Mr. Backhouse-continued.

not? It contemplated banks of issue, no doubt.

166. Banks of the same class as the Bank of England. I hold in my hand the Act of May 26th 1826, which says: "It shall and may be lawful for every such joint stock society or copartnership already established, or that may be hereafter established, in Scotland for the purposes of banking, to sue and be sued in the name of the manager, cashier, or other principal officer of such society or co-partnership." So that while the Government were regulating the Acts with regard to banks in England in the Act of 1826, they also passed an Act regulating banks in Scotland? That Act does not regulate banks in any other sense than that of conferring upon them the privilege of suing and being sued.

167. Are those requirements and privileges the same as are enacted in the Act of 1826 with regard to English banks?-I fancy they are; in principle, they are, unquestionably.

168. Are not the directions in the Act of 1826, as to registration and as to the appointing of officers in whose names to sue and be sued, confined to banks in England?-I take it that if a Scotch bank had established itself under the Act of 1826 in England, as I think it had the power to do, it must have registered itself in England as well as in Scotland. The object of the Scotch Act of 1826 was to give to the unchartered banks the privilege of suing and being sued. There were several banks existing at that time who had no charters of incorporation, and who found ,serious legal difficulties in the way of enforcing their claims. That was the object of the passing of this Act, and I do not think that there is anything in it inconsistent with the idea that if a Scotch bank had availed itself of the privilege of the English Act of 1826, it should be obliged to return its members in England as well as in Scotland.

169. You have just read an extract from the debates in Parliament of that time with regard to the advantages of the Scotch banking system; is it not rather curious that, in the face of attention being directed to the subject, this Act should refer only to banks in England?-I cannot pretend that the words in the Act of 1826 are not ambiguous; I think they are ambiguous.

170. I think you have already stated that banks of issue, being of the same class as the Bank of England or the Scotch banks were, came under that description?-They came under that description undoubtedly.

171. An Act was passed in the year 1826 regulating the rights of the Scotch banks as to suing and being sued, and in the same year an Act was passed regulating English Joint Stock Banks, and their right of suing and being sued; is not that so?-That is so; but this Act had no bearing upon the three Banks of Scotland which were then incorporated by Royal Charter. The Scotch Act was promoted and passed in the interest of all the unchartered banks, but more especially in the interest of the Commercial Bank of Scotland, which was at that time an unchartered bank, the Commercial Bank having about that time got into legal difficulties through not having the powers which this Act confers; but this Act does not apply to the chartered banks of Scotland as they then existed.

172. But the whole of the legislation having

Mr. Backhouse-continued. been restrictive of the privileges of the Bank of England, where it has been modified, it has been modified in express terms, has it not; so that any bank not coming within the terms of modification could hardly come within the enabling powers of the Act-Probably that is so. The privileges conferred upon other banks of coming to England must be looked at in the light of the previous restriction.

173. You lay stress upon Section 3 of the Act of 1833; does not the very language of that section state that it is an interpretation of the meaning of the Act of 1826, and does it not refer solely to banking transactions in England, without any reference to Scotch banks?-Certainly; it refers to banking transactions in England, and if I am right in the construction which I have put upon it, it can only apply to the transactions of Scotch, Irish, or foreign banks in England.

174. Is the privilege given to joint stock banks confined, by the Act of 1826, to English banks? -I should say that but for the Act of 1833 no joint stock bank could have been established in London at all. The Act of 1833 is the charter of their existence.

175. When there has been legislation with regard to banking, has there not very frequently been separate legislation in the same Session with regard to Scotch banking?-I think not. No doubt when Sir Robert Peel introduced the Act of 1844, he stated quite distinctly that legislation was in contemplation as regarded Scotland.

176. And there was separate legislation in 1826 also, was there not?-I cannot look upon that course of legislation as running in the same direction. I think the Act of 1826, applying to England, was a totally different Act from that of the same Session applying to Scotland. The English Act of 1826, for the first time, permitted a complete change in the banking system; the Scotch Act of 1826 was simply an Act enabling banks to sue and be sued, and it effected no change whatever in their constitution or in the banking system of Scotland, except in respect of those particular privileges which were acquired only by certain banks.

177. Is a Bank of England note ever a legal tender in Scotland?-I think not. There were doubts upon that point between the year 1833 and the year 1844. The Act of 1833 was held by some people to make a Bank of England note a legal tender, but the Act of 1845 expressly declares that it is not a legal tender.

178. Does not the Act of 1845 say that whereas doubts have arisen with regard to a Bank of England note being a legal tender in Scotland, it is forbidden to be a legal tender in future?-It says so.

179. Does not that rather go to confirm the fact that the Act of 1833 was dealing with English banks entirely, and not with Scotch banks, the interpretation of the clause with regard to legal tender in the Act of 1833, given by the Legislature by the Act of 1845, proving that it was intended to restrict it to England?— I am sorry to say I do not see it in that light. I

think the declaration in the Act of 1845 was the result of the antipathy of the Scotch people to anything in the shape of legal tender, and it was made a matter of stipulation by them. I do not

Mr. J. S.
Mr. Backhouse-continued.
Fleming. think the banks took any interest in that

22 April 1875

matter.

180. I may take it, may I not, that as to the legal tender enactment, a Bank of England note was never considered a legal tender in Scotland? -That is so.

181. You say that you have cashed 6801. of Scotch notes in London; were they 1 l. notes or 5 l. notes?—I did not ask that question. I should think they were 17. notes.

182. Are you aware that you are liable to a penalty of 20 l. for every 17. note you cash in England, and that no one can transfer a 17. note in England without incurring a penalty?—I am very much obliged to the honourable Member for telling me so, for I admit my ignorance upon that point.

183. I should like to ask you why the agents of the Scotch banks, when they first came to London, were called "correspondents" and not "agents"?-1 cannot answer that question. I was not aware that it was so until this moment.

Mr. Sampson Lloyd.

184. I think in an early part of your evidence, in answer to the Chairman, you expressed an opinion that, under the existing state of the law, an English bank going into Scotland could trade upon the same terms as a Scotch bank?—Yes.

185. That is barring the question of issue; but afterwards, in answer to the honourable Member for Cork, I think you said that so valuable was this privilege of issue, that without it you could not carry on your business?—No; I did not mean to say so.

186. Is not that privilege of issue one of the most valuable things conferred by the existing law?—I should not be prepared to say that it is one of the most valuable things, because I do not know very well what I am contrasting it with; but it is valuable.

187. I see by the printed return that your issue, taking the Scotch banks generally, is more than was authorised by the Act of 1844?-Yes.

188. I suppose that would not be so unless it were profitable to issue?-I can assure the Committee that the Scotch banks would be very much delighted if the circulation in the hands of the public was half its present amount. As I have already stated, in answer to the right honourable gentleman the Member for the City of London, the circulation of the Royal Bank is an absolute loss. It is the power of issue that is valuable.

189. Do you think it is correct to say that an English bank can trade in Scotland on the same terms as a Scotch bank, when the English bank is debarred from doing that which a Scotch bank finds it so profitable to do?—That, I think, opens up a totally different question which requires an explanation, which I should be glad to give at any time. I think that raises the question which was debated in the House, whether there is any unfair competition as between Scotch and English banks. I am quite prepared to discuss that question.

Mr. H. Vivian.

190. I think there is no doubt that, under the Act of 1833, no English Bank of Issue can open a branch in London? There is no doubt about that.

191. Can you suggest any reason why Scotch

Mr. H. Vivian-continued. Banks of Issue should be authorised to do that which English Banks of Issue are not authorised to do?-Yes; to my mind there is a very simple reason. The English Banks of Issue come into competition with the Bank of England as the main issuing body, which it has been the policy of the Government always to foster; the Scotch and Irish Banks of Issue, by their issues at home, where Bank of England notes do not circulate and are practically unknown, do not come into competition with that right to issue. That is the simple explanation of the whole matter.

192. When you obtained your Act last year, did you give any notice to the London bankers that it was your intention to apply for that Act? -We gave the usual statutory notices required by the Standing Orders of this House, and they were published in the London newspapers and in the "London Gazette."

193. You gave no special notice?-We did not very well know to whom we should have addressed a special notice.

194. From a Paper which was circulated among honourable Members some time ago, I gather that lengthened negotiations took place between you and the country banks, which led to the restriction under which you now labour in regard to the provinces?-There was no negotiation whatever beyond the correspondencewhich was appended to that Paper; we never met upon the subject.

195. Was not an agreement come to that you should be excluded from opening branches in the country?-Certainly; and I read a letter, a few minutes ago, expressing our agreement with the country banks as to that restriction. I had previously been with the authorities of the Bank of England to explain what was proposed, and I had got from the Governors of the Bank of England an assurance that there was nothing in it that was objectionable to them.

Chairman.

196. In one of your answers just now, you said that the gold in the Scotch banks was not held specially against the notes; and you made the observation, that neither was it so in the Bank of England; you are aware that that is a point on which there is a difference of opinion?

I am quite aware of that. I was referring to an opinion expressed, I think, before the Committee of 1857, by Mr. Freshfield, the solicitor to the Bank of England, who stated that he did not regard the goid as specially hypothecated as the security of the notes.

Mr. B. Denison.

197. You founded an argument, in answer to the honourable Member for Sheffield, upon the Act of 1828, and you say that you think it fair to infer that, inasmuch as Parliament specially debarred Scotch and Irish notes from being issued in England, some of the banks had contemplated doing it, in that some action had been taken with a view to circulating Scotch and Irish notes in England?-No; I meant to say that it was fair to infer that the possibility of Scotch banks establishing themselves in England under the Act of 1826 must then have been under the notice of the Government.

198. You are aware, no doubt, that the Act of 1826 regulating issues, was a prospective Act,

and

Mr. Beckett Denison-continued.

and that the 5 7. notes were to be the limit after a given date; that is to say, the year 1829?-That is so.

199. And that between the passing of that Act in 1826, and the year 1829, the Bank of England was required every month to publish the amount of notes under 5 l. which it had in circulation ?— Yes.

200. Therefore is it not a reasonable presumption that the Act of 1828 was passed with reference to the coming date of 1829, when all notes under 5 l. would be illegal ?--I think it was to make it clear that no Scotch or Irish notes under

5 l. should obtain currency in England; that that

Chairman. 203. HAVE you given attention to the law of banking?—At the request of persons interested in this matter I have looked into the Statutes upon the subject.

204. Have you looked at it especially with reference to the rights of Scotch and Irish banks to carry on their business either in London or in any part of England?—I have looked at it with reference to the right of Scotch bankers to do so. I have not considered particularly the case of the Irish banks, but I do not know whether there is any distinction between the two.

205. Perhaps you could give the Committee, in a convenient form, your opinion upon the present state of the law, distinguishing, if it is convenient to you, the law as affecting joint stock banks, private banks, banks of issue, and nonissuing banks?—I think, if the Committee will allow me to do so, the most convenient course would be that I should state, in the form of distinct propositions, the result to which I have been led by my study of the Statutes. There are, as the Committee is aware, a large number of Acts of Parliament relating to this subject; they qualify one another, and form a very complicated whole; and therefore the first step which I took was to form from them a sort of digest of what I apprehend to be the law upon the subject. And with the permission of the Committee I would state that in the form of distinct propositions. I may observe that I have purposely put these propositions in as popular and simple lanpopular and simple language as I could for the sake of giving them the greatest possible clearness. For that purpose I have been obliged to use common expressions instead of certain technical expressions which continually recur in the different Acts relating to the subject. For instance, in most of the Acts we find this expression: "Body politic or corporate, or a number of persons exceeding six united in covenants or co-partnership, and carrying on the trade or business of bankers." That

Chairman-continued.

66

For

expression is found again and again from the year 1697 down to recent times. For that I substitute the common expression, "joint stock bank," which I think is equivalent to it. Again, you will find in the same series of statutes the expression, "Body of persons not exceeding the number of six united in covenants or partnership, and carrying on the business of banking." that I substitute the expression, "private bank." Again, you will find in the same Acts this expression: "Borrow, owe, or take up any sum or sums of money on bills or notes payable at demand, or at any less time than six months from the borrowing thereof." That is repeated over and over again. For the sake of of simplicity, I call that issuing notes." With these explanations, therefore, as to the sense in which I use those expressions, I arrive at six propositions; and I may observe that of these six propositions, the 1st, 2nd, 3rd, and 4th, are beyond much dispute, and I state them only for the purpose of clearing the matter up, and giving a comprehensive view of it. The 5th and 6th are doubtful propositions. They state the view which I have taken of the matter, which, as I understand, forms the subject of the deliberations of this Committee. My propositions are these: first, the Bank of England may issue notes for not less than 57. throughout England, upon the conditions as to the amount of issue prescribed by the Bank Charter Act of 1844. In connection with that proposition, I would refer to the following Statutes: 7 & 8 Vict. c. 32, which is the Bank Charter Act; 8 & 9 Will. 3, c. 20, s. 28, which re-enacts with certain modifications 5 & 6 Will. & Mary, c. 20, s. 19; 7 Anne, c. 20, s. 66 (I quote the revised Statutes); 39 & 40 Geo. 3, c. 28. s. 15; and 7 Geo. 4, c. 46, s. 1. The second proposition is this: Private banks in any part of England, and joint stock banks having the whole of their banking establishments, and carrying on their business as bankers

at

Chairman-continued.

at any place in England 65 miles from London, and not having any house of business or establishment as bankers in London, or within 65 miles of London, may issue notes for not less than 57., if they lawfully issue notes on the 6th May 1844, subject to the restrictions imposed by the Bank Charter Act. That proposition gives the effect of the Bank Charter Act, and the Acts of 1826 and 1833. It also embodies the provisions of the different Acts (and I can give the references if the Committee wish it) which restrict the issue of bank notes to sums of 51. or upwards. The third proposition is: Every banker entitled to issue notes who becomes bankrupt, or ceases to carry on the business of a banker, or discontinues the issue of bank notes; and every private bank which by increasing the number of its partners above six becomes a joint stock bank, loses thereby the right to issue notes. That is simply a transcript of the Bank Charter Act of 1844, sections 11 and 12 in part. The fourth proposition is: Both the private banks and the joint stock banks above mentioned may have agents in London for the payment of the notes which they issue, and may state upon such notes that they are payable in London, and may draw bills of exchange for whatever amount they please upon agents in London. That again represents the effect of several Statutes, with the detail of which I will not trouble the Committee, unless I am desired to do so; but the most important of them are the Acts of 1826 and 1833. Those four propositions, I take it, no one would dispute, because they simply state, in a short positive form, what is stated in a somewhat complicated form by a variety of Acts of Parliament. But now come the two doubtful propositions which, although of course they are not to be found in so many words in any Act of Parliament, I submit as embodying my interpretation of the law, and as representing my reading of the effect of the various Acts relating to the subject. The fifth proposition is: No joint stock bank which issues notes anywhere, except the joint stock banks specified in proposition 2 (that is joint stock banks in England, and more than 65 miles from London), may carry on business in any part of England. And sixthly, and lastly: Any joint stock bank which does not issue notes anywhere, may carry on all other branches of banking business, except the issue of notes, in any part of England. Those six propositions appear to me to embody the part of the existing law which is material to the inquiries of this Committee.

206. Then it will be convenient, if you please, that you should give us the arguments upon which you support the fifth proposition?In the first place, I would call the attention of the Committee to one matter about those two propositions. The first is a negative proposition as to banks of issue, and the second is an affirmative proposition as to banks of deposit. The sixth proposition represents my view of 3 & 4 Will. 4, c. 98, s. 3, which, as I apprehend, is the section upon another interpretation of which the claim of the Scotch banks to have a right to come to London is founded. Proceeding now to the proof of those propositions: first of all, with regard to the fifth proposition, that no joint stock bank which issues notes, except the joint stock

Chairman-continued.

banks already referred to, may carry on business in England, I would refer first to the Act of 1694, 5 & 6 Will. & Mary, c. 20. That Act simply establishes the Bank of England, and incorporates it. The next Act is the Act of 1697, 8 & 9 Will. 3, c. 20, s. 28. That Act provides, in substance, that during the continuance of the Bank of England no other bank, or corporation in the nature of a bank, shall be allowed by Act of Parliament in this kingdom. "This kingdom," in the year 1697, meant England, because it was before the union with Scotland, and therefore that Act, which is still in force, is a distinct prohibition of any bank in England other than the Bank of England. I apprehend that it would have rendered it illegal, and I should think it probable that it was intended to render it illegal to establish in England, for instance, a branch of the Bank of Amsterdam, or of any other Dutch bank that there might be at that time; that prohibition has been repeated again and again, and still forms part of the law. The next Act is the Act of 1707, 7 Anne, c. 30, s. 66. That Act provides that during the continuance of the Bank of England "it shall not be lawful for any body politic or corporate whatsoever, erected or to be erected (other than the said Governor and Company of the Bank of England), or for any other persons whatsoever, united or to be united in covenants of partnership, exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable at demand "; that is to say, that it shall not be lawful for any body or corporation, except the Bank of England and private banks, to issue notes. That again is re-enacted and recognised by the Act of 1800, 39 & 40 Geo. 3, c. 28, s. 15, which says, "No other bank shall be erected, established, or allowed by Parliament; and it shall not be lawful for any body politic or corporate whatsoever, erected or to be erected, or for any other persons, united or to be united in covenants or partnership, exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe," &c.; that is to say, to issue notes. Up to that time, therefore, no bank of issue other than the Bank of England or private banks could lawfully exist in England ; and I consider that all foreign banks whatever, including under the name "foreign" not only continental banks but British banks out of England, that is Scotch, Irish, and colonial banks, are forbidden by these Acts of Parliament to establish themselves in any part of England.

207. Do you mean that it would have been illegal for the Bank of Amsterdam, for instance, to have had a branch in London, provided that it did not issue notes there?-Yes, I think so.

208. And even to have acted as a bank of deposit?-Yes, I think it would have been illegal for any bank to be set up in London which, wherever it might exist, was a bank of the same nature as the Bank of England; and I may add, with reference to that, that there is a decided case which I think is referred to in Sir Henry Thring's Memorandum, viz., the case of the Bank of England v. Anderson, which you will find in the third volume of Bingham's New Cases, which enters very fully into the whole history and law of the Bank of England; and in various