No. X.-Expenses of the Bank of England, for the Year ending 29th of February, 1832.

III. BANKS (ENGLISH PRIVATE AND PROVINCIAL).

Besides charging the usual rate of interest on bills discounted, the provincial bankers are mostly in the habit of charging 5s. or 68. per cent. as commission. They also charge a commission on all payments, and derive a profit from charges for the transmission of money, &c. They usually allow from 2 to 3 per cent. on money deposited; but the numerous failures that have taken place amongst them have, by generating a feeling of insecurity in the minds of the depositors, confined this branch of their business within comparatively narrow limits. When their customers overdraw their accounts, they are charged with interest at the rate of 5 per cent.

Country banks, established by individuals possessed of adequate funds, and managed with due discretion, are productive of the greatest service. They form commodious reservoirs, where the floating and unemployed capital of the surrounding districts is collected, and from which it is again distributed, by way of loan, to those who will employ it to the best advantage. It is, therefore, of the utmost importance, in a public point of view, that these establishments should be based upon solid foundations. But in England, unfortunately, this, till recently, has been but little attended to; and the destruction of country banks has, upon three different occasions, -in 1792, in 1814, 1815, and 1816, and in 1825 and 1826, — produced an extent of bankruptcy and misery that has never perhaps been equalled, except by the breaking up of the Mississippi scheme in France. Government is bound to interfere to hinder such disastrous results, and we have already given some account of the measures adopted in this view. —(See antè, p. 64, &c.)

The following is an account of the number of commissions of bankruptcy issued against country bankers in England from 1809 to 1830, both inclusive:

Exclusive of the above, many banks stopped payments, to the great injury of their creditors, and the public, that afterwards resumed them; at the same time that the affairs of some brankrupt concerns were arranged without a commission. During the whole of this period not a single Scotch bank gave way.

The stamp duties on country bank notes have been already specified (p. 72.). Besides the stamp duties payable on notes, each individual or company issuing them must take out a licence, renewable annually, which costs 301. This licence specifies the names and places of abode of the body corporate, person or persons, in the firm to whom it is granted, the name of such firm, the place where the business is carried on, &c.; and a separate licence is to be taken out for every town or place where any notes shall be issued by or on account of any banker, &c. Unless the licence granted to persons in partnership set forth the names and places of abode of all persons concerned in the partnership, whether their names appear on the notes issued by them or not, such licence shall be absolutely void. (55 Geo. 3. c. 184. s. 24.) For the regulations as to the issue of unstamped notes, see anté, p. 69.

The issue of notes for less than 51. was prohibited in England, as previously shown, from 1777 to 1797; but they continued to be issued from the latter period down to the 5th of April, 1829, when their further issue ceased, in consequence of an act passed in 1826. This act did not extend to Scotland or Ireland, and was intended to give greater stability to the system of country banking in England, by shutting up one of the prin cipal channels through which the inferior class of bankers had been in the habit of getting their notes into circulation.

The joint-stock banks established in different parts of England and Wales, under the provisions of the act 7 Geo. 4. c. 46. authorising their establishment, consist of bodies of partners, varying from seven, the minimum, to any greater number. Each partner

holds one or more shares of the company's stock, and is individually liable for the entire debts and engagements of the company; so that a person holding a 501. or 100%. share in a joint-stock bank, may, in the event of its becoming bankrupt, be called upon to make payment of as many thousands of pounds! They are uniformly almost managed by boards of directors appointed by, and generally responsible to, the body of shareholders. The conditions of co-partnery vary materially in different associations; but the above are distinguishing features common to them all. The shares in many jointstock banks are very small, few being above 100l., the greater number not exceeding 50%, whilst many are only 251., and some not more than 10% and even 51. Generally, too, it is understood or rather it is distinctly set forth in the prospectus, that not more than five, ten, or twenty per cent. of these shares is to be called for; so that an individual who has ten or twenty shillings to spare may become a shareholder in a bank. And owing to a practice, or rather a flagrant abuse, introduced into the management of various banks, by which they make large advances or discounts on the credit of the stock held by the shareholders, not a few individuals in doubtful or even desperate circumstances, take shares in them, in the view of obtaining loans, and bolstering up their credit! The great danger arising from such banks is obvious; and were one of them to stop payment, it is plain, even though the claims on it should be ultimately made good, that they could be so only at the cost, and perhaps ruin, of such of its proprietors as had abstained from the abusive practices resorted to by others. It may well excite astonishment, that any one who can really afford to make a bonâ fide purchase of shares in a bank should be foolhardy enough to embark in such concerns. No doubt a joint stock bank, if it possess adequate capital and be discreetly managed, may afford ample security to its shareholders and the public. But there is no foundation for the notion, that because a bank has 50 or 100 partners, it will, therefore, be better managed than if it had only 5 or 10. On the contrary, the fair presumption is that it will not be so well managed. A few wealthy individuals engaged in banking, or any other sort of business, must, if they would protect themselves from ruin, pay unremitting attention to their concerns, and act in a discreet and cautious manner. But the partners and managers of a great joint-stock company act under no such direct and pressing responsibility. I think," said the highest authority on such subjects, "that joint-stock banks are deficient in every thing requisite for the conduct of banking business, except extended responsibility; the banking business requires peculiarly persons attentive to all its details, constantly, daily, and hourly watchful of every transaction, much more than mercantile or trading businesses. It also requires immediate, prompt decisions, upon circumstances when they arise,-in many cases a decision that does not admit of delay for consultation; it also requires a discretion to be exercised with reference to the special circumstances of each case. Joint-stock banks being, of course, obliged to act through agents, and not by a principal, and therefore under the restraint of general rules, cannot be guided by so nice a reference to degrees of difference in the character or responsibility of parties; nor can they undertake to regulate the assistance to be granted to concerns under temporary embarrassment by so accurate a reference to the circumstances, favourable or unfavourable, of each case."—(Evidence of S. J. Loyd, Esq., before the Committee of 1832 on the Renewal of the Bank Charter.)

In fact more than nine tenths of the partners in joint-stock banks are wholly ignorant of banking business, and have nothing better to trust to than the supposed honesty and intelligence of the directors; and, even if they were acquainted with the business, the result would be nearly the same, as it would not be possible for any one, by a mere cursory inspection of the books of any bank (if such were permitted), to form any accurate estimate of its condition, or of the mode in which it transacted business. And hence the directors in these establishments are practically all but absolute. If they be worthy of the confidence placed in them, all goes on smoothly; and this also is the case when they are most unworthy, till they have involved the concern in inextricable difficulties! The history of the Norwich Bank, of the Northern and Central Bank, the Marylebone Bank, the Manchester Bank, and a host of others, sufficiently attests the truth of what has now been stated. The responsibility of the directors to the shareholders has not been found, in any of these instances (and it is, indeed, ludicrous to suppose that it ever should be otherwise), to have been any check whatever, over their frauds and improvidence. The whole paid up capital of the Manchester Bank, amounting to about 750,000%, had been wasted in the most improvident speculations, and additional debts incurred, before the great body of the shareholders had the least suspicion that the company was otherwise than prosperous!

We may observe, by the way, that the mischief occasioned by an establishment of this sort, when perverted from its proper objects, and mismanaged, is not to be estimated by the ruin it entails on its partners, and probably, also, on its customers. It becomes, in fact, a public nuisance, and entails privations on many who might be supposed to be beyond the sphere of its influence. Within the ten years ending with

1842, we believe it may be moderately estimated that about 1,500,000l. of banking capital was wholly dissipated in Manchester and its immediate vicinity. And as nine tenths of this enormous loss was occasioned by advances made to manufacturers who had little or no capital of their own, it is not easy to imagine what a ruinous stimulus it must have given to reckless competition, and how very injurious it must have been to parties trading on their own capital. Indeed no inconsiderable portion of the distress in Manchester, in 1842 and 1843, may be traced to this source.

A knowledge of the agency by which certain joint-stock banks had been established, of the way in which some of them were conducted, and a well-founded anticipation of the evils of which they would, most likely, be productive, led in 1836 to the appointment of a secret committee by the House of Commons, to inquire into the operation of the act 7 Geo. 4. cap. 46., permitting the establishment of joint-stock banks; and whether it was expedient to make any alteration in its provisions. The report of this committee, and portions of the evidence taken before it, were afterwards published, and confirmed all the conclusions of those who had contended that the existing system required material amendment. The committee state that-

Subject to the local restrictions imposed for the protection of the privilege of the Bank of England, it is open to any number of persons to form a company for joint-stock banking, whether for the purpose of deposit, or of issue, or of both.

"1. The law imposes on the joint-stock banks no preliminary obligation beyond the payment of a licence duty, and the registration of the names of shareholders at the Stamp Office.

2. The law does not require that the deed of settlement shall be considered or revised by any competent authority whatever: and no precaution is taken to enforce the insertion in such deeds of clauses the most obvious and necessary.

"3. The law does not impose any restrictions upon the amount of nominal capital. This will be found to vary from 5,000,000l. to 100,000/.; and in one instance an unlimited power is reserved of issuing shares to any extent.

"4. The law does not impose any obligation that the whole or any certain amount of shares shall be subscribed for before banking operations commence. In many instances banks commence their business before one half of the shares are subscribed for, and 10,000, 20,000, and 30,000 shares are reserved to be issued at the discretion of the directors.

5. The law does not enforce any rule with respect to the nominal amount of shares. These will be found to vary from 1,000 to 54. The effects of this variation are strongly stated in the evidence. "6. The law does not enforce any rule with respect to the amount of capital paid up before the commencement of business. This will be found to vary from 105. to 5.

"7. The law does not provide for any publication of the liabilities and assets of these banks, nor does it enforce the communication of any balance-sheet of the proprietors at large.

8. The law does not impose any restrictions by which care shall be taken that dividends are paid out

of banking profits only, and that bad or doubtful debts are first written off.

9. The law does not prohibit purchases, sales, and speculative traffic on the part of these companies in their own stock, nor advances to be made on the credit of their own shares.

10. The law does not provide that the guarantee fund shall be kept apart and invested in government or other securities.

"11. The law does not limit the number of branches, or the distance of such branches from the central bank.

12. The law is not sufficiently stringent to insure to the public that the names registered at the Stamp Office are the names of persons bona fide proprietors, who have signed the deed of settlement, and who are responsible to the public.

13. The provisions of the law appear inadequate, or, at least, are disregarded, so far as they impose upon banks the obligation of making their notes payable at the places of issue.

All these separate questions appear to your committee deserving of the most serious consideration, with a view to the future stability of the banks throughout the United Kingdom, the maintenance of commercial credit, and the preservation of the currency in a sound state."

Remedial Measures that should be adopted. The act of 1844, 7 & 8 Vict. c. 32. (see antè, p. 84.) has successfully obviated some of the defects formerly existing in the joint-stock and private banking system, especially by limiting the extent of their issues -but in other respects the system is still open to serious objections; and our readers may not, perhaps, be displeased if we retain the remarks made upon it in our former edition, before the act of 1844 was passed. We do not, however, think that it would be at all necessary, in providing for a secure system of joint-stock banking, to make any regulations with respect to many of the points noticed by the committee as to which the law is silent. At present every partner in a joint-stock bank is liable to the public for the whole debts of the firm; and this may be truly said to be the saving principle of the system, and without which it would be an unmixed evil. No individual should, however, by merely withdrawing from a joint-stock concern, get rid of his liabilities in connection with it. To prevent fraud, and to ensure due caution, these ought to continue for a period of three years at least after he has publicly withdrawn his name. The public, too, are clearly entitled to know the partners in joint-stock associations; that is, to be informed who the individuals are with whom they are dealing, and who are responsible to them. But, unluckily, no effective means are taken for supplying this necessary information, or consequently, of properly discriminating between one establishment and another. The act of 1833 (3 & 4 Will. 4. c. 83.) directed that an account of the places where they carry on business, and of the names and residences of the partners, should be quarterly transmitted to the Stamp Office. But doubts have been entertained as to the correctness of these returns, and comparatively little use has been, or, indeed, can be made of them. The accounts of the names and residences of the proprietors are not published, but are

secluded from the public eye in the repositories of Somerset House! It is true that these lists may be seen, by those who choose to apply at the office, for a small fee, and that certified copies may be procured at no great expense. But few know that such returns exist; and fewer still have the opportunity, or think of availing themselves of them as sources of information. To render them of any real utility, they should be brought under the public eye, by being hung up in the offices of the banks to which they refer, and periodically published in the newspapers of the places where they carry on business. By this means the public would know exactly to whom they had to look, and would act accordingly. They would not be deceived, as they are liable to be at present, by supposing that, because a bank has a number of partners, some of them must be opulent and trustworthy. They would know the precise state of the fact; and if it were seen, from the quarterly returns, that opulent and intelligent individuals were withdrawing from a bank, every one would be put on his guard, and would naturally conclude that the parties had very sufficient reasons for quitting the concern. Thus far publicity may be made effectual, and would be of the greatest importance. Neither is it possible to allege a single plausible objection to this proposal. It interferes in no degree, nor in any way, with the proceedings of the parties: all that it does is to declare who and what they are; and to this degree of publicity no honest man will object." And we are glad to have to state that this is now effected by the act 7 & 8 Vict. c. 32. § 21. See antè, p. 84.

"But we have great doubts whether it be possible to carry publicity farther than this. The committee state that the law does not provide for any publication of the liabilities and assets of these banks, nor does it enforce the publication of any balance-sheet to the proprietors at large;' and it has been proposed to compel the periodical publication of a statement of this sort; but it is very questionable whether any such publication would not be a great deal worse than useless. It is not proposed that commissioners should be appointed to inspect the accounts of the different banks, and to see that the returns are accurate: this would be too inquisitorial, too cumbrous, and too costly a plan to be thought of for a moment. There would be nothing for it, in fact, but to trust entirely to the honour of the parties! Hence, in all cases in which a disclosure would be really useful, the publication of an account of assets and liabilities would afford the means of deceiving the public, and of representing a bankrupt concern as being in a prosperous condition. Supposing, however, that the parties were, in all instances, perfectly honest, still the publication of a balance-sheet would be good for nothing. Every one knows how sanguine people are in relation to their own affairs; and that debts and obligations that other parties would hardly reckon worth any thing, are estimated by them as if they were so much bullion. But, independently of this, the futility of the thing is obvious. A bank with a capital of 100,000, discounts bills and other obligations to the extent, perhaps, of 300,000l. or 400,000%; the fact that it has discounted them shows that it believes these bills and obligations to be good; and they will, consequently, be reckoned among its assets. But should a revulsion take place, or any circumstance occur to shake credit, these bills may not be worth 100,000l.; and those who have dealt with the bank, on the hypothesis of its having capital and assets more than enough to meet all its obligations, may find, to their cost, that it is not possessed of a single shilling, but is, on the contrary, some 200,000l. or 300,000l. worse than nothing!

But

"The committee seem to think that some regulation should be enacted, providing that a certain portion of its capital should be paid up before a bank begins business. the better way would be to prohibit all advertising of nominal capital. This, in fact, is a mere device by which to entrap and delude the public. A bank is announced with a capital of 1,000,000l., 2,000,000l., or 3,000,0007.; and a great number of people, perhaps the majority, immediately conclude that there can be no risk in dealing with an establishment possessed of so great an amount of property. But what is the fact? The capital advertised is nominal merely; not more perhaps than a tenth or a fifth part of it has been received into the coffers of the bank, and we have nothing better than the statement of the bank proprietors, or their agents, that they will pay up the remainder, if necessary; of which necessity they of course are to be the only judges! Practically this is neither more nor less than a fraud upon the public; it is a contrivance for making 10,000l. pass in the public estimation for 100,000l., and for procuring the same degree of credit to its holders. This, however, is not all. Where is the security that if a greater amount of capital were really required, it would be forthcoming? The notion that the bulk of the shareholders in many, we are pretty sure we might safely say most, of the joint-stock banks now in existence, could pay up the full amount of their shares, is too ludicrous to deserve notice. We might as well call upon a man worth 51. to extinguish a debt of 500l.

"There can be no doubt, therefore, unless it be meant to affirm that deception and fallacious statements are indispensable to the success of joint-stock banking schemes, that

all advertising of nominal capitals should be put an end to; and that no association should be allowed to represent its capital as exceeding the sum actually paid up by the proprietors. But though this would obviate one source of fraud and deception, there would still be abundant means of practising on the credulity of the public at the disposal of parties inclined to use them. Admit that a bank has a capital of 500,000l. actually received into its coffers, what is to hinder the directors from lending out the whole of this sum, or even more, to themselves or to partners in the bank? or supposing them not to do this, who can tell whether the entire capital, or some considerable part of it, be not wholly engulphed in ruinous speculations? It is indeed alleged, and truly too, that this could not happen with any respectable' bank; that gentlemen of character' would not lend themselves to such transactions! Unluckily, however, there are no decisive marks or tests by which the public can, à priori, say what is or what is not a ' respectable' bank, or who is or is not a 'gentleman of character;' and it is not a little hazardous in such matters to indulge in speculative remarks. Hence it is that the Marylebone Bank, the Bank of Manchester, and indeed all banks, are held to be respectable, that is, solvent, till the event prove the contrary; and that all gentlemen connected with banks are held to be 'men of character,' paragons, in fact, of honour, honesty, and intelligence, till their fraud or ignorance has involved hundreds or thousands in bankruptcy and ruin.

"We do not state these circumstances in order to raise any prejudice against joint-stock banks or other associations, for they apply equally to banks with one or a small number of partners; but we state them to show the folly of placing any reliance on statements as to the capital of any bank, or the character of its managers. Such statements may be either true or false; but, as the public cannot tell which, they are plainly good for nothing. The only real security is to be found, if it exist at all, in the names of the partners responsible for the debts and obligations of the bank. The number of such partners is a very inferior consideration. There cannot, in truth, be a greater error than to suppose that because a bank has a great number of partners, its security may be safely depended up on. A single individual worth 100,000l. is an incomparably better security than fifty individuals worth 2,000l. each; and a hundred individuals worth 1,000l. would hardly be any security at all; at least for a sum of 10,000l. or 20,000l. A private bank with six may be a safer place of deposit than a joint-stock bank with six hundred partners. Every thing depends upon the available wealth of those responsible for the debts of the concern; and hence the propriety and justice, whether the firm consist of one or of many partners, of publicly declaring and specifying their names.

"We are decidedly hostile to a proposition we have heard mooted, and which seems to be countenanced by the committee on joint-stock banks, for obliging all banks to establish a guarantee fund; that is, for obliging them to accumulate a portion of their profits as a reserve stock. Where is the security that such reserve would be always deducted from profits? The truth is, that bankrupt and fraudulent concerns, and none else, would gain by such a regulation; inasmuch as it would enable them, by appearing to be prosperous, the better to deceive the public, and to blind them to the real state of their affairs. It is worse than absurd to induce the public to depend on guarantees that cannot be enforced, and which, consequently, must be good for nothing. The knowledge of whom the partners in banks really consist, and their unlimited responsibility, are the only securities that, speaking generally, are worth a pinch of snuff. If these cannot protect the public from fraud or loss, nothing else will; and the question will come to be, not whether the system should be reformed, but whether it should be abated as an incurable nuisance, On this ground also we should be disposed to dissent from any attempt to prevent, by legislative enactment, the making of loans upon the credit of bank stock. We do not question the advantage of such a regulation, provided it were honestly carried into effect. But it is useless to say that, whenever the parties were disposed to defeat such a regulation, it would be quite inoperative.

"Some of the joint-stock banks have an extraordinary number of branches; and the multiplication of these subordinate establishments all over the country is not one of the least striking features of the system. Neither is it very difficult to discover why banks of issue, at least, are so very anxious about the formation of these outworks. They are bound, it seems, by the present law to pay their notes only at the parent establishment; so that by issuing them at a branch bank, perhaps a hundred miles distant from the head bank, the chances are ten to one that they will continue for a much longer period in circulation, and that they will consequently be able to carry on business with a less amount of capital, than if they were, as they ought to be, obliged to pay their notes at the branches as well as at the principal office. It is obvious, indeed, that the convertibility of the paper, even of first-class banks, into either cash or Bank of England notes, is at present exceedingly imperfect; and that very great facilities are afforded for getting the worst class of notes into circulation, and for keeping