Session (7 and 8 Victoria, c. 32) having given a monopoly of all the banking business of the United Kingdom to the then existing banking establishments, this Bill confirms that monopoly as far as Scotland is concerned, and thus unjustly places the people of that country at the mercy of a combination of bankers, the necessary consequence of which must be, that the bankers will be freed from one strong incentive to pay due attention to the concerns of their customers, and that their customers will be deprived of that security for the faithful discharge of their bankers' duties.
- "IV. Because the Bill proceeds on the supposition that an increase in the number of banks leads to too large an issue of bank notes, whereas I conceive (and in that opinion am borne out by the testimony of eminent Scotch bankers) that the amount of bank notes in circulation is regulated by the wants of the community, and, when convertible into coin at the option of the holder, can never be in excess; and that the increase of banks located in different places, and the great extension of branches in remote agricultural districts, by multiplying the opportunities and extending the facilities of making deposits, tends to diminish the amount of notes in circulation.
- "V. Because, though it has happened accordingly, that the amount of notesin circulation in Scotland has, notwithstanding the increase of the population, of commercial transactions, and of general wealth, been considerably diminished in the last twenty years; it is not to be expected but that, in the progress of events, a larger supply may at some time be wanted, and such an increased supply is absolutely prohibited by this Bill, except on terms very disadvantageous to the issuers.
- "VI. Because bankers, being forbidden by this Bill to enlarge their issues of notes beyond the average of the year ending May 1, 1845, except to the extent of the coin held in their coffers, it will happen that, in the event of any misconduct on the part of any bank, or dissatisfaction on the part of its customers, if those customers resort to another bank, which they consider either more safe or more accommodating that bank can transact their business only by increasing its issues against gold, whereby banking accommodation of every description in Scotland will be obstructed and rendered more expensive.
- "VII. Because I apprehend that the provisions of this Bill, enabling the banker to increase the issue of his notes permanently beyond the average of the year ending the 1st of May, 1845, to the extent of coin retained in his hands, are illusory, and will be useless, for it is difficult to understand with what view a banker should issue any notes under such restrictions, inasmuch as he would entail on himself trouble and expense, and could derive no profit from the transaction.
- "VIII. Because the immediate effect of this Bill is to hamper the business of banking, and its unavoidable effect to concentrate in fewer hands all the banking affairs of Scotland, and constantly to bring them nearer and nearer within the compass of a close monopoly.
- "IX. Because, if the banking business of Scotland is confined to fewer hands, the public will be deprived of the benefit of free competition, which is constantly stimulating the ingenuity of rival bankers to devise new expedients for facilitating banking operations, in the hope of retaining or extending their business, to the great advantage of the public.
- "X. Because, in the case of banking, as in every other business, monopoly is injurious both to the public and, in the long run, to the persons to whom it is conceded; and it is in evidence before a Committee of the House of Commons that the great competition existing amongst the banking establishments of Scotland, while it has restrained within moderate bounds the profits of the banking business, has, by raising the rate of interest given on deposits, and lowering the rate of interest charged on loans, greatly benefited the community.
- "XI. Because the substitution of bank notes for coin is one of the most ingenious and useful improvements of modern times, and, provided the notes are at all times convertible into coin, at the option of the holder, is attended with no risk, affords great convenience for commercial transactions, and is productive both of saving to the public and of advantage to individuals; and to check it, which is the object of this Bill, is to take a retrograde step in the path of civilization.
- "XII. Because, if there is, as some apprehend, anything dangerous or unsound in the banking arrangements of Scotland, it proceeds, not from the amount of paper currency, which this Bill is intended to limit and control; but from the extent of credit, which it affects only in a circuitous and mischievous manner.
- "XIII. Because the banking system of Scotland, hitherto wholly free and uncontrolled by any legislative regulation, has worked most beneficially for the people of that country, and has given them entire satisfaction, and I therefore can see no call of necessity, expediency, or prudence for the present attempt to regulate it by law.
June 24, 1845.