Mr.

and Mr. Fleming. 13 May 1875.

Mr. Goschen-continued.

Gairdner, from their past circulation. They are to continue within that amount of circulation, and if there be an excess then that excess shall be issued in specie. We are willing to trust to the honour of the bankers, both in Scotland in Ireland, as to their retaining in their custody a sufficient amount of assets to meet their circulation. We do not propose that there should be any certain amount of deposit as a security. Asitis necessary, however, that we should have some security against fallacious returns, we propose that there should be a return made to the Government," and so on, showing, I think, that the intention was very far from the mind of Sir Robert Peel to make the issues, either in Scotland or in Ireland, a thing based upon gold, or, as Mr. Hussey Vivian put it, represented by gold. Represented in one sense unquestionably it is, but not in the legal sense of hypothecation.

1687. So far as you can judge, public opinion in Scotland would not attach any great importance to this enactment of gold being held against the notes, but would look rather to the general solidity of the banks?-I think the amount of gold held against notes is the last thing in the world that the people of Scotland trouble themselves about.

1688. Do you think that the immense favour and confidence placed in the Scotch notes by the Scotch people has at all arisen from the fact that the Scotch banks have been thoroughly Scotch in their business; that the whole of their operations were thoroughly known to the Scotch pudlic, and that the class of business done by them was always understood to be of a safe character, and within certain limits?—I think the confidence of the Scotch people in Scotch banks rests upon this: that they know that there has been one bank established for 200 years, that another bank has been established for 150 years, and others for shorter periods; that those banks have carried on their business with success, and with comparative immunity from loss, and that banking failures have been almost unknown. Such a thing as a failure of an issuing bank has not occurred in Scotland, certainly for the last generation, with the exception of the Western Bank, from the failure of which the public sustained no loss.

1689. Was not the opinion to a certain extent prevalent, and was it not, in fact, the cause of the failure of the Western Bank, that it had rather gone beyond the general Scotch business, and had established agencies abroad, and had done business which the Scotch banks had generally not done up to that time. I do not say whether it was a just or unjust impression, but was it not the current impression? The current impression in the banking world was that from its infancy the Western Bank was conducted upon false principles. Its drafts on its London correspondents were refused, I think, within the first year of its existence. The other Scotch banks came to its rescue then, and advanced money upon the condition that it should establish a reserve in London according to the established practice, and they lent it money for the purpose of purchasing Consols. That arrangement was very speedily departed from. After it had existed about 6 or 7 years, in the year 1838 it applied to the Government for a charter of incorporation. The other Scotch banks opposed that application on the ground that the Western Bank was disregarding the sound principles upon

Mr. Goschen-continued. which Scotch banks had been hitherto conducted. Its failure was partly the result of its going to New York to conduct business, and partly of its lending large amounts to a number of concerns at home which were utterly unworthy of credit.

1690. You were asked a question with regard to the objects of the Scotch banks in coming to London. There are two objects, are there not, that might be in view in the Scotch banks coming to London; the one to save the expense and inconvenience of having to employ other people in London to manage their Scotch business, and the other to take part in the general banking business of London?-I do not put it so. First of all, I frankly admit that were the question of economy the sole question, it would never have induced the Royal Bank to think of coming to London, because I do not believe it is a matter of economy. In other words, I think a London establishment is necessarily attended with greater expense than the conduct of the business through other London bankers; but what led the Royal Bank chiefly to desire to come to London was this, that the establishment of the branches of two other Scotch banks had introduced a new element into the competition amongst the Scotch banks, that their establishment had pointed out to mercantile men in Scotland customers of all the banks in Scotland, the facilities which a London banking account gave to them. The practice of accepting mercantile bills payable in London has extended very greatly within the last 20 or 30 years, and a merchant in Glasgow carrying on a large foreign business can conduct his financial banking operations quite as well through a London banking account, as he can through a Scotch bank. The result of that was that a temptation was held out to our Scotch customers to open banking accounts in London. Our great object, therefore, is to preserve our Scotch business, and by means of this London office to give to our Scotch customers the facility which they would get elsewhere, and to maintain our connection with them. I do not mean to say that if business of a class which we thought ourselves quite capable of conducting, and which we regarded as safe business, arose, it would be rejected; quite the reverse, but so far as our establishment in London is concerned, it is in its infancy.

1691. Can the Scotch banks use practically the whole of the money which they collect through the system of deposits in Scotland itself? No, at least we cannot.

1692. While Scotland, therefore, becomes as it were a lender through the system of deposits, England becomes a borrower from Scotland to a certain extent, does it not?-It does, and has done for very many years.

1693. And those borrowings you propose to arrange for yourselves rather than to arrange them through the London banks?-Yes. The surplus cash after providing for our reserves, in our case at all events, was always invested in the purchase of bankers bills from the bill brokers' of London; that was often negotiated by telegram between myself in Edinburgh and the bill brokers in London, but we found that very inconvenient.

1694. To what extent will the Scotch banks coming to London bring large amounts of additional capital to London ?-I do not think to any extent, because it has always come to London.

1695. Then if people think that the arrival of

the

Mr. Goschen--continued.

the Scotch banks is going to lower the rate of interest in the money market generally by introducing fresh Scotch capital, that would be a mistake?-I should think it would.

1696. And the London bankers need not be apprehensive of any competition in your opinion, in consequence of Scotch capital being put into the London market?-I think that it would be a great mistake for the London bankers to think that the competition will be at all increased, for as I say, the surplus capital of the Scotch banks has always been sent to London.

1697. On the other hand, it would be a mistake on the part of the London borrowing public to think that great additional advantages were going to be brought to them?-That depends entirely upon the class of people with whom we are brought into contact. It is obvious that if you have half-a-million of surplus money from Scotland which you intend to invest, you may find half-a-dozen ways of doing it.

1698. There would be no more money brought to London? There would be no money derived from Scotland.

1699. And that would be the point; that you would not carry any additional money with you from Scotland to London ?-Not unless the deposits from Scotland continue to increase as they have been doing.

1700. Would you adopt in London the English system of banking, or the Scotch system of banking? The English system of banking.

Mr. Balfour.

1701. Could we find out whether the Bank of Scotland is going to adopt that system ?-I think I may say for the Bank of Scotland, that that is the principle upon which they act, because I have had repeated conversations with Mr. Davidson with regard to that matter.

Mr. Goschen.

1702. You would not be able of course to introduce in London that system of arrangement even among the Scotch banks themselves that you have in Scotland?-That was one of the confusing elements that compelled the Royal Bank to press upon the Government the necessity of extending its powers so as to permit it to come to London, because the moment any bank has a London office, it necessarily is outside of any arrangement binding in Scotland, and with two banks so placed, the Royal Bank felt at a disadvantage. The Scotch arrangement is inapplicable in London.

1704. Will you state your opinion to the Committee fully upon that point as to why you have regret having come to London?-Simply because I think it is one thing to manage a bank in Scotland, but it is a much more serious thing to manage a branch which is more extensive, or which may become more extensive, in London; and therefore on personal grounds I

felt that I was adding to my own responsi- Gairdner, bility.

1705. Is that view shared by the other bank managers? I am not aware; I do not know that I have had any conversation upon that subject with any other bank managers.

1706. I have heard that there is a great difference of opinion in Scotch banking circles as to the wisdom and propriety of coming to London; may I take it that I heard correctly?-Yes, that I think is quite correct; certainly two of the banks have expressed their opinion that it was unwise, but at the same time they have intimated their opinion that they have not the power to come to London.

1707. Do you think that the unwisdom consisted in the Scotch banks committing themselves to new business in London in which they were less thoroughly versed than in their own, and which might bring new liabilities and dangers? -That question I cannot answer, because the conversation never turned upon it; but if I know anything about my own opinions I shall take good care not to commit myself to a new description of business unless I thoroughly understand it; at the same time we are not called upon to undertake nor to commit ourselves to a new description of business.

1708. The point never turned, I think I understood you say, upon the issues; you do not think that Scotch note-holders have ever considered the point that the banks would be committing themselves to new liabilities which are less known in Scotland, and would therefore lose that pecular Scotch character which has for so many years secured the absolute safety of the note?-I think the interest of the Scotch noteholders is so small as compared with the interest of depositors in Scotch banks, that such an idea would be far more serious if it were entertained by the depositors, because you would cut away from us the ability to carry on business anywhere. The note-holders never disturbed themselves about the matter, but if you did any thing to shake the confidence in the Scotch banks, it is the depositors who would get alarmed and not the note-holders.

1709. Might not the idea have turned up whether by coming to London you were not risking the particular Scotch method by which you had been so successful up to that time?— The idea might be suggested, and, if suggested, might take root.

1710. I understood that that was the idea that had arisen in Scotland ?--I was not aware that that idea had either arisen or been expressed; I should think quite the reverse.

1711. Do you think that the Scotch and general public would not consider that there were any greater liabilities undertaken by the banks by coming to London?-No; because I am not aware that the Royal Bank have undertaken any greater liabilities in coming to London than existed before.

1712. And that whilst there was a difference of opinion among bank managers as to Scotch banks coming to London, the public would view it with considerable disfavour?-I think the public have not concerned themselves in the least about it. The only part of the community who have thought about it have been the mercantile community, and they have expressed themselves very decidedly favourable to it.

and Mr. Fleming.

13 May 1875.

Mr. Goschen-continued.

1713. Those are the class, are they not, whose business you would undertake to do in London, instead of its being done by a third hand?-Not instead of its being done by a third hand. A Scotch bank cannot give its Scotch customer the facility of a banking account in London, except by introducing him, and handing him over to a London banker. The Royal Bank can give to its Scotch customer through its London office all the facilities which the London and Westminster Bank could give; but if the Royal Bank were not in London it could only introduce its Scotch customer to a London Bank, and so it would lose the whole advantage of his account.

1714. Have the Scotch banks not maintained their credit and the general confidence at times when there has been a considerable panic in London? They have.

1715. Was not that because they were known to be out of it? That I do not know. If a

Mr. Goschen-continued. Scotch bank was so unwise as seriously to commit itself to improper engagements of a purely London character, which I do not think any of the Scotch banks are likely to do, then it would necessarily participate in the disadvantages, and in the discredit, if discredit exists, of a London bank; but so long as it avoids so committing itself; so long as it knows its business and maintains its position and reserves, I do not think that it has anything to fear.

1716. As a matter of history, the credit of the Scotch banks has been exceedingly good at all times, and the opinion has been strong in Scotland, and I think I may also say in England, that the Scotch banks were comparatively little involved in banking difficulties, such as have sometimes occurred in England?-They were not directly involved, of course, because they were not here, and could not be, and therefore they sustained no discredit.

Chairman.

1717. (To Mr. Wade.) You are a Director of the National Provincial Bank of England, are you not?-Yes.

1718. (To Mr. Atkinson.) And you are the General Manager of the National Provincial Bank of England?-I am joint general manager with Mr. William Holt.

1719. (To Mr. Wade.) You have taken an active part in the discussion of the question relating to the Scotch banks carrying on business in England, have you not?-We have, in common with our friends, both in London and in the country.

1720. And you contend that the spirit, if not the letter, of the Banking Acts of 1844 and 1845, shows that when they were framed, it was meant that banks of issue should confine their banking operations to the countries in which they enjoyed such privileges of issue? We think so.

1721. Can you say anything in support of that opinion?-Merely this: that from reading the debates that took place in Parliament during those years 1844 and 1845, we think that the whole meaning of that legislation was, that certain banks should have great privileges, and we believe that they were to confine their operations to those countries in which they enjoyed those privileges; and we are fortified in that opinion by the great doubt that is expressed as to the state of the law upon this question of the Scotch banks coming to London, which seems to us to show that at any rate the spirit of these Acts was against the course which they have pursued.

1722. Is your contention with regard to the Scotch banks that they should not be allowed to do business in England?-That they should not be allowed to do business in England, at the same time retaining the very great privileges which they enjoy in Scotland.

1723. Do you mean that if they do business in England, they should give up their privileges in Scotland?-We think so; or that like privileges should be extended to the English banks.

1724. To what privileges do you refer?-I would refer especially to their powers of unlimited

Chairman-continued.

issue and also to their powers of issuing 17. notes; and again I think that the state of the law gives them a certain permanence in their system which is a much greater advantage than is enjoyed by English banks of issue. Again, I should say that their privileges have caused them to enjoy an immense monopoly, and, in fact, a complete monopoly of banking in Scotland, and that it would be impossible for any English bank to go there to compete with them. Then, again, as regards their excess of authorised issue for which they hold gold, I think that that is a great privilege, for that gold is liable to the whole of their liabilities, and not simply to the excess of issue beyond their authorised amount. Lastly, I should urge that it is unfair that banks which have such great privileges from the State should be allowed to compete with English banks which have not the same privileges.

1725. Will you explain what you mean by the permanence of their system?-What I meant by that was this: that in England if all the banks of issue gave up their issue to-day, there is a machinery ready provided to supply the gap. There is nothing of the kind in Scotland; there is no machinery for supplying any deficiency that might occur from one or two of the banks there relinquishing their issues; and I think that that certainly gives greater permanence and greater stability to the Scotch system than the English banks enjoy.

1726. Suppose that you would also take into account the fact that the Scotch banks may amalgamate without losing their issues, which is not the case with English banks?—Yes.

1727. In what respect do you say that they have a monopoly?—I think that the result proves the monopoly, inasmuch as there are fewer banks in Scotland than there were, and as I believe since the year 1845 no new bank at all has started. I think that that practically establishes the fact that they have a monopoly in Scotland.

1728. But do you not distinguish between a monopoly resulting from legal privileges and a monopoly resulting either from natural causes or