HL Deb 26 April 1910 vol 5 cc696-712


Order of the Day for the Second Reading read.


My Lords, the Bill that I am going to ask your Lordships to read a second time this afternoon is in a sense what might be called a blood relation to a similar Bill that was introduced in your Lordships' House some two years ago by my noble friend Lord Wenlock. That Bill received a Second Reading at your Lordships' hands, but was lost in a whirlpool of difficulties and objections raised by the Government and by others in the Committee stage. I hope that the Bill which is now produced for Second Reading will in a sense have met the objections that were entertained by the Treasury at that time, and will have made provision for some of the difficulties that were then raised by the Chief Registrar.

The principle of the Bill is to establish co-operative credit societies—in other words, village banks—which have been found to be such a boon to the poor agricultural population in foreign countries and in Ireland. They are simply humble village banks, restricted in area and in numbers, and provided with borrowing powers to be used for the benefit of the very humblest. Abroad they were inaugurated to meet the very serious position of affairs brought about by the gombeen men, as we call them in Ireland—by the usurers of the time. In my humble opinion, the success of the small-holding movement in this country or in Ireland must depend to a great extent on the pro- vision made for co-operation and combination among the small holders, and I am sorry that the noble Earl the President of the Board of Agriculture, who takes such great interest in this matter, is not in his place this afternoon, because I should have liked him to have heard the principles of this Bill, which I believe will be of enormous benefit to the poorer inhabitants in agricultural districts.

What are the means provided to-day for a man to borrow who is really in need of a small loan? The only thing he can do is to travel to the nearest town and apply to probably a joint stock bank managed by a board possessing no interest in the borrower himself or in the nature of the loan. In olden days there were local private bankers, who probably knew the individual who came to apply for the loan, took an interest in him, and were able to judge as to his means and the security he had to offer; but nowadays if a man is desirous of borrowing a small sum the machinery would be that he would have to travel to the nearest town, and take with him his sureties; he would have to spend the whole day getting there, and the chances are that the loan that he would be able to get would be only a small one repayable within a short space of time. And so it would be a real boon to these people if you could bring to their doors a system which would enable them to borrow cheaply. I will come to the system on which I propose to establish these banks in a moment or two.

I would remind your Lordships that village banks or co-operative credit societies have been in vogue on the Continent for a great number of years—in Italy, in Austria-Hungary, in Belgium, and in Germany. In Germany alone there are 15,000 of these banks. They work under different systems, but the majority of them, I believe, are established under what is called the Raffeissen system. Raffeissen was a German, and he was born nearly a century ago. He had aspirations to win his spurs on the battlefield, but owing to physical infirmities he was prevented from joining the Army and became a Civil servant, much, I think, to the benefit of the agricultural population of Germany. Being a Civil servant, he became a burgomaster, and during the years of famine of 1846 and 1847 he came into touch with a condition of affairs that brought at once to his mind the necessity of some sort of reform. He found the down-trodden peasantry suffering iniquitous hardships through being entirely in the hands of the usurer of the day, and he saw at once that some system was necessary to deliver these poor people from the yoke of the usurer and enable them to obtain any small loans that they might require to eke out their existence. And so he established a system of co-operative credit banks. That system was based on one great principle—namely, that people should combine, and by their combination offer such security as would enable them to borrow loan capital cheaply and lend to the poor borrower also cheaply. They were able to lend to the borrower cheaply, but they were able by their security to borrow the loan capital still more cheaply. Then by making every member of the society jointly and severally responsible for all the money that was lent a system was set up by which every man was interested in the doings of his neighbour. He was interested in seeing that the security was good and that the loans Were put into the right hands, and so you got a system by which a man sought for no money fee of his own, but was really interested in the welfare of his neighbour. It was a wonderful system.

The first bank was started with a loan capital of £300. Gradually the movement spread until now there are 15,000 of these Raffeissen banks in Germany. It is interesting to follow up the life history of that first bank started by Raffeissen. It was only ten years ago, I think, that that bank was wound up owing to the decision of its members to abandon the co-operative principle started by the founder. When they wound up the concern, which, as I have said, was started on a loan capital of £300, they found that £2,000 had accumulated from the small over profits made upon the loans. The rules of these societies are embodied in the second clause of this Bill. Your Lordships will see that they are purely philanthropic institutions. They are not meant in any way to be a source of profit to the members. In one of the rules it is expressly provided that no part of the funds shall be divided among the members by way of profit, bonus, dividend, or otherwise, and that the profits of the society in each year shall be carried to the credit of a reserve fund. It is further provided that if the society is wound up the reserve fund shall not be divided amongst the members, but shall go to some purpose of public utility in the locality. The reason for that is that you do not want to start a system by which the members of the society would build up a large reserve fund in order that, when the reserve fund was large, they should then have the benefit of dividing it among themselves. These reserve funds are built up to increase the security of the bank, to enable the loan capital to increase, and so facilitate the lending of money to small borrowers.

These Raffeissen banks have been taken up not only on the Continent. They already form part of the credit system in our own Empire. Amongst all the great acts of administration which took place in the time of Lord Curzon's Viceroyalty of India, I believe there is no act that will be more gratefully remembered by the ryots of India than the passing of the Indian Credit Society Banks Act of 1904. There are over 2,000 of these credit banks in India at this moment. These societies are incorporated societies, a point to which I will draw your Lordships' attention in a moment or two. Ipso facto when they are established they become incorporated societies. To come nearer home, we find that in the poor congested districts in the West of Ireland these banks have been of enormous benefit to the poor peasant proprietors. The idea was taken up by Sir Horace Plunkett, and now in Ireland we have some 300 of these societies doing well and bringing relief to the poor population. The gombeen man plays a very important part in the life of the Irish peasant. It was to get the peasant out of the clutches of the gombeen man that these credit societies were inaugurated, and they have done exceedingly well. The total loan capital has advanced from £48,718 to £49,840—an increase of £1,122 in one year; and the number of loans granted is shown as 8,615.

In connection with these credit societies comes the other side of the picture—namely, that of thrift. It is better to have your loan capital derived from deposits by the members of the society than to have it from an overdraft at a local bank. It is hoped that eventually these banks will form a well-secured savings bank for the people, and in that direction they will really be a boon to the State, for I must draw your attention to a recent declaration on the part of the Postmaster-General as to the increased expenditure connected with the savings bank system in this country. He says that the cost of administering the Post Office Savings Bank has been much increased of late years by the tendency of depositors to use the institution for the purposes of current accounts instead of for their savings, which was the original object for which the Savings Bank was promoted. The Postmaster-General says:— Every transaction, great or small, has necessarily to be reported to London for record in the ledgers at the central office, and this renders business very costly when depositors make frequent deposits and withdrawals, especially when the individual sums are small. Therefore I submit that I am right in saying that if these credit societies and small banks are formed on the savings bank principle, they will to a certain extent relieve the Post Office of an encumbrance which is costing them more every year.

I now come to the details of the Bill, which is required to grease the wheels of the machine, for in many ways the system is cumbrous at the present moment. First of all, the Bill takes power to incorporate the societies. The incorporation of these societies means that they will stand on their own, and instead of acting through trustees as they have to now under the Friendly Societies Act, they will then be able to sue and be sued on their own account. Secondly, there is power taken to form central institutions. These central banks are institutions in which the affairs and interests of the whole system are focussed. They form the receptacle for the reserve funds of the small local banks, and they are the common cash-box, equalising excess and want and facilitating common business. These central banks are based entirely upon limited liability, as against the unlimited liability of the small credit societies. Then there is one other point to which I wish to draw attention. It is one of the most important parts of the Bill as regards Ireland. This Bill takes power for the trading of these co-operative credit societies. The societies in Ireland are very often seriously hampered for want of this power. I will give your Lordships an illustration. At the beginning of the year 1907 there was a failure in the potato crop and the Department of Agriculture found themselves in the position of being obliged to find some reliable way of introducing new potato seed into an infected area. They naturally did not want to pauperise the people of the district by distributing seed broadcast through the unions, so they hit upon a plan of providing funds for the credit societies working in the West of Ireland, who were in their turn to hand the money over to their members to enable them to buy seed in the North of Ireland, where the seed was good, under the inspection of their officers. But then it was found that it was not legal for these co-operative societies to trade, and so a cumbrous and roundabout method had to be devised. Committees were formed to buy seeds from the contractors, and the money was handed over from the credit societies to these committees; they in turn dealt with the contractors, and much time was thereby lost and needless expenditure and an infinite amount of trouble occasioned. If, on the other hand, these co-operative trading societies had the legal power of trading, they could have dealt with the contractors straight away and the whole machinery would have been simplified.

I may be told that under the Industrial and Provident Societies Act there is a power to trade which is not given under the Friendly Societies Act. But you would then require a share capital with a limited liability, and that destroys the whole principle of the Raffeissen system. The principle of that system is unlimited liability, by which every member jointly and severally is responsible for the amount out on loan. Therefore it is obviously necessary that, if it is to work under the Friendly Societies Act, you want legal powers for trading under that Act. This would be of enormous advantage to Ireland; it is the one thing that is wanting in that country. These powers are possessed on the Continent. The societies on the Continent never really began to flourish until the co-operative trading societies came into existence, with the result that the movement has spread in the manner I have described. This is a very complicated and difficult subject, but I hope I have made the principles of the Bill clear to your Lordships, and I trust that it will receive the sympathetic consideration of His Majesty's Government and be read a second time. Perhaps I ought to add that the Bill itself is not my handiwork. The author of the Bill is Mr. Wolff, an acknowledged authority on these matters, whose experience is second to none. And in that direction might I say that if your Lordships really want to get an intimate knowledge of the whole matter, you could not do better than read the book which has just been published by Mr. Wolff on "People's Banks"—a most admirable contribution to the whole subject. I thank your Lordships for listening to me so patiently, and I beg to move that the Bill be read a second time.—

Moved, That the Bill be now read 2a.—(The Earl of Shaftesbury.)


My Lords, I rise to support the Motion of my noble friend Lord Shaftesbury, and as I have had some experience in the creation and promotion of agricultural banks, both in India and in Ireland, perhaps the few remarks I shall make may not be altogether undeserving of your attention. In the year 1898, after the United Provinces of India had begun to recover from the severe famine which had afflicted them during two years, the Government of India were confronted with the problem of how the self-reliance of the people might be stimulated and how they might be brought to confront another famine otherwise than through reliance upon the charity of the State.

Some time before inquiries had been instituted in the Madras Presidency as to the possibility of creating Raffeissen banks in India, and a very careful and exhaustive report was prepared by Sir William Nicholson, who had made the subject his own. But no practical steps were taken upon that report, and it was not until the beginning of 1898 that any action was taken. At that time Mr. Dupernix, one of the clever young officers who had served during the famine, wrote a book which immediately arrested attention in Northern India. I asked Lord Curzon to allow me to place Mr. Dupernix on special service for the purpose of carrying into effect the doctrines which he preached, and Lord Curzon, who was ever ready to receive any suggestions tending to improve the material lot of the Indian ryot, at once agreed. The credit for any result which followed must be entirely attributed to Mr. Dupernix and the gentlemen who were associated with him. They commenced to establish banks, a propaganda was set on foot to explain to the Indian ryots and the zemindars concerned what the objects in view were, a large number of provisional banks were created and rules were tentatively drawn up for putting them into operation.

In those early days it was, of course, impossible to obtain from the people themselves the necessary funds to finance such an operation, and consequently the Government, which at the time was in my hands, advanced the small sum of 5,000 rupees, or about £300, to give to these banks a small capital with which to commence their work. Shortly afterwards I left India, but I have watched the growth of the movement. The last figures which I have had access to are those contained in the Indian Statistical Abstract for the year 1908, and they show that the operations which commenced ten years before with a little over £300 capital had increased to £430,000. The operations appealed to the people, both landlords and tenants, and I do not think that any more beneficent work was ever instituted in India than these Raffeissen banks. I must be permitted to re-echo the words of my noble friend Lord Shaftesbury in saying that to Lord Curzon is due the credit for having watched these banks in their infancy, for having nursed them in their adolescence, and, finally, for having appointed a Commission which carefully went over the whole ground and proposed the Bill which afterwards became the Indian Act of 1904.

When I went to Ireland I found that these banks were also in operation there, but they were languishing. They were languishing, I believe, for the reasons which caused the Indian banks in the commencement to languish. The reasons were these, that the Indian banks, as also the Irish banks, were not incorporated, that the clumsy and cumbrous system of trustees was maintained, that the financing of the banks was not entrusted to the banks themselves but placed in the hands of outside capitalists. These defects were removed by Lord Curzon's Act, and these are the defects which it is now proposed to remove by the Bill which my noble friend has introduced to your Lordships. The Bill is an extremely simple one, based upon the Friendly Societies Act of 1896. It merely asks your Lordships to approve of three principles—first, of the principle of incorporation; secondly, of the principle of creating a central institution for the purpose of financing the banks; and, thirdly, of the principle of granting to these banks the power of trading.

In regard to the first of these principles, that of incorporation, I do not suppose that anybody would prefer that these banks should continue on their present basis and employ trustees while incorporation could be employed. In the Indian Act registration carries with it de facto the incorporation of the bank, and no evil effects whatever have resulted therefrom. In regard to the creation of a central institution, I consider it is all-important. Where you have a number of banks scattered over a large area you must have some poor and some rich banks. The proposal is to create a central bank in which the agricultural banks can take shares, and into which they can pay their deposits, which would then be used for financing the smaller banks without any recourse to outside financial assistance. The principle is entirely consistent with the theory of co-operative banks; it looks to the members of the bank to find the funds necessary for the bank's operations. The granting of permission to trade is also a necessary corollary of the creation of the banks. If banks are allowed to make advances for agricultural purposes there is no reason why they should not also provide agricultural appliances such as seed and better manure, which are also essential for agricultural purposes. When you get so far it is but a very small step to allow these small credit associations among the poor the same liberty of trading that you allow to the large co-operative societies among the rich. These, my Lords, are the few remarks which I desire to address to the House. I trust that you will look upon the Bill with favour, because it will be productive, especially in Ireland, of great advantages to the agricultural population.


My Lords, I listened with great interest to the words which fell from the noble Earl who moved the Second Reading, because I have myself given some attention to this Bill, and I very soon discovered that it was a difficult measure to understand. So far as I can gather—and I look at it, I must say, rather from the commercial attitude than from any other—under this Bill certain men may bind themselves together under the Friendly Societies Act; they may call themselves a bank; they may lend each other money; they do not trade for profit; they can take deposits from the public. The Bill does not say what they are to allow on those deposits, or whether the deposits will be forthcoming. In my experience, deposits are things of very slow growth, and there are many attendant circumstances surrounding a bank that takes money on deposit which have to be inquired into. I do not gather whether the liability is to be limited or not.


In the case of small banks it would be unlimited, but the central bank would have limited responsibility.


That is rather difficult to understand. I have referred to the smaller aspects of the question. I now come to a rather more important one. Clause 4 provides that a thrift and credit bank may, if the rules of the society so permit, borrow money from any county council. Let us look at the other side of the question. Is the county council to have power to lend money to these banks? If so, what rate is it going to charge, what interest is it going to demand? I need hardly remind your Lordships that all of us who are ratepayers are more or less concerned. We are shareholders in the county council, and would like to know whether county councils are to be in a position to lend money to these banks. Speaking from a commercial point of view I have no hesitation in saying that from 1880 till now the lending of money merely on agricultural land has been a dangerous proceeding to the lender unless the margin has been very large. All these matters depend on the price of produce. The price of produce has been low until the last year or two. Land banks, small holdings, and agriculture all depend on the price of produce. Fortunately, in the last few years the price of produce has gone up and is likely to keep up, because, after all, land is only a fixed quantity while population is far from being a fixed quantity.

We cannot, however, compare for one moment the state of things in France and Germany with the agricultural position in this country. We have to deal with two great factors. One is climate and the other is protection. As regards France, the climate of that country, of three-fourths of it at any rate, is a great deal better for agriculture than this country. As regards protection—I am not now arguing whether we are right or wrong—for better or for worse we in this country have long since come to the conclusion that the dwellers in the towns are to have the cheapest food that can be given to them. Agriculture and landlords have been allowed to take care of themselves. The effect both on agriculture and on landlords during the last thirty years has been very disastrous. That is the position to-day in this country. We give cheap food to the towns, but we do not look after the country. In France and Germany the exact converse is the case. France and Germany, for better or worse, have considered it right to protect their agricultural industry. They put 10s. or 12s. on wheat, and agriculture has done better under those circumstances than it has here. Their system has been the opposite to our own, and therefore these banks are able to succeed in Germany and in France. It is all a question of the price of produce. I should have thought that it would not have passed the wit of man to decide on some policy which would give cheap food to the towns and also a little help to agriculturists by such a system as the bounty system on home produce. But this is not the moment to discuss that matter.

I think it might be possible for the Government to take this matter up and finance this land bank system. I am not sure that they would be able to do it. We have in our minds the attempt of the late Government to start a large purchase scheme for Ireland. I always thought there would be difficulty there, because after all the Government were borrowing money at two and three-quarters per cent and lending it at three and a-quarter per cent., and I could not see, that there was sufficient margin for contingencies. As a matter of fact, contingencies occurred; but, curiously enough, the matter arose in this way—that the Government could no longer borrow the money at two and three-quarters per cent.; they have had to pay more for it, and therefore they are in the awkward position of having to give nearly as much for the money as the men to whom they lend it give them, and they have to run all the risks. Therefore, I do not think even the Government, unless they were very careful of the way in which the measure was framed, Would be able to carry out a measure of this sort. Banks in India are not on the same footing at all. Those banks were started to guard the natives from the world-wide rapacity of the Indian moneylender. They were inaugurated for that object and they have done well; but there is not that mischief to contend with here. I am ignorant enough not to have known that there were such things as land banks in Ireland, but they do not seem to have been on any large scale. I understand that the funds amount to £48,000.


There are 300 of these societies in Ireland.


Yes; but they have only £48,000 among them. That is not a large sum, and there may be some excuse for my not having heard of their existence. There is not much room for success. If agriculture is not doing well here, it cannot be made to do well by banding men together in the way proposed; and that is why I say that these banks under this sort of auspices are dangerous. Nothing effective would be able to be done unless the price of produce becomes much higher than it is to-day. I do not propose to vote against the Second Reading of the Bill, but I shall listen with interest to the criticisms that will be made upon it in the course of this discussion and in the Committee stage.


My Lords, I was relieved to hear the noble Lord conclude his speech by saying that he does not intend to oppose the Second Reading of this Bill, because from the general character of his remarks his criticisms were somewhat searching, and he seemed, I regret to find, to regard these little banks with a good deal of suspicion—approaching them, as he frankly told us, from a commercial point of view. The noble Lord is obviously unaware of the peculiar circumstances under which Raffeissen banks were started in Ireland. With the permission of the House, I should like to say a few words just to give my own experience, because I have one in my own village and I know a great deal about the general movement which gave rise to the formation of these banks in the poorer districts in the West of Ireland. Towards the end of his remarks the noble Lord put aside the case of India because he said that in India you had to contend with the rapacity of the moneylender. That was exactly the state of things that we had to face in the West of Ireland, and which suggested to Sir Horace Plunkett and others who were working with him that this system which had performed such wonders in Germany should be tried in Ireland, and tried it has been with great success. As a proof of that, there is the fact that some 300 of these societies have been started, and I can assure the noble Lord that they have done a very great amount of good.

Then the noble Lord seemed to think that these were land banks, that they were for the purpose of lending money on the security of the land. These things are on a much smaller and humbler scale altogether. It is rather to enable a poor man to buy a pig than to enable a farmer to buy a large tract of land. The loans are chiefly of a small character. The noble Lord had some doubts whether the deposits would be forthcoming. Of course, when a bank is started in a very poor neighbourhood deposits are not forthcoming at first. That is the reason why, as Lord MacDonnell pointed out, they have to be financed at the outset. That is, of course, a difficulty, and you want some outside help for that purpose; but once they have established themselves and lent money in these small sums, and those operations have been remunerative, they do begin to attract deposits, and the savings of the district are in that way retained in the district and fructify there, and are of great advantage to the community. The noble Lord questioned whether it was advisable to give power to these banks to borrow from county councils. So far as my Irish experience goes, I do not think that that is of very vital importance.


I did not say that. I said I did not know whether it was right for the county council to lend to them, not whether it was right for them to borrow.


The noble Lord made quite clear what his meaning was. I do not know whether county councils in Ireland have power to lend or not, but I do not think it is material one way or the other. The banks so far have been able to struggle along, and with the help of the Department of Agriculture, which has given them the small sums necessary as the nest-egg to start the thing, they have had no difficulty in making their first few steps, and once they are established they do attract the savings of the local community. As Lord Shaftesbury pointed out, in the case of one of the earliest banks started in Germany there was no less a sum than £2,000 accumulated in the form of a reserve fund. I do not think the question as to whether the Government should finance these banks is involved in this Bill, and therefore I need not touch upon that. But I should like to say, in conclusion, that, having watched these banks in various parts of the country for some years, and having one, as I say, in my own village in Ireland which is doing most excellent work and which very much requires the particular powers which this Bill seeks to confer and which have been so clearly explained by my noble friends Lord Shaftesbury and Lord Mac Donnell, I do very earnestly beg the House to give a Second Reading to this Bill and not place any difficulties in the way of its passing into law.


My Lords, I regret that my noble friend Lord Denman, who generally represents His Majesty's Government in connection with Bills affecting the Treasury, is too unwell to be in his place this evening. I am the more sorry because he dealt with this subject when it came before your Lordships' House two years ago, and therefore would have been able to deal with it on the present occasion with real knowledge. But, on behalf of His Majesty's Government, I give what I think we gave two years ago, cordial approval to the principle of the Bill coupled with the desire to see certain Amendments introduced in it—not, I think, a very unusual position for a Government Department to take up. There is no doubt, if only from the debate to which your Lordships have listened to-night, that the success of the banks which have been conducted on similar principles in Ireland, in Germany, and in India, really proves that we might expect great advantages from them if they were started in this country too.

There is, of course, a great difficulty connected with the question of unlimited liability. I think it is quite clear that you ought to have some kind of limitation introduced. If you do not limit the liability of individuals, then probably you ought to introduce a limitation with regard to area, so that all those who are connected with the society may know the financial position of the members and may be aware if any member is taking an unfair advantage of the money that has been lent to him or is at all likely to involve them in loss. I think that is a form of limitation that might be substituted for limited liability with regard to money. The question of county councils has already been partly dealt with in the Small Holdings and Allotments Act of 1908; and I think, with regard to other provisions in this Bill, that a considerable amount of the powers which are given in the Bill can already be exercised under somewhat similar circumstances. But in any case this Bill does, I am glad to know, incorporate some of the Amendments which were suggested by His Majesty's Government on the last occasion. Unfortunately it does not include them all, and it is obvious, from what fell from Lord Faber, that the matter does require some further consideration. The noble Lord, I think, Was the only one who spoke with first-hand knowledge of banking affairs, and it is quite clear that it is desirable that the Bill should be examined from that point of view.

The suggestion, therefore, which I should like to make to the noble Earl is that this Bill should be read a second time this evening, and should then be referred to a Select Committee which could inquire thoroughly into the subject, and whose Report might form the basis of a Bill to be introduced on another occasion either by His Majesty's Government or by a private individual. I hope the noble Earl will not consider that such a step is in the direction of shelving the matter, because within the last few years the Reports of Select Committees appointed to consider Bills of this kind have very often, if not generally, led to legislation on a subsequent occasion. I venture to hope, therefore, that the noble Earl will see his way to adopt that suggestion.


My Lords, as this is a matter to which I have given some attention in the past, I should like to make one or two observations upon this Bill. I do not think, in dealing with this matter, that we can lay much stress on experience in India or in Germany. In countries like that there are not the facilities for loans being obtained from banks that there are in England or in Scotland, particularly in Scotland, or even in Ireland, but I do not think that is any reason for objecting to the principle of this Bill. I have no doubt there are cases, and perhaps many cases, in which banks of this kind may be extremely useful to depositors and to those who desire to take loans from them, but that the subject is one of considerable difficulty and complication I think has been admitted both by the noble Earl who introduced the Bill and by the noble Lord opposite who seconded the Motion for the Second Reading.

The suggestion made by the noble Earl, Lord Shaftesbury, that these banks might be in some measure a substitute for the Post Office Savings Bank, is one which I confess does not seem to me to be practicable. He told your Lordships that lately there had been a movement among those who deposit their money in the Post Office Savings Bank in favour of utilising that bank rather by way of current accounts than of deposits for any length of time. If that be so, it would be very dangerous for persons to put their money into banks of the kind proposed in this Bill, which are instituted largely in order to give loans to small farmers which would almost necessarily be given for some considerable time, with the idea that they could withdraw it as quickly as they could from the Post Office Savings Bank. That is one point. Another is the security of loans. I agree very much with the noble Earl who has just sat down. You must have local knowledge on the part of those who manage these banks of the persons to whom they make the loans.

There has been, in England at any rate, a considerable change in the last twenty years in local banking. I can remember the working thirty years ago and more of my county bank, and in those days it was universal almost for country banking in England to be conducted much more by personal knowledge than anything else. There has been of late years an enormous absorption of these small country banks by large London institutions, and the result has been that much of that personal knowledge has disappeared and you have to conduct banking in the country much more on the London system of obtaining security for your loans than on personal knowledge of the persons borrowing. Then also there has been what my noble friend Lord Faber has alluded to with great truth—a considerable falling off in the value of produce until quite recently, which has depressed agriculture and done much injury to owners and occupiers. All these things have to be taken into consideration; therefore I would venture to say that the only safeguard of a proposal of this kind is that personal knowledge which can only be secured by lending money to people in the immediate neighbourhood of those who manage the bank.

I am glad the noble Earl who spoke on behalf of His Majesty's Government has made the suggestion that this Bill should be referred to a Select Committee. I think it is the only way in which so complicated a subject can be properly dealt with, and if in that Committee the authors of the Bill are favoured with suggestions from His Majesty's Government for the more safe working of the measure, I hope they will accept them. I look myself with some doubt on granting power to trade. Banking is one thing; trading is quite another; and unless that is limited in some way I can conceive that great difficulties might arise in the future in the management of these institutions. So far as the Second Reading goes, I entirely support the Motion, and I think the House is very much indebted to the noble Earl, Lord Shaftesbury, for the extremely clear and lucid statement in which he explained the provisions of the Bill.


My Lords, as far as the suggestion that the Bill should be referred to a Select Committee is concerned, I see no objection whatever to it. I think it would be an admirable course to adopt, and I am quite sure that then the merits of the Bill would be thoroughly discussed and any Amendments that were required could be very easily introduced. On the question of unlimited liability, I quite appreciate the point that has been raised. It is obvious that if you are going to have unlimited liability amongst the members, you should restrict the liability in other ways. It could, I think, be restricted in the amount of the loans and in point of area; but that can be done when the Bill is before the Select Committee.

On Question, Bill read 2a, and referred to a Select Committee.