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Mr. Crake.

Mr. Orr Ewing-continued. of my evidence is, that we should refuse it en8 July 1875 tirely if we could.

7374. Is the extent of your credits included in the 1,000,000 7. which you have mentioned? Yes; they are not mercantile credits, as a rule.

7375. To what kind of houses do you grant them? They are mainly for other banks. We cannot refuse to accept on account of a bank.

7376. But you do not accept for any bank out of this country, do you?-No; there are a large volume of short bills, drafts as we call them, of 14 and 21 days' date, mainly from Scotland.

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7377. But I am speaking of foreign bills of exchange? We do not profess to go into that business, and we avoid it to the best of our ability. We have refused many very valuable accounts because they would involve that description of business.

7378. But you grant money credits to India, do you not? We do not, or if there are any, they are exceedingly trifling.

7379. Do you consider that that kind of business is more safe for a bank than discounting paper for a firm that is carrying on a large business in this country, who draws upon another house which has comparatively no standing in the commercial world?-I do not know that. We should not do that business, if we thought that it was drawn upon a firm of no standing.

7380. Have you had no bills of that kind of late?-Mistakes will happen, but we have not taken such paper knowingly.

7381. Did you not discount the paper to which I allude more on the faith of the name of the drawer than of the acceptors?-It may be the case, that you pass paper on the strength of one name, but not generally speaking.

Sir Graham Montgomery.

7382. Have the other joint stock banks in London been as scrupulous about entering into this sort of business of accepting foreign bills as the London and Westminster Bank for which you speak?-None of the London joint stock banks are issuing banks. I would make a grave distinction between the two.

7383. Still you admit that it is necessary for the joint stock banks in London to a certain extent to do this class of business which you think is not a good class of business?—I have not said that it is not a good class of business; all I have said is, that it is a commercial business, a business that pertains to commercial men, and not to banks. That is the distinction which I have drawn. It is a class of business which I myself am glad to conduct, but not as a banker.

7384. The London and Westminster Bank still, according to your statement, have been obliged to enter into this kind of business, to a certain extent?-We cannot avoid acceptances to a moderate extent, but we do not give credit all over the world, in India, China and so forth. If a case is brought up, it is exceptional, and one of a special character; we avoid it as far as we can, even here. The Bank of England, I may say, I believe, do not accept at all.

7385. You have reason to believe that the other joint stock banks in London act in the same way as you yourselves do in reference to this matter?-They may accept more or less, but I cannot speak for them with the same knowledge with which I speak for my own bank.

7386. Still, as regards the Scotch banks, you

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Sir Graham Montgomery-continued. condemn the practice to a grave degree, and you think it wrong for them to carry on such business? I think that the Scotch banks, having the monopoly of Scotch banking business, both as to issue and as to business, offend still further against that principle which I maintain.

7387. Still, it is not more risky, is it, for the Scotch banks than if they were to accept discounts in London which were not good?-I do not know that; you send your credits abroad, and you must trust to the good faith and character of the people to whom you send them; whereas your discounting is all within the four corners of your business here.

7388. It has been stated in evidence before this

Committee, that Scotch people are in the habit of depositing large sums of money with the Indian banks, and with other banks in Scotland who have agencies there, and that those banks employ the money for themselves; do you consider that those depositors run a great risk in lending their money to those banks who are trading at such a distance from this country?—I was not present when that evidence was given; but I should take it, that the deposits, such as you referred to, made by the Scotch public to Indian banks in Scotland would be more for long periods, for 12 months or six months, probably, and that is of a totally dif ferent nature to the deposits of a London banker. The public who lodge their money on deposits for 12 months with an Indian or an Australian bank do it with their eyes open, and they know that that money is taken by that bank to employ in foreign transactions, whereas it is not so with a Scotch bank of issue.

7389. Still they are lending money to a banking corporation which does business at a distance from home, and whose drafts you would consider that a London joint stock bank should not take?

I would draw a great distinction between deposits made with a Colonial or Indian bank for a fixed long period, and deposits payable practically at short date or on demand.

Mr. Campbell-Bannerman.

7390. With regard to the business of banking, you would apparently draw an important distinction between a bank of issue and a bank that does not issue?-Yes..

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7391. Are you aware that the issues of the Scotch banks are a very small portion of their liabilities? As compared with their deposits, I believe they are something like six to 80, and and their acceptances are now quite as much as their issue.

7392. And they hold something like 4,000,000 7. of gold. Does the fact of the issue being so small, comparatively speaking, affect the question, in your opinion, as to the nature of the business that they should do?-Only in degree, I think that the principle remains.

7393. But does it affect it in degree?- In degree, but that degree is really the whole banknote circulation of Scotland.

7394. It may be an unsafe thing that banks which supply the whole circulation of Scotland should have such large liabilities; but does the fact of their entering upon any particular kind of business, become more serious in consequence of their issue, when the issue is so small in relation to their other liabilities, and when the shareholders responsibility is unlimited?- My objection is maintained.

7395. But

Mr. Campbell-Bannerman-continued. 7395. But is it not diminished in degree?As to the volume of acceptances it is diminished, but my objection, I think, is a sound one, whether it be for 6,000,000 l. or for 20,000,000 7.

7396. Do you see any great danger in a bank with prudence and moderation, giving credits to houses in this country having branches abroad, and allowing those branches to draw upon the bank?—That is really the same thing, only it is another way of putting it. You are dealing in foreign exchanges and foreign acceptances; you are using your credit out in the foreign ports. 7397. But that credit is supported by a firm in this country of undoubted stability? Yes, but the bill itself is sold upon the credit of the bank.

7398. That is not nearly so risky a transaction as to allow some foreign house, over whose proceedings you can exercise no supervision to draw upon you, is it?-But it is a foreign house that does draw upon you.

7399. I mean where the whole business is abroad?—I may not follow you quite clearly, but you quite clearly, but it seems to me that you would only have one name to that paper; that you would not have the two distinct firms.

7400. I am putting the case of a perfectly solvent and wealthy customer in this country, who has a business abroad? -- Pardon me for one moment. What is this business abroad? Who is to represent it? An independent house?

7401. A branch of his own house?-Then you would have only the credit of the man here in England which you represent to be an unquestioned one, and his own credit again abroad.

Mr. Orr Ewing.

7402. But would not a bill of that kind be sold in the open market, and be in a third hand?-A bill of what kind?

7403. Supposing that I, a Glasgow house, have a credit upon the London and Westminster Bank to draw upon them for a certain amount in Calcutta, and I carried out the transaction for which I got this credit and drew the bill, and would not send that bill home direct, I should sell it in the market, and therefore the Bank has the security of two names?-Will you explain that to me, if you please?

7404. The party who receives this bill in the market when it is sold, sends it home here for acceptance to the London and Westminster Bank, and his name is on it?-But that is the man to whom the credit is given.

7405. Not at all; it is the party who has bought the bill in Calcutta ?-If he so sells it.

7406. Is not that the invariable way of conducting business?-The usual way would be to sell it, but it depends upon how that bill is drawn.

7407. Of course there may be specialties, but I am asking what is the general rule of conducting business?—The person to whom you gave the credit in England and his firm, wherever it may be abroad, are one and the same party, and the bank only gets the security of the same firm in either case; hence you have only the security of that one firm in place of the discounted bill with a variety of names upon it. Therefore, I say that it is not so safe to do that class of business as to discount bills in London.

Mr. Crake.

Mr. Campbell-Bannerman. 7408. Did I correctly understand you to say, 8 July 1875. that if it were free to English bankers to go to Scotland, that you consider would solve the whole difficulty that at present arises?--I am not prepared to say that; first of all it is obvious that if they go at all, they must go on equal terms with the Scotch banks.

7409. Supposing that the London and Westminster Bank were able to go to Scotland, what would be its position?-We do not go out of London.

7410. But you say that it is hard upon you that the Scotch banks should come here and that you should not have the power to go to Scotland; supposing that it was made free (upon the hypothesis that it is not at present free, which I would not admit) for London bankers to open branches in Scotland, would that in your opinion settle the matter?-If they were allowed to go there on identical terms with the Scotch banks, viz., that they should have an unlimited issue on gold, and an issue of 17. notes, it would certainly do away with that part of the English bankers' contention that they cannot go to Scotland.

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7411. Do you think that there would then be objection to the Scotch banks opening branches in London ?-You must remember that the English banking community have been deprived of these privileges for more than a generation, and the English banks could not go into Scotland now with any chance of aggregating to themselves a business which the Scotch banks have built up for a century.

7412. But how can Scotch banks come here then; because they have been out of this country for a century also?-The cases are not parallel.

Mr. Norwood.

7413. With reference to the 1,000,000 l. of acceptances which the London and Westminster Bank are generally under, do you not act as London agents of country bankers?—Yes; and the great bulk of those acceptances are short bills at 21 days' sight.

7414. Your general custom is to abstain as far as you can from the acceptances of foreign bills, is it not?-Yes.

7415. And that is the case you say with the banks in London as a rule ?—I believe so; there are some that have gone more into the business than others.

7416. Are there not one or two banks that are known to have laid themselves open for that business more than others?—Yes.

7417. You lay a good deal of stress upon the difference of position between the bank which is allowed to issue notes and the bank which is not allowed to issue notes; do you think that there is really very much difference in the liability to a holder of a note and to a depositor in a bank? -I think that the holder of a note, such as a Scotch note, holds it on the credit of the bank on the spot; he does it on the credit of its fund, and so forth, and the depositor does the same, and my argument is, that the use of that credit for acquiring those deposits, and the issue of those notes, if supplemented by foreign acceptances, is a double use of the credit of the bank.

7418. Then perhaps, after all, there is not so much difference with reference to the moral position of the bank in respect to its creditors, whether those creditors are holders of notes or depositors?

Mr. Crake.

8 July 1875.

Mr. Norwood-continued.

Between the holders of the notes and depositors there is no difference, because they both trust to the credit of the bank.

7419. Therefore it would be a mistake, would it not, to imagine from what you said just now that you regard the holder of a bank-note as having a greater right to the assets of a bank than a depositor has?—Yes.

7420. I suppose you know that the Scotch banks which accept on account of Indian houses very often get documents attached to the bills which they accept?-I do not see those bills; they would be regarded less favourably.

7421. Then your opinion is this: that the Scotch banks accept foreign bills to a greater extent in proportion to their capital than any London bank, either private or joint stock?-I have not made that comparison so far as the practice of our own bank, the London and Westminster, is concerned, as I have already said we decline all that class of acceptance to the best of our ability.

7422. Then you do not go so far as to say that the Scotch banks accept foreign bills to a greater

Mr. Norwood-continued.

extent in proportion to their capital than the London banks do?--I have not considered it from the point of view as to the proportion of capital; but the tenor of my evidence is that during the last six or eight years the Scotch banks' foreign acceptances have very largely developed.

7423. At the same time you state that it is impossible for a bank in London to abstain altogether from accepting foreign bills?—Yes.

Sir John Lubbock.

7424. It is particularly the Scotch banks which have come to London which have increased their acceptances, is it not?-I think so.

7425. The London and Westminster Bank have of course very large transactions with Scotland?-Yes.

7426. And the monopoly which the Scotch banks enjoy enables them to make you charges which they could not otherwise make?-Yes.

7427. And that you consider to be a serious disadvantage to you?-Yes.

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Mr. KIRKMAN DANIEL HODGSON, a Member of the House, and Mr. EDWARD HOWLEY PALMER, called in; and Examined.

Chairman.

7428. (To Mr. Palmer.) You are the Deputy Governor of the Bank of England, are you not? -I am.

7429. The Committee have been anxious to have the evidence of the Governor and Deputy Governor of the Bank of England on this inquiry, but we are sorry to learn that the Governor is not at present well enough to attend; I believe, therefore, that the bank directors have requested Mr. Kirkman Hodgson to attend with you to speak on their behalf?That is the case.

7430. Can you inform the Committee generally what has been the course of proceeding since the passing of Sir Robert Peel's Bank Charter Act in 1844, in the direction of the absorption by the Bank of England of the notes issued by private or joint stock provincial banks?-The authorised issue of the private and joint stock banks, in 1844, was 8,648,853 l., and in 1874, the authorised issue was 6,624,163 l., the difference being 2,024,6907. The composition is paid on 1,415,000l., and the amount lapsed by failures and amalgamations with other banks is 609,6907. That makes up the

amount.

7431. To what extent then has the authorised issue of the Bank of England itself been increased?-To replace these lapsed issues the fiduciary issue of the Bank of England is now 15,000,000/., instead of 14,000,000l., as fixed by the Act of 1844.

7432. How came it to be exactly 15,000,000 7.? -Of course, under the Act, the Bank of England might have applied for 350,000l. more, but it was thought more intelligible to have it in an even sum, and there was no particular object in asking for the other 350,000l., and, therefore, the Bank of England only applied for the extra 1,000,000l. In 1844, the provincial circulation of Bank of England notes was 6,500,000 7., and the issues of private and joint stock banks were 8,170,000l., making 14,670,000 7. in 1844. In 1874, the Bank of England provincial issue was

Chairman-continued.

10,164,000l., and the issues of private and joint stock banks were 4,960,000 7., so that the Bank of England has entirely supplemented the lapsed provincial issues, and rather more.

7433. Did the process of the surrender of issue by any provincial, private, and joint stock banks take place more rapidly in the beginning of that period than it has done latterly?—I think much more rapidly.

7434. Have there been any compositions within the last five or six years?-None that I am aware of since the National Provincial Bank of England gave up its issue.

7435. Does the process of absorption seem likely to continue, so far as you can judge?There has been no surrender of issue since the surrender of the National Provincial Bank in 1866, and it must be assumed that the reason of the unwillingness of banks having this privilege to surrender it, is that they consider the terms of commutation inadequate, even when coupled with the advantage of opening an establishment in London.

7436. Do you think that rather more favourable terms might induce a larger number to compound?-I think it would be very inexpedient to vary the terms of commutation, in order to induce individual banks to surrender

their privilege of issue. Whether a general measure should be adopted for the purpose of determining all private issues, must be for the State to determine.

7437. That is a point upon which the Bank of England, as a bank, have no view to submit?None, so far as the bank is concerned.

7438. But is it your impression that, if more favourable terms of composition were offered, a considerable number of private banks, and joint stock banks, would compound?-I really cannot answer that question.

7439. Supposing that the State were to decide upon abolishing the provincial issues, do you consider that the Bank of England could adequately supply the wants of the country?-The

Mr. K. D.

Hodgson, M.P., and Mr. E. H. Palmer.

19 July 1875

Mr. K. D. Hodgson, M.P., and Mr. E. H. Palmer.

19 July
1875.

Chairman-continued.

Bank of England can readily supply any vacuum caused by the lapse of provincial issues, and that is proved by what has already taken place between 1844 and 1874.

7440. The amount of the issues must depend, to a certain extent, upon the demand of the country, must it not?-Yes.

7441. And the fact of the demand of the country having been constant since 1844, although a proportion of the provincial issues have been abandoned, shows that there is a sufficient demand for the Bank of England notes to take the place of the others?-Certainly.

7442. Do you see any reason to suppose that if the provincial issues were in any manner put an end to throughout England, the Bank of England would not supply the vacuum which would be caused by the withdrawal of the 4,960,000/. of country bank issues?-I have every reason to believe that the bank would supply the vacuum perfectly.

7443. Can you form any judgment as to what would happen if the provincial issues of Scotland and Ireland were abolished?-The cases of Scotland and Ireland are to some extent different from the case of England, in consequence of the issue in those countries of 1 7. notes, and I think that it would be necessary in such cases, if the Government contemplated anything of that kind, to have centres of issue at Edinburgh and Dublin for those countries.

7444. Centres of issue connected with the Bank of England? That is a matter of arrangement which the Government of the day would determine.

7445. But do you mean centres of issue from which notes of a different character from those issued in England should be sent forth? Yes.

7446. Are the branches of the Bank of England extending?-They are not extending. On the contrary the branches at Exeter, Norwich, Gloucester, Swansea, and Leicester have been closed, as they did not pay their expenses. With regard to that, I should say that the branch at Exeter was closed and a branch at Plymouth was opened in lieu of it for the Government convenience.

7447. Which of those branches had been longest in existence ?-The Norwich and the Gloucester branches were the first that were established, and the Gloucester branch was the first that was closed. Exeter was the first one that was really closed, but you can hardly call that being closed, because it was transferred to Plymouth.

7448. Was the Exeter branch closed in consequence of its not paying its expenses, or because it was more convenient that it should be transferred to Plymouth?-I do not suppose that it paid its expenses, or that Plymouth does now pay its expenses. I know that the branch is kept up more for the Government convenience than for any profit which accrues from it to the Bank of England.

7449. Do you know whether it ever paid its expenses at any time?—I do not think that it did.

7450. To take the case of Gloucester, how long had that branch been established?-The Gloucester branch was established in 1826, and closed in 1849.

7451. Had it ever paid its expenses as a sepa

Chairman-continued.

rate branch? No, I do not think it ever had.

7452. Are there any cases amongst those that you say have been abandoned, in which the branch had begun by paying its expenses, and had subsequently failed to do so, having become less profitable?-Swansea had never paid its expenses. Leicester did so formerly to a certain extent, but latterly it did not pay its expenses, and the Bank closed it about three years ago.

7453. Should you say that there is any tendency in the branches of the Bank of England generally to become less profitable than they were?--The branches of the Bank of England are more suited to the wants of the towns in the great centres of industry, such as Manchester, Liverpool, Birmingham, Hull, Leeds, and Newcastle. In those towns they have a very fair amount of general banking business, besides being a great convenience to those districts as channels for the supply of bank notes and for the transmission of coin to and from the Bank of England in London.

7454. But supposing that the provincial issues were put an end to, and that the Bank of England were called upon to supply their place, it must do so by means of branch banks, must it not?-Not necessarily.

7455. How would you propose that it should supply the circulation?-It would be supplied from London.

7456. Through the local banks? — Through the local banks.

7457. You do to a considerable extent carry on business through the local banks, do you not? Very largely, principally through their London agents.

7458. Then, in fact, the question of maintaining branches of the Bank of England is a question independent altogether of the maintenance or absorption of the country issues?-Yes, I consider so.

7459. How would you propose that the notes of the Bank of England should be cashed if you had no branches throughout the country?—They would never be required to be cashed, except for convenience; Liverpool is the only place where any large amount of notes could be returned upon the Bank for gold, and even there it is not found that there is any great requirement, and that is the only place where there could be. The others are mere questions of the supply of and the demand for coin, which certainly could be met by the ordinary arrangements.

7460. What facilities are given by the branch banks of the Bank of England for the exchange of notes issued at other branches, or in London?

Every note that is issued from a branch is paid in cash, and everything that is required for the convenience of the customers of the Bank is also done as far as courtesy is concerned. The Bank could never accept a legal liability to pay at any branch its notes issued at other branches; that would be quite impossible. As a rule, the public are accommodated with any moderate amount of coin that they require.

7461. A man happening to have 101. or 201 in Bank of England notes, issued in London, would be pretty sure to get them exchanged at the branch bank wherever it might be ?—Yes, I think so; certainly.

7462. Without charge or with a charge?— Without charge.

7463. Even

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