Mr. Backhouse-continued. propertion to the gold coinage than it did in former years?—The amount of gold coinage was estimated by Mr. Newmarch, in 1844, as 36,000,000 7., and that estimate was confirmed by the Bank authorities. In 1857 the amount is stated by Mr. Weguelin as being about 50,000,000 7. It is therefore obvious that the total note circulation at this time bears much smaller proportion to the gold circulation of the country than it has ever hitherto done.

Mr. Anderson.

5486. Does the 60 per cent. include the gold condemned by the Bank of England as light? Certainly.

5487. Does it state the amount of that particular item?—No, it does not go into that particular point.

Mr. Backhouse.

5488. Can you supply any information as to the amount of the issues of private and joint stock banks in England and Wales collectively, and as to the proportion which the actual issue bears to the authorised issue of those banks?-The Committee will find the annual averages of the authorised and actual issues of private banks in England and Wales, during the years 1844-74, in the second table. In the third table there is the same information as regards the joint stock banks, and in the fourth table as regards all the banks, both private and joint stock, in England and Wales, during the same period.

5489. Has the amount of those issues remained stationary during the last 30 years?-It has diminished very considerably. Column 2, in Table IV., will give the Committee the information at once: 1844 is assumed to equal 100, and you will observe that by April 1875 it has diminished to 75 per cent. of what it originally

was.

5490. Can you supply the amount of the circulation yearly during that period?-In Table V. the Committee will find the annual averages of the total English country note circulation for the years 1845-74. This Table is formed from the weekly returns published in the "Gazette." In order to insure greater accuracy in it I have divided it from the ordinary return which is made up in periods of four weeks, and this Return states the amount for each week in each month during the whole period.

5491. At what time did the National Provincial Bank discontinue its circulation ?-In the year 1866; and it will be observed that it caused a considerable diminution in the joint-stock issue at that period.

5492. Their circulation was about 400,000 l., was it not?-£. 400,000 l. in round numbers.

5493. Has the proportion of the authorised issue to the actual issue, as a whole, remained uniform during the last 30 years ?-The proportion of the actual issue to the authorised issue has diminished during that time, but it has remained stationary during the last seven years, as will be seen by reference to the 5th column of the IVth Table, in which the per-centage of the actual to the authorised issue is given for every year during the period under consideration.

5494. To what do you attribute this difference? -To the fact that the issue is greatly at the present time in the agricultural districts; 87 out of 167, the total number of issuing banks in the

Mr. Backhouse-continued. country, are situated in agricultural districts. In those districts the population has fallen off or has remained stationary during the last 30 years; and meanwhile, there has been a great alteration in the nature of the business, and cheques to a very great extent supersede the use of notes.

5495. Do the English provincial note issues remain uniformly at or about one amount during the course of the year?-No, they fluctuate considerably. This will be shown most clearly by a reference to Table VI., in which the averages for the 10 years 1845-54, 1855-64, 1865-74, are given. At the top of each decennial period, the Committee will observe the average of the total period, which is taken as equalling 100. By following the column of proportions which follows the table of amounts, they will observe that January, April, May, October and November are uniformly above the average of the year.

5496. Do the issues of the private banks and the joint stock banks fluctuate in the same manner?-Yes, exactly in the same manner.

5497. Do those fluctuations occur periodically, or do they take place at irregular intervals?They recur periodically, as will be shown by Tables VII. and VIII. In Table VII. the annual increase in October, as compared with August, is given; and in Table VIII., the gradual diminution in August as compared with April.

5498. Can you state the amount of fluctuation in the provincial note issues?-That will be seen in the 2nd column of each of those tables.

5499. Is there a regular rise and fall in the English country note circulation?-Yes, there distinctly is, as shown by this statement.

5500. Do you think that the circumstance of this fluctuation is generally known ?--I believe that it is very little known; it is a mere provincial matter, and I think that most people are entirely ignorant of it.

5501. Do you think that the regular annual fluctuation of the issues of the country banks had any share in the diminution of the circulation to which Mr. Gladstone referred in his speech on the currency on the 31st of July 1866, as follows: "Why is the rate of discount charged by the bank kept up at 10 per cent.? It is because of the limited condition of its reserve.. And why is the reserve so limited? Because of the immense demand consequent upon banking discredit, the immense demand made upon the notes and coin of the bank. Notes and coin have been called to supply this want. But what part has been played during this period by the country bank circulation? Has that circulation been found available for the wants of the country? There has been an immense demand for notes and coin, and under these circumstances, if the country bank circulation had been in a satisfactory state, it is evident that not only the notes and coin of the Bank of England, but those of the country banks themselves, would have been largely drawn upon. Instead of that, however, we have seen the country bank circulation actually diminished by not less than 1,000,000l., at the very time of this drain on the Bank of England. And how has the place of this 1,000,000%. been supplied? Why, by an enhancement of the drain upon the Bank of England"?-There is no doubt whatever as to the fact which Mr. Gladstone comments upon. There is no doubt that the country note circulation was about 1,000,000 7. lower in August 1866 than the point at which it stood in

Mr.

21 June 1875.

Mr. Backhouse-continued.

Palgrave. April of that year; but, nevertheless, if the Committee will look to the year 1861, in the same table (Table VIII.), they will observe that in that year a drop of no less than 792,000l. occurred at the same period as that to which Mr. Gladstone referred. Further back, in 1851, they will find very similar figures. Without recurring to those occasions, there was a special reason in 1866 why the drop in that year should have been greater than ordinary. It was the year during which the National Provincial Bank, which I mentioned before, was relinquish ing its issue. The notes of the National Provincial Bank, which at that time were being withdrawn from circulation, and were included in the weekly returns made to the Stamp Office, amounted on the 7th of April to 102,770 7.; on the 12th of May they amounted to 81,323 l., and on the 28th of August they only amounted to 43,447 7. They were, therefore, included in this drop to which Mr. Gladstone referred, and a diminution of nearly 60,000 7. beyond the ordinary diminution is therefore to be attributed to this cause; and if the Committee will look at Table VII., which shows the annual rise in October as compared with August, they will see that, in the year 1866, that rise was no less than 643,000 l. By reference to the proportional column, they will see that rise stands at 109, which means that it was actually larger than the corresponding rise between the August and October of 1845, and that, notwithstanding that the total circulation had dropped from 7,700,000 7. to 5,040,000 7., the actual rise in that year was, as I have mentioned, larger than it had been on the previous occasion. I think, therefore, that I am quite entitled to consider that the diminution to which Mr. Gladstone referred was not occasioned so much by an alarm respecting the issues of the private and joint stock banks in England as by the diminution in trade generally, and that as that pressure passed away, so the circulation rose, as is shown by this statement.

5502. And if the circulation is less than it used to be, does that circumstance affect the fluctuation?—No, it does not appear to affect it in the slightest degree. The diminution in 1874 is actually about 25 per cent. greater than it was in 1845, although during that time the total circulation had diminished from 7,700,000l. to less than 5,000,000 7., a diminution of something like 35

per cent.

Mr. Backhouse-continued. 5503. Those fluctuations show, do they not, that country bankers cannot expand the country circulation at their own personal pleasure?—They show that the circulation is affected entirely by the demands of trade and by nothing else.

5504. Would the country bankers have to supply any other circulating medium if they were deprived of their own right of issue?—Yes.

5505. From what source would they derive the notes so employed?-They would have to employ the notes of the Bank of England.

5506. What would follow if they had to employ any other circulation than their own?They would have to keep a far greater amount of notes in their tills than the amount which they now have to keep, as they would be entirely unable to estimate the demands which might be made upon them. I have here, if the Committee think it worth while to consider it, a return of the daily issue of our bank at Yarmouth in the months of December and January for the years 1872, 1873, and 1874. At Yarmouth there is a very large herring fishery; the boats are paid off annually at one date in the year, and that fact causes a rise in our circulation, which amounted in 1873 to no less a sum than 30,000 l., as between the 1st and the 22nd of the month, when the boats were principally paid off; we issue at two centres, one at Yarmouth and the other in an agricultural town further in the county. I have divided this return between the notes issued at Yarmouth, and the notes issued in the other part of the district, and the Committee will observe that the rise takes place entirely and only in the notes issued at Great Yarmouth, and not in the notes issued in the rest of the district. It is therefore obvious, that if we were unable to supply this demand with our own notes, and had to apply to the Bank of England for it, as the demand is very uncertain in its amount, we must hold a very much larger amount of notes than the amount which we actually use. Of course it would be impossible for us not to be provided with the means of satisfying the demands of the fishermen, and therefore we should have to make a rough estimate of it beforehand; and I consider that we should probably have to keep in hand, certainly not less than 20,000 l. or 30,000 l. more Bank of England notes and gold than we pro bably should use, for that occasion only.

5508. Will you give us the range?-This table is arranged with the highest proportion at the commencement down to the very lowest at the end. It will be observed that the general average of the actual, to the authorised issue is 75 per cent. They vary from 99 per cent., which is the highest to 16 per cent. I have placed opposite the name of each bank a description of the locality in which the business is carried on. I may add that I am informed by those banks whose circulation is the highest that they practically never issue a note at the present time; their circulation is out, and in fact it never comes home. If the Committee will look through that table, and also at the summary of the description of locality (also in Table IX.), they will see how these localities vary, and they will find that the circulation is usually below its limit in the agricultural districts.

5509. If some of those banks are close to their limit, and some are far below it, can you at all explain why that is the case?-It is explained by the wants of the population in those districts where the banks are situated.

5510. Has proximity to London any effect upon the circulation of banks within the 65 miles circle?-It certainly has. There is a vast alteration now in the habits of the population, and in the character of the districts since the year 1844. may mention, as an instance, that Bedford which was an entirely provincial town at that period, is now included in the Metropolitan system of railways. I find on inquiry from the

I

Mr. Backhouse-continued.

banks in those districts that there are very few bank notes circulating in the district. There are 40 banks of issue outside London and within the 65 miles circle, so far as I can ascertain. There is no legal definition that I have ever been able to discover of the 65 miles circles; but I have endeavoured to form a list as best I was able. Those 40 banks have an authorised issue of

1,203,517 .; their actual issue in 1874 was only 652,683 l., that is to say 54 per cent. of the total authorised circulation. The circulation within the limit has dropped very much more rapidly than the circulation beyond the limit. In 1844 the circulation within the 65 miles circle was onefifth of the total note circulation; in 1853 it was one-sixth; in 1872 it was one-seventh; and in 1875 it is only one-eighth. There are 73 private banks beyond the 65 miles circle, with an authorised issue of 2,604,475 l., and their actual issue is 1,890,944 7.; that is to say their actual issue is 72 per cent. of their authorised issue. The 54 joint stock banks are all beyond the 65 miles circle. They have an authorised issue of 2,652,993 l., and an actual issue of 2,333,273 7.; that is to say their actual issue is 88 per cent. of their authorised issue.

5511. In your opinion, does the fact that the circulation of a bank is below its limit give any ground for any inference as to the state of its deposits ?-No, it allows no inférence whatever to be made.

5512. Have you received any confidential returns from banks which enable you to give your reasons for that opinion?—I have received statements from banks possessing 2,474,892 l. out of the authorised issue of 2,652,993 l. possessed by the joint stock banks in this country; that is to say, I can give the Committee information as to the whole of those banks with the exception of a sum less than 200,000. I received replies from 36 issuing joint stock banks in England and Wales, as to the amount of deposits held by them. in the years 1844 and 1874 respectively, and the

Mr.

24 June 1875.

Mr. Backhouse-continued.

Palgrave. proportion borne by their circulation to their deposits at both dates. These 36 banks had in 1844 an actual issue of 2,021,2891.; their deposits in 1844 were 12,008,068 7., and the proportion of their issue to their deposits in 1844 was 17 per cent. In 1874 their actual issue was 1,746,245.; their deposits were 42,342,294 L., and the proportion of their issue to their deposits in 1874 was 4 per cent. The proportion of their deposits in 1874 to their deposits in 1844 was, taking 1844 as 100, in 1874, 353. I received also replies from 25 issuing banks in England and Wales, as to the proportion of their capital and circulation in 1844 and 1874. Those 25 banks had an authorised issue of 1,149,119 l., and their capital in 1844 was 2,064,492 l.; that is to say, the proportion of their issue to their capital in 1844 was 56 per cent. Their actual issue in 1874 was 949,758 l., and their capital in 1874 7,223,323 l., that is to say, the proportion of their issue to their capital in 1874 was 13 per cent.

Mr. Sampson Lloyd.

was

5513. Are those joint stock banks exclusively? -These replies are from joint stock banks. I received replies from 21 issuing banks in England and Wales as to the amounts of their capitals, deposits, and circulation in 1844 and 1874 respectively. Those 21 banks had an authorised issue in 1844 of 956,605 l.; their capital in 1844 was 1,802,292 7., their deposits in 1844 were 5,831,909.; and the proportion of their capital to their deposits in 1844 was 31 per cent. The actual issue of the same banks in 1874 was 766,177 l., their capital in 1874 was 6,130,107 l.; their deposits at the same date were 25,009,1137; and the proportion of their capital to their deposits in 1874 was 24 per cent. I likewise received replies of exactly the same character as those made to the right honourable Gentleman in the chair, as to the position of 59 banks, issuing and non-issuing in England and Wales in 1875. The capitals of those banks were 17,591,329 Z.; their reserves were 7,649,731 7.; the totals of their capital and reserves were 25,241,060 7.; their deposits were 129,866,919 7.; their acceptances and other liabilities including their liabilities on notes were 9,979,653 l., and their total liabilities to the public were 139,846,572 l.; that is to say the proportion of their capital and reserves to their deposits was 19 per cent., and of their capital and reserves to their total liabilities 18 per cent.; showing, in my mind, the very strong position of English provincial banking. I may add that this statement entirely confirmed my previous investigations made many years ago upon the same subject. I had no doubt when those inquiries went out as to what the result of the answers would be, and that they would show this strong position of the English provincial banks in respect of their capital and reserves in proportion to their total liabilities. I have also a statement, which perhaps I had better put in, from 36 issuing banks as to the proportion borne by their circulation to all of their deposits in the years 1844 and 1874 respectively. The total average in 1844 was 17 per cent. and in 1874 it was 4 per cent. only.

Chairman.

5514. Was that in consequence of the decrease of the circulation or the increase of their deposits?

Chairman-continued.

-The circulation had but slightly decreased; it was in consequence of the vast increase in the deposits. Mr. Backhouse.

5515. Where the circulation has dwindled, do you think that the deposits have dwindled likewise?-Certainly not, and the replies which I received from many of those banks entirely confirm that statement. I have a reply from a bank in which the circulation had extremely diminished, but whose deposits had gone up from 166,000 /. in 1844, to 1,066,315 l. in 1874.

5516. Had the circulation of that bank considerably diminished ?-The circulation of that bank had considerably diminished; in one case, and in one case only, I have been able to trace the proportion of circulation to deposits from an earlier period. In this case, 40 years ago the circulation was 50 per cent. of the deposits; in 1874, the circulation was only 10 per cent. of the deposits. The statement bears out my opinion that in every country in which there has been a provincial note circulation (I include in this statement not only England, Scotland, and Ireland, but Sweden) that circulation has preceded and fed deposits; that has been the case in every country in the world in which I have been able to trace it.

5517. Can you give the Committee any information as to the circulation of notes in Scotland? -The Committee will find annual averages of the Scotch country note circulation for the years 1845-74, in Table X.

5518. Do the fluctuations of the Scotch circulation recur periodically or not? - Yes; they recur with a remarkable periodicity; this is best shown by Table XI., which gives the averages of the total Scotch note circulation for the years 1845-54, 1855-64, 1865-74, and collectively for the 30 years 1845-74. The average circulation of the Scotch banks in 1874, was 5,900,000 7.; the proportion of the actual to the authorised issue in the case of each bank will be found in Table XII.

5519. Can you give the Committee the propor-tion of small notes and large notes in the circulation of Scotland generally, and of each bank? -That is also to be found in the same Table. The proportion of the small notes is 66 per cent. of the whole circulation.

5520. Do you think that if the Scotch banks were confined to the issue of notes of 5 l. and above, they would be within the limit of their authorised issue or not?-I think that if they were not absolutely within it, they would not be very far from it. The Committee will see that the circulation of large notes was 2,000,000 7. in the course of last year. The authorised issue is 2,749,271 7., and, therefore, although if small notes were suppressed, some increase in the large notes might be expected, it seems to me scarcely probable that the circulation would be anything like the amount which it now is, if the small note circulation were supressed.

5521. What conclusion do you draw from this circumtance? That the Scotch banks are indebted to their small note circulation for the very large circulation which they possess.

5522. Have the Scotch, therefore, any advantage over the English banks in respect of their circulation?-Certainly; there is no question that if English banks had had the privilege

of