1. You are the Manager of the Royal Bank of Scotland, are you not?—I am.

2. How long have you been connected with that bank?-About four years.

3. Your attention has been directed to the question of the privileges and the state of the law affecting banks in Scotland; and I think you last year sent a memorandum to the Treasury in connection with the memorandum which was drawn up by Sir Henry Thring, did you up not? Yes. I was asked by Sir Henry Thring to prepare a memorandum on the subject.

4. Your attention has been directed to that memorandum ?—It has.

5. Are there any points in your own memorandum to which you would wish to call attention, or on which you have any further suggestions to make?-I think not. What Sir Henry Thring asked me to furnish him with, on the suggestion of the Lord Advocate, was a memorandum on the legal history of the Scotch Banking system. The memorandum which I prepared is a simple statement of the law, and of the constitution of the various banks existing in Scotland.

6. At the time of the passing of the Act of 1845 there were existing in Scotland 24 banks, were there not?-There was a Return ordered in 1864, which shows exactly the number of banks then existing. There were 20 banks on the 1st January 1845.

7. The number is now reduced to 11, is it not? -It is.

8. All those banks are banks of issue, are they not? They are.

Chairman-continued.

9. And they are all Joint Stock Banks?They are all Joint Stock Banks.

10. Can you inform the Committee whether there are any arrangements made between those banks which amount to their acting in common upon any point?-They act in common upon this point: when the Bank of England minimum rate of discount is changed, the banks in Scotland meet and fix what are to be their rates, and so act in common; that is to say, they fix the rates allowed to depositors, and they fix the rates charged on the discount of bills and for other advances. In no other respect do they act in common, except upon questions in which their interests are involved, as, for example, the matters now before the Committee.

11. Is there a clearing house?—There is a clearing house.

12. Is there any understanding amongst the banks that they should cash each others notes? There is no formal understanding, but it has always been the practice.

13. They are all independent banks, entirely standing upon their own bottoms?-They are entirely independent of each other.

14. Those banks are upon a different footing, are they not, with regard to the conditions upon which they may carry on their business; that is to say, that some have greater powers under their charters or Acts of Parliament than others have?-The five senior banks are all chartered banks; the six junior banks are all incorporated under the Companies Act of 1862.

15. The charters under which some of those banks act restrict them to carrying on their busi

Chairman-continued.

ness in Scotland, do they not?-That was so in the case of the Royal Bank of Scotland.

16. Is it the case with any others?-I am not aware as to that, and I should not feel justified in pronouncing any opinion upon the restraints affecting individual banks.

17. What do you understand to be the restrictions which are placed upon the banks of Scotland generally, in respect of the business that they may do out of Scotland?—I am not aware that by law there is any restriction imposed upon the banks in Scotland in that respect, provided their own constitution permits them to carry on business elsewhere.

18. They are not allowed to issue notes in England, are they? They are restrained, in that respect, by the Act of 1844.

19. Are they allowed to cash their own notes in England?--I am not aware that they have any special power or authority to cash their own notes. The practice of the Scotch banks has been to cash their notes at whatever office they were presented, although they are not payable except at the head office in Edinburgh, or Glasgow, or Aberdeen, as the case may be.

20. Would a Scotch bank which had established itself in London cash its own notes in London if presented?With regard to the branch of the Royal Bank, which has been in existence in the City of London since the month of August last, I happened yesterday to put the question, and I find that since the month of August last down to this day they have cashed in London 6807. worth of notes, of which about ten per cent. were the notes of other Scotch banks. That is the extent to which it has been carried here.

Sir G. Montgomery.

,

Chairman-continued.

presume that the holder takes them to his own banker; that the English banker sends them to his correspondent in Scotland; and that the correspondent gives credit for his own notes, passing the remainder through the clearing house in Scotland.

28. What is the nature of the change which has been made in the case of the Scotch banks which have carried on business through an agent in London, and which now desire to establish, or have established, offices of their own in London?

The object is to give greater facilities to the customers of the bank who have London connections. But in order to answer that question properly and fully, I should explain to the Committee the change which has come over the course of commercial business during the last 20 or 30 years. Thirty years ago, I daresay it was quite an exception for a Scotch merchant to accept bills payable in London, or to think of having a London banking account; but now-a-days it is quite an exception with large mercantile houses in Glasgow and Dundee, and other Scotch towns, to accept a bill payable in Scotland; they are all domiciled in London. Their remittances from abroad come home in the shape of bills drawn on London, and payable there. It is obvious therefore that a Scotch merchant whose transactions are of that character has a very great temptation to open an account with a London banker, because he can retire through that account his own acceptances, and he can discount either with his banker or with bill brokers the remittances which he receives. found therefore, in Scotland, that this temptation arising from the change of business was leading our own customers to think of opening accounts with London bankers; and for our own preser

We

Chairman.

22. Is that the charge made for cashing the notes of other banks?-Yes, and of their own also.

23. Is it the habit with English bankers to cash Scotch notes, making a charge for so doing? -It is.

24. Do they make the same charge as the Scotch banks do?-That I cannot answer; I only know that we have several correspondents in the north of England who cash large quantities of Scotch notes, and who send them down to us to be cleared in Scotland, but I do not know what charge they make. When the Royal Bank established an office in London it was an instruction to our representative not to cash notes without making a charge, and to find out what charge was made by others, and to act upon that principle; but in reality the thing is a mere trifle so far as London is concerned, because when I say that only 680 7. has been cashed during the last eight or nine months, it is obvious that there is no demand.

25. Can you state whether any large number of your notes are cashed in England and in the northern counties of England? I certainly should not say that any large number of our notes are cashed in England.

26. I suppose a certain number are brought over the Border?-No doubt.

27. Are those generally presented to English banks, or are they sent back into Scotland?-I

necessary to be able to offer to our customers the same facilities. That really was I believe what led the National Bank of Scotland, who came to London about 10 years ago, to think of coming. Those, certainly, were the circumstances which led the Royal Bank of Scotland to attach importance to the extension of their charter.

29. You could not carry on that business with the same convenience through an agent?Clearly not; we could not give through an agent the facilities of a bank account at all; we should be simply transferring to the agent the account of our own customer, who might be a very valuable one, and leaving him to transact his business through the London bank.

30. Do you attach great importance to having the power of establishing offices in London ?Certainly; very great importance.

31. What would be the position of an English bank which might establish itself or establish a branch in Scotland?-Exactly the same, I take it, as a Scotch bank establishing a branch in England; that is to say, it would have to transact its business with cash of some kind or other, or the representative of cash, differing from its own notes issued, and for which consequently it must pay.

32. What is the state of the law with regard to the issue of notes by banks in Scotland ?-By the Act of 1844 new banks of issue were prohibited in all parts of the United Kingdom. By the Act of 1845, which applies to Scotland alone, the banks were prohibited from issuing notes except to the extent of their authorised limit,

plus

Chairman-continued.

plus the gold and silver coin which, on the average of four weeks, they might hold at their head office. That is the only restraint upon the amount of notes in circulation in Scotland.

33. What is the interpretation put upon that part of the law which you describe by saying that they may issue beyond the authorised amount of issue the amount that they hold in gold?-Under the Act of 1845 it is fixed that. the amount in circulation shall be taken to be the average amount in periods of four weeks. The amount which may be in circulation is determined by the average quantity of gold and silver coin held at the head office during the same period, in addition to the certificated amount.

34. Are you aware that it is alleged that, according to the mode in which the averages are taken, a larger amount of notes are issued by the Scotch banks than would be issued; for instance, if the amount of gold was ascertained in the same way as it is in the Issue Department of the Bank of England?—That no doubt is so; for under our system of exchanges in Scotland throughout the country (I am not speaking at present of Edinburgh or Glasgow, but of the smaller branches), exchanges take place only once a week, on Saturday. It is the etiquette of the Scotch banks that they do not issue the notes of each other, so that supposing the Bank of Scotland and the Royal Bank both represented in some town in Scotland, the Bank of Scotland would

go

on from Monday morning to Saturday issuing its own notes, and so would the Royal Bank; and then on Saturday they would exchange the amounts held by them respectively; so that no doubt there is an excess of actual issue, if you regard as issue or circulation the notes which are lying unused in the hands of the respective banks; but there is certainly no excess of circulation in the hands of the public as distinguished from the banks.

Mr. Goschen.

35. If a bank failed, the excess over the average would be one of the liabilities of the bank, would it not?-No doubt.

36. And when the Great Western Bank of Scotland failed, did it not turn out to be the case that the amount out in bank notes was very much larger than the weekly average showed? That was so; because during the last few days of the existence of the Western Bank of Scotland there was a run on its deposits, and those deposits were paid in its own notes, which were immediately handed over to other banks. If I recollect rightly, 720,000l. of notes were out on the day on which the Western Bank of Scotland stopped, while its average circulation was about 440,000 7. 37. So that that system admits of a very much larger issue of notes than really appears upon the face of the Act of Parliament? The law is intended to permit that, and it does so undoubtedly, and that is its real value.

38. Then if anyone were to add up from the Act of Parliament the authorised issue, and to accept that issue as a correct statement of the amount, he would come to an erroneous conclusion?-Not as to the amount authorised, nor as to the amount in actual circulation.

39. What is the day in the week when the exchange generally takes place?-The return is made up at the close of business on Saturday, when, in point of fact, the circulation is at its

Mr. Goschen-continued. highest point. If you exclude from the circulation the notes which are lying unused in the hands of other banks, the circulation in the hands of the public is greater at the close of business on Saturday than it would be on any other day of the week.

40. But does not the case which you have spoken to with regard to the Great Western Bank of Scotland show that, under some circumstances, the system admits of a larger number of notes being issued without their being represented by bullion than appears to be authorised by the Act of Parliament, adding together all the various amounts to be issued by the various banks? As I understand, the intention of the Act of 1845 was to secure that the average amount of circulation in the hands of the public should be covered. That certainly is always the case. At present the Scotch banks have a circulation in the aggregate of something like six millions, and they hold gold to the extent of four millions, and their authorised issue is two millions and three quarters, so that there is a surplus of gold of very nearly a million at the present

moment.

41. But it is a privilege, and a valuable privilege, as I understand, of the Scotch banks, that they are not obliged merely to issue the exact amount of what is called the authorised issue without its being represented by bullion, but that they may issue an amount based on an average taken on a particular day of the week?-Undoubtedly that is a very valuable privilege, both to the banks and to the public, and it differs from the privilege of the English banks in that respect.

42. If the Scotch banks were deprived of that privilege, would it not practically reduce the amount of notes which they are allowed to issue without its being represented by bullion?--If the Scotch banks were deprived of that privilege, then practically the value of their circulation would be gone; because its value does not consist in the circulation which is in the hands of the public, for that, especially in the case of the Royal Bank of Scotland, is of no value whatever. We circulate something like 700,000 7. of notes on the average of the year, and we hold about 600,000 7. in gold. We maintain at a certain cost this circulation of 700,000 7., and the result is an absolute loss instead of a profit. But the advantage of the circulation, or rather of the right of issue, is that we are enabled, as I think Sir John Lubbock stated, in the course of the debate in the House of Commons the other week, to keep till-money at our various establishments in the shape of our own notes, although those notes never go, on the average, into circulation. I think Sir John Lubbock quite correctly represented the working of the system, although I am not prepared to admit the accuracy of his figures.

43. Do the notes that you hold in the tills of your own branches count as part of the notes in the hands of the public?--Clearly not; because the circulation is defined by the Act of 1845 to be what we have parted with.

44. Then you have two privileges; you have the privilege of issuing notes in the hands of the public, and supplying the Scotch public with that which they require and like; and besides that, you have the privilege of being able to keep your notes in your till?-I am scarcely prepared

Mr. Goschen-continued.

to admit that it is a privilege; but we have that right, and we attach great value to it.

45. Take the case of another bank which could not issue its own notes to the public; in what position would that bank be?-That bank must necessarily find a circulating medium for itself.

46. And that circulating medium would not be taken by the Scotch public?-We should not thank them for circulating our notes; that would be a loss to ourselves. We could only supply them with our notes by increasing our stock of gold, so that it would be a disadvantage to us.

47. Why would it be a disadvantage; would you not be able to get the gold with the notes? -The notes cost us 20 s. for every 1 l, plus the expense of making them, when we are in excess of our authorised issue, as we all are; whereas gold costs us only 20 s. for every 17.

48. Have you not the further legal privilege that the gold which you hold does not only cover the notes, but it covers also your general liabilities? I have no doubt that is the law. We are like the Bank of England in that respect, as I understand the law applicable to the Bank of England, as it was explained on one occasion before a Committee of this House.

49. When you make your statements, in calculating the profits of the issue to yourselves, do you take the whole of the gold as against the notes?—No.

50. Supposing that you have a certain quantity of notes out, do you say, "I have got 600,000 7. of notes out, and I have 400,000 I. of gold out, and therefore I only get a profit on the 200,000 7." ?—I have no objection to state to the Committee the calculation which I have made as applicable to the Royal Bank of Scotland, because it will probably show the mode in which the matter is dealt with better than any other explanation would.

51. The Chairman asked you some questions with regard to the united action of the banks; do you have united action as regards commissions for banking transactions?—Yes; as regards every description of charge we have united action.

52. You stated that you thought that the combined action was confined to the rates of interest; but with regard to every kind of charge, does every bank in Scotland charge precisely the same?-I did not mean to represent that the combined action was confined to rates of interest. The 11 banks meet upon every occasion of a change in the Bank of England rate, and fix the rates of interest, and the discount, and so forth; the rates of commission, and charges of that description, are altered as circumstances may require from time to time.

53. Have the chartered banks any legal advantages over the other banks?—I do not know that they have now, because all the other banks are incorporated under the Companies Act, 1862.

54. Practically, there is no difference between the privileges, so far as you are aware?-Practically there is no difference in point of privilege. At one time the chartered banks of Scotland had a very valuable privilege of this character: that the money judicially deposited, money forming the subject of dispute in court, could only be deposited with the chartered banks, but that is

not so now.

Mr. Goschen-continued.

55. Is there any difference in the liability of the chartered banks and the other banks ?—That is a disputed point. Sir Robert Peel stated to the House of Commons, many years ago, that the three senior banks in Scotland were banks of limited liability. That was again and again stated. The two junior chartered banks are unquestionably banks of unlimited liability; that is made quite plain by the terms of their charters. I believe that the three senior banks are banks of limited liability.

56. Have you yourself examined the question as to the legal power of Scotch banks coming to London ?-1 have to some extent.

57. Could you point out to the Committee the words in the statute under which you conceive that they would have power to come?—I think the law stands thus: I assume that before the year 1826 no joint stock bank could have been established in England at all. I am quite aware that there was some doubt expressed as to that by a Mr. Joplin about 1822 or 1823, as noticed by Sir Henry Thring in his Memorandum (p. 5). Apart from that doubt as to the nature and extent of the privileges of the Bank of England, I take it to be quite certain that no joint stock bank, or any bank with more than six partners, could have been established in England until the passing of the Act of 1826, which is 7 Geo. 4, cap. 46, and is mentioned in Sir Henry Thring's Memorandum immediately after the paragraph that I have just referred to. The first section of that Act enacted, "That from and after the passing of this Act it shall and may be lawful for any bodies politic or corporate erected for the purposes of banking, or for any number of persons united in covenants or co-partnership, although such persons so united or carrying on business together shall consist of more than six in number, to carry on the trade or business of bankers in England in like manner as co-partnerships of bankers consisting of not more than six persons in number may lawfully do." Then there follow certain prohibitions, one of which was, that no bank availing itself of that privilege should come within 65 miles of London, or should accept bills at a less date than six months. I consider that under this Act of 1826 it would have been perfectly competent to any Scotch bank, permitted by its own constitution to do so, to have begun business in any part of England outside the 65 miles circle, and to have issued notes in England.

58. But you have not stated the exemption for Scotland? It was not till a later date that the limit of 5 7. was imposed.

59. The proviso runs thus: "Provided always, that such corporations or persons carrying on such trade or business of bankers in co-partnership shall not have any house of business or establishment as bankers in London, or at any place or places not exceeding the distance of 65 miles from London"; why does not that apply to Scotch banks?-It did apply to Scotch banks, undoubtedly. undoubtedly. A Scotch bank could not have come in 1826 within the 65 miles circle.

60. Then how can it come now?-Under a totally different Act; I am anxious to make the progress of legislation clear to the Committee. The first inroad, if I may so call it, upon the privileges of the Bank of England was this Act of 1826, to which they consented, and which for the first time since 1697 permitted the establish

ment