BANKS OF IRELAND AND SCOTLAND. (Hansard, 10 December 1857)

§ LORD MONTEAGLE

, in rising to move for Accounts showing the Circulation and Bullion of the Banks of Ireland and Scotland, said, that the object which he had in doing so was to obtain accurate information upon the subject on the bullion withdrawn from the Bank of England for the Scotch and Irish banks. It appears that the monetary pressure which had recently prevailed in England had been attributed by some persons to the system upon which the banks in Ireland and Scotland had been conducted. In dealing with this question, he would not say a word with regard to Scotch banking, as there were noble Lords present who were more familiar with that part of the subject than he could pretend to be. He would confine his observations to the management of the banking establishments in Ireland, although he was of opinion that whatever he might have to say respecting the law regulating those establishments might also, mutatis mutandis, be applied to banks in Scotland. Of the banks in Ireland he believed he might assert, without fear of contradiction, that to the manner in which they had been of late conducted, no part of the inconveniences which had arisen on this side of the water could with justice either directly or indirectly be attributed. It had, however, been stated, with some degree of truth, that to a limited extent a pressure had been produced upon the banks of this country in consequence of demands for gold made upon them from Ireland and Scotland. This could only have taken place so far as the Scotch and Irish banks were holders of Bank of England securities. He wished, however, to protest against the supposition that, so far at least as Ireland was concerned, such pressure had been the result of indiscreet trading or of injudicious banking operations. During the recent crisis, though their operations had been subjected to a severe test, arising out of the state of things here, and though some demand for gold had been the result, 453 there yet had not been an instance in Ireland of suspension of payment upon the part of even a single bank, or scarcely the suspension of payments of any commercial house. He was not, however, prepared to deny that the state of the law in respect to banking transactions between England and Ireland was such as to require alteration. When his noble Friend (the late Lord Spencer) introduced his Bill commonly called the Bank Charter Act of Lord Grey's Government, he introduced a clause which he very erroneously and very unscientifically described as a legal tender clause. That designation, unexplained, would seem to imply that Lord Spencer had sanctioned the principle that, without qualification or restriction, the Bank of England notes were to be made a legal tender. Such a step, however, would have been entirely contrary to the opinions uniformly entertained by Lord Spencer. What that nobleman did assume was, that a banknote convertible on demand into gold was equivalent to gold so long as the convertibility was strictly and practically maintained, and was capable of legal enforcement. Upon that assumption, therefore, a clause was introduced making a Bank of England note a legal tender, but with one most material exception—it was in all cases except on the part of the Bank of England itself, which continued bound to pay in gold, if gold was demanded. Such was the strict limitation which Earl Spencer maintained, and their Lordships would observe that so long as the Bank of England were bound to pay their notes on demand in specie, and so long as that promise to pay was strictly performed, it could be no breach of faith or violation of principle that parties indebted should have an option of paying either in specie, or in notes, which, being convertible on demand, were equivalent to specie. But to show with what strictness Lord Spencer carried out that view, he introduced into the very clause in question a further limitation, reciting that these Bank of England notes should not serve as a legal tender except so long as the Bank paid its notes in coin. The instant there was an interruption in such specie payment the power of discharging public or private obligations by notes was to cease. The Bank of England note, if inconvertible by the Bank, forfeited its privilege. This had been the state of the law in relation to Bank of England 454 notes throughout England and Wales from the passing of Lord Spencer's Act. But the clause of the Act was somewhat ambiguously worded. It did not appear from the language of the clause that its operation was to be confined within England and Wales, or whether, although the general enactments were so limited, that special clause did embrace Scotland and Ireland likewise. This question was subsequently raised. About the year 1837 a considerable failure occurred in Ireland—that of an establishment called the Agricultural and Commercial Bank—a bank exceedingly ill-managed, and which deserved to fall. He (Lord Monteagle) was then Chancellor of the Exchequer, and application was made to him, on the part of the Irish banking interest, respecting the applicability of the legal tender clause to banking transactions in Ireland. He took the opinion of the law officers of the Crown on the subject, and it was their opinion that the clause in question did not apply to Ireland. Although unable to give the relief asked for, arrangements were made by the Treasury of the day which gave currency to Bank of England paper by accepting it when paid for revenue in Ireland, and by so doing thus afforded very great relief to the existing pressure. So the law stood until the Government of Sir Robert Peel in 1845 (the year after the passing of the last Bank Charter Act) introduced two Bills for Ireland and Scotland, into the former of which a clause was inserted, reciting that doubts had been entertained with respect to the applicability to Ireland of the legal tender clause in the original Act, and declaring and enacting that Bank of England notes should not be received as a legal tender in that country. That was the state of the law at the present moment, and what was the consequence? Why, that at any time of general pressure, like that which had lately taken place, there must be imposed upon the central point from which all monetary transactions proceeded, an augmented pressure, and considerable sums of specie must inevitably be exported from England to meet the demands of Ireland and Scotland. It was the object of the papers for which he intended to move to exemplify the extent to which these transactions had in the present year been carried. Had the legal tender clause extended over the whole kingdom, the difficulties arising out of the Scotch and Irish 455 demand for gold might to some extent have been met by a transmission of convertible Bank of England paper in the place of specie. In that case we might have realized with respect to Ireland and Scotland the benefits extended to England by Earl Spencer's clause; and he was at a loss to know what earthly reason operated to require a different rule in Waterford and Glasgow from that which prevailed at Bristol and Liverpool. All the witnesses who had been examined before the Commons' Committee last year, seem to have recommended the extension of the legal tender clause to Scotland and Ireland. The only objection which could be raised was, that the legal tender clause in Ireland and Scotland would not produce the same benefits, owing to the existence there of a small note circulation. Now, he admitted that the effect of the law might not be exactly the same in these countries, but he could not understand how any one could doubt that it would, as far as it went, be productive there of good. It was a curious phenomenon that, throughout the late banking crisis, in the south of Ireland (he could speak of that district from his own experience, but he believed that what he was about to say would apply equally to the other parts of Ireland) there had not been the least pressure with respect to the note circulation. He was inclined to attribute this withdrawal of deposits to the losses sustained by the depositors with that most fraudulent establishment, Mr. John Sadleirs Tipperary Bank. The demand of the people was for their deposits, and it did not seem to matter whether these were paid in gold or in notes. There was another remedy suggested, namely, the abolition of the small note circulation; but into the merits of this proposal he would not now enter. The question was one too large to be discussed incidentally. For the present he would confine himself to moving for returns showing the circulation and bullion of the banks of Ireland and Scotland, in continuation of returns previously made on the same subject. The noble Lord then moved for a Return showing the authorized Issues of the Notes of the Private and Joint Stock Banks in England and Wales, and the actual Amount issued; also the authorized Issues of the Banks in Scotland and Ireland, the actual Amounts issued, and the Amounts of Bullion held by those Banks respectively, in each Week from 456 the 9th May, 1857, up to the latest Period to which the Account can be made up (in continuation of Appendix No. 17 to the Commons Report on Bank Acts, No. 198, 1857).