Page images
PDF
EPUB

Mr. Goschen—continued. tender to the amount of 5 1. and upwards, and the provincial note not being legal tender at all? -That is the case.

7895. Therefore, though there may be a difficulty in changing a Bank of England 5 l. note, when you want to pay a smaller sum than 5 l., the difficulty that you might have in changing provincial notes for gold would not arise in the case of Bank of England notes ?-No.

7896. (To Mr. Hodgson.) With regard to the note issue of country banks and Scotch banks, you said that they were practically safe; were you speaking broadly when you said that, or were you thinking of every bank?-My wish was to get rid of any idea that I was injuriously speaking of country issues, when I said that I preferred the Bank of England issue. I said, I think, that the Bank of England note was absolutely safe, and that the other was practically, and, I think I added comparatively, safe.

7897. You were pressed very hard upon the point, whether the private issues were safe, and I do not wish to say anything that would throw any doubt upon the private issues; but, as a matter of fact, there have been failures, have there not, amongst private bankers?—Yes; but I am bound to say that there have not been many.

7898. Would you be prepared to take any number of notes that might be given you of the issue of any private bank ?-No, certainly not; I should exercise my judgment. The difference is, that in the case of the Bank of England notes I am not called upon to exercise my judg

ment.

7899. As a matter of policy, are the unsecured notes generally so practically safe that you would not think it advisable to strengthen their safety by a system of depositing securities for them? -If I cannot get the provincial notes brought under the same arrangement as the Bank of England notes, then the next best thing I can do is to get the notes of the provincial banks secured by approved securities, and ear-marked in such a way as may be possible.

7900. And although you are of opinion that the private issues are generally safe, you consider that would be a proper line of policy on the part of the State to pursue?-Most decidedly; the State has pursued a certain line of policy towards the Bank of England which is absolutely safe, and I do not see why the same line should not be pursued towards those who are what I may call only comparatively safe.

7901. Would you make the notes of any private bank so secured, legal tender?--I should consider that after I had got them so secured.

7902. With regard to the deposit of gold for the extra issue of notes in Scotland, do you consider that that is of value as it is conducted at present?-Not much.

7903. Do you see any positive harm in it ?No, I do not see any harm in it. I think that it causes a larger proportion of gold to the whole liabilities to be held than would be held without it, but I do not see that that is in anyway a security for the notes that are issued.

7904. Is that delusive to any extent as giving rise to the phrase, that the bank notes are issued upon the security of gold ?-I think it is.

7905. And so far as it is delusive, is it not questionable?—Yes, I think it is. I think the

Mr. Goschen-continued. same rule should be followed as we follow in the Bank of England, of ear-marking the gold.

7906. With regard to the Scotch issues upon gold, is not the phrase "issued upon gold,” really a fallacious and delusive phrase? You must have the gold before you can issue the notes, but the gold does not remain attached to the notes in anyway, and therefore, so far the notes are not issued on gold in the same way as the Bank of England notes are issued upon the gold in our vaults, because those two can never be separated; the notes and the gold must remain together. Mr. Orr Ewing.

7907. They are issued in compliance with the Act of Parliament ?-Quite so.

Mr. Goschen.

7908. The Scotch banks are authorised to issue if they deposit more gold, but the deposit of gold is of no advantage to the note-holders, is it, as compared with the general creditors of the bank?--No, I should think not.

7909. In the case of the Bank of England, the securities and the gold being ear-marked, there is not only the question of the legal possession, but as you have explained, you are prevented by law from touching it ?-We cannot touch it.

7910. Do you know whether there is any similar provision in the Scotch Act, and whether though the gold may be available for their creditors, generally, there is any necessity on the part of the Scotch banks to keep their reserves in the same manner as you do?—I do not think there is. There is a necessity for their having the gold before they can issue the notes, but there is no necessity, so far as I read their Act, for their keeping their gold sacred to meet those notes and no other liabilities.

7911. With regard to the relations of the reserve in the Bank of England to Scotland, Scotland has availed herself of those reserves on several occasions, has she not ?-On two occasions.

7912. And she avails herself of the reserve of gold in the Bank of England whenever gold to Scotland, does she not?-No, not so much as regards the ordinary sendings. The Scotch banks bank with the Bank of England, and they generally have large balances in the hands of the bank on which they can draw first of all for what they want, and any excess they must provide by bringing us notes, which notes they have obtained either by borrowing on consols or by discounting their bills on acceptances in the London market.

7913. Is there at different times of the year a pressure upon the London market in consequence of the Scotch banks requiring more gold? Only at the terms of May and November.

7914. And in times of crises do the Scotch banks know that they have got the Bank of England to fall back upon in the same way as the London bankers have?-No, they do not know it; but they are at the same time so well convinced of the great importance to the London market and to the London bankers that they should not be allowed to come to grief, that they used very largely that power in the crisis of 1857, when the Scotch banks were really hard pressed.

7915. When they were hard pressed did they

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

19 July
1875.

[blocks in formation]

Hodgson, influence the reserve of the Bank of England?
M.P., and
-Very largely, and at a most unfavourable
Mr. E. H.
Palmer.

19 July 1875.

moment.

7916. Is that a contingency which you, as prudent managers of the affairs of the bank, must contemplate?-You will observe that it is a contingency that does not come within the ordinary rules of our business; it is arrived at by extraordinary methods. The Scotch banks apply to the Bank of England by extraordinary ways, and not at all in the ordinary way of business. That being the case we must take into consideration that whenever we see great trouble in our own house it is likely that there will be fire in our neighbours as well. We must consider that what has come twice since 1847 may come again; but none of the Scotch banks have anything like the prescriptive right which the London bankers have to come to the Bank of England for their

wants.

Mr. Mulholland.

7917. In 1857 the pressure would not have been so great, would it, if it had not so happened that the commercial crisis and the term time were simultaneous?—I am quite aware of that, although the great crisis of 1857 arose, no doubt, from the failure of the Western Bank of Scotland.

Mr. Goschen.

7918. Supposing that the Bank of England gold were not more or less at the disposal under pressure of the Scotch banks, would it be necessary for the Scotch banks themselves to keep more gold?-Certainly it would. At the same time I must say that this difficulty has only arisen twice in about 30 years, and therefore, though it is a contingency, it is not a contingency which is always before our eyes. I think it would be a very much better thing if the Scotch banks did keep more gold; but the Scotch are very good bankers, and they do not like to see money lying idle. That I believe to be at the bottom of the whole question.

7919. That is just my point; does not the fact of their keeping so little gold idle heighten in great crises the difficulty of the Bank of England, which must then pay the penalty for the Scotch banks holding so little gold?-No doubt, and it always comes at the high water mark of the tide.

7920. What have been the three great crises during the last 30 years?-The great crises in my experience during the last 30 years, have been in 1847, 1857, and 1866. The crisis of 1866 did not touch them at all; 1866 was almost essentially an English panic; it was the failure of Overend, Gurney & Company.

7921. May I then put it fairly thus: that on two out of the three occasions when there has been real and heavy trouble, the demand from Scotland for gold has increased that heavy trouble?-No doubt, but much more in 1857 than in 1847.

7922. Though it has only happened twice in 30 years, is it a matter of fact that it has happened twice out of three times when there have been great crises ?—Yes.

7922*. And the Scotch, with a system which requires them to keep little gold idle, come in when the gold is most wanted by the English

Mr. Goschen-continued. banks, and require their share under considerable pressure?--It is so.

7923. (To Mr. Palmer.) With regard to the gold circulation in the country, to what extent, if any, do you believe that coin flows into the bank under the pressure of high rates of discount? That must be very difficult to state, but under high rates of discount coin comes in in larger proportions than at other periods.

7924. Does the high rate of interest produce an economy of circulation, and at all events prevent its being increased at that time?—Yes, largely in that way.

7925. Must you measure at such times as those, not only the gold which you attract, but the gold which you prevent from going out?Yes, no doubt. (Mr. Hodgson.) I think we feel that in the shape of notes coming in. The gold is probably paid into the country bankers, and they send us up any surplus of notes that they have. Our return is almost always in notes. You will see that the circulation goes down.

7926. But the gold then flows into the tills of country bankers?—Yes.

7927. And pro tanto it strengthens them ?Pro tanto it strengthens them, and when they feel that they are getting a little too full, they send us such notes as they have instead of sending us the gold that they have.

7928. In times like that, when the rates of interest are high, do you believe that the country is strengthened by the existence of a gold circulation as compared with what it would be if there was a paper circulation ?-Undoubtedly.

7929. You do not specify precisely the form which it takes, but in your opinion the commercial system of the country is strengthened by the fact that there is a large quantity of gold in circulation?- Certainly.

7930. You have no doubt whatever upon that point?-Not the slightest.

7931. If 17. notes were to be issued they would be issued, would they not, either against gold or as increasing the fiduciary issues of the country? I would oppose in every possible way any increase of the issues. If 1 l. notes are to be issued they ought to be issued only as a simple matter of convenience, so as to avoid that abrasion of which we are told. I would not issue a

single 1. note in excess of the present paper circulation.

7932. (To Mr. Palmer.) Do you hold that view?-Yes, I quite agree with it.

7933. (To Mr. Hodgson.) May we take it that that is the general view of the Bank of England?

I should say that it is so unanimously, or almost unanimously. (Mr. Palmer.) I do not know anybody who holds a different opinion.

7934. (To Mr. Hodgson.) With regard to the Bank of England absorbing the private issues of the country, you said that the bank had no pecuniary interest in the absorption, and I thought you rather accentuated the word "pecuniary," indicating that you had other interests in the absorption ?-Probably I meant the public interest, having a very strong feeling upon the subject myself. I rejoice to see any bank giving up its issue and taking its notes from us, as the National Provincial Bank did; but we ourselves, qua bankers, have no object in that being done. I believe the whole of the Bank of England, almost to a man, believe that the whole circula

tion

Mr. Goschen-continued.

tion of the country would be better in the hands of the State, than now.

7935. You mean, therefore, that you, as bankers, have no pecuniary interest in it?-As bankers we have no pecuniary interest in it, but as a matter of good government, I should wish to see it. (Mr. Palmer.) I suppose Mr. Hodgson would also mean that it diminishes the demand upon the Bank of England in times of panic by the notes that are taken down to protect the provincial issues.

7936. (To Mr. Hodgson.) May I take it that in bad times if there were a State issue, a sudden pressure upon the Bank would not be felt so much as it is under existing arrangements?—I think it would depend a good deal upon what was the nature of the crisis. The crisis of 1866 was no doubt immensely aggravated by the fact that there were issuing bankers; but the crises of 1847 and 1857 were very little affected by it, because there was no run upon the issuing bankers. In 1866 the idea of the public was that the issuing bankers, and country bankers generally, had lost very heavily by the failure of Overend, Gurney & Co.

7937. Then in 1847 and 1857 the Scotch issuing banks came upon you for supplies of gold, and in 1866 the English issuing banks came upon you for a supply of gold?-Yes; the English issuing banks of course wanted notes, which were the same thing to them as gold.

7938. And in each of those three crises, the fact of there being this private circulation undoubtedly aggravated the intensity of the crisis? -Yes; it undoubtedly aggravated all three of the crises.

7939. (To Mr. Palmer.) You were asked whether there is anything connected with the peculiar privileges of the Bank of England which would prevent Scotch banks coming to London; would it be an infringement of your privileges if the Scotch banks issued notes in London?-I think that certainly it would be.

7940. You answered, I think, as if there was absolutely no relation between the privileges of the Bank of England and the privileges of the Scotch banks?-So far as there is issue, there is a relation, and it would be against the law.

7941. And it would also trench upon the privileges of the Bank of England, would it not?Yes, in that way. (Mr. Hodgson.) The greater contains the less, and if it is against the law we do not consider the privileges of the Bank of England.

Mr. Orr Ewing.

7942. I suppose the banks of Ireland, as well as the provincial banks of England, depend upon the reserve in the Bank of England?-I think they keep their own reserves in Ireland.

7943. Do they never get any gold sent over to Ireland?-Yes, but they get it through their own agencies here; as a rule, Ireland sends us more gold than she takes from us.

7944. Do they not depend in times of pressure upon the Bank of England for assistance?— They never have had a pressure in my time.

7945. Do not the banks in the provinces of England depend upon the 'gold in the Bank of England? In 1866 they pressed us very much.

7946. And is not that the case at all times?— No.

Mr. Orr Ewing--continued. 7947. You have only had one pressure, which was in 1866 ?—Yes.

7948. And in Scotland, in 1847 and 1857?Yes.

7949. How much gold did you send to Scotland in 1857 ?—It was something like 1,500,000 7. in 1857; the amount in 1847 I cannot recollect.

7950. Have you no document that will show it? No, I do not walk about with those things in my pockets; the pressure of 1847 came in a different way; it came in a demand from the Western Bank of Scotland for help and assistance in discounting bills, and that assistance was given to it, and the Western Bank of Scotland went on; the most remarkable thing, as a matter of history, is that every bank that was helped by the Bank of England in 1847, both in England and in Scotland, came to the ground in 1857.

7951. There was only one in Scotland, was there?-Was there not another one, a little one?

7952. The City of Glasgow Bank suspended for a week or two; but I think that if you will recall your memory, you will find that the amount of gold sent to Scotland in 1847 was very small?-I believe it was very small.

7593. And, therefore, it was not a very great pressure upon the Bank of England at that time?-Yes, it was; the amount was not very large, but it came at the end of a very long and serious pressure; it is the last straw that breaks the camel's back, and it was the Western Bank of Scotland, and the Northumberland and Durham District Bank, that compelled the suspension of the Act of 1844.

7954. Do you think that the banks in Scotland are not entitled to have the same privileges in relation to the Bank of England as banks in other portions of the Empire ?-No, I think you have no title to them at all; so far as regards banking, the Bill of 1845, which gave you great privileges, made you a foreign country.

7955. Supposing that we have securities in England which we dispose of, and come to you in a legitimate way to get gold for them?—The only legitimate way in which you can come to us in a crisis is with bank notes in your hand, and then we will give you as much gold as you have in bank notes; but in this case you could not dispose of those securities, and you came to the Bank of England, especially in 1857, and you brought masses of bills to discount. Those bills were discounted, the notes were taken out of our till, you went to our issue department, you cancelled the notes, and you took our sovereigns away to Scotland, and we were compelled to suspend the Act of 1844. We could have refused you, but supposing we had refused you!

Mr. Anderson.

[blocks in formation]

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

19 July
1875.

[blocks in formation]
[blocks in formation]

7963. In 1857, I think, the London bankers had 5,000,000l. at the Bank of England?There was never any doubt about the London bankers, and I do not imagine that the question of the honourable Member for Downpatrick applies to the London bankers. The English provincial banks which pressed us at that time were doing the same class of business as the Western Bank of Scotland; they were such banks as the Royal Bank of Liverpool, the Borough Bank of Liverpool, and the Northumberland and Durham District Bank.

[blocks in formation]

Mr. WALTER BAGEHOT, called in; and Examined.
Chairman.

7964. I THINK you are a Director of Stuckey's Bank?—I am.

7965. And you have also, as we are aware, turned your attention greatly to the subject of banking, and have written various articles, and also a book upon the subject, of great value. Are you acquainted with the evidence which has been given before this Committee as to the present legal position of the Scotch banks in England, and have you any suggestion to make with regard to it?-I cannot say that I have read the whole of the evidence which has been given before this Committee, but I have read a great deal of it with great care; the result of it seems to me to be (if I may offer a suggestion) that the question should be tried at law; Mr. Fitzjames Stephen has given evidence that the position of the Scotch banks in England is at present illegal, and, if I understand him correctly, Sir Henry Thring (to some extent) follows him; supposing them to be right, the Bill brought in by Mr. Goschen, which is the primary subject, if I am rightly informed, referred to this Committee, would be unnecessary; I would therefore humbly suggest that this Committee might ask the Government to have the question tried in some way.

7966. That is, with regard to the legal position of the question; I should like to ask you also what your opinion is as to the policy of the question. Do you consider that it is desirable that there should be one single system of banking applied to the whole of the United Kingdom, or that there should be distinctions between the banking systems and the privileges given to bankers in different portions of the United Kingdom?—I should certainly think it desirable, if we were starting de novo, that there should be one uniform system. Probably there would hardly be two opinions about it. If we were commencing in a new world, all banks, I suppose, should be put upon an equality, but I do not know how far that would be exactly possible under the present state of things.. The Scotch system, and also the Irish system, are so extremely different from anything that prevails

[ocr errors]

Chairman-continued.

Mr.

in England, that it would require almost a revo-
lution to reduce them to an English level, or to W. Bagehot.
raise us to the Scotch and Irish level, and I
hardly know how it could be done.

[ocr errors]

7967. I suppose we may take it for granted that no system of banking was ever created in any country brand new, introduced into it ready made, so to speak, unless, perhaps, into some colony, but that it has rather grown up by degrees, and that the development of any system in one country is likely to have been somewhat different from what it might be in another country?- No doubt. It all depends upon historical considerations. Credit is "the historical element of political economy;" the opinion people form of one another, which is the basis of banking, necessarily depends upon historical considerations, and it cannot be changed with the same facility with which you can change any ordinary element in mercantile business.

7968. So that we may consider that it is the
case that in Scotland a system of banking has
grown up which differs in some important parti-
culars from the system in England ?—Yes.

7969. Especially with regard to the principle
of issue and the extent to which paper money of
the smaller denominations is in demand?-Not
only has it naturally grown up in a different
form, but it must be remembered that it has also
grown up under a different law from the beginning.
The English system was, I should venture to say,
almost spoiled; I do not say for the real benefit,
but for the supposed benefit, of the Bank of Eng-
land. The law did not give the Bank of England
the monopoly of issue, which might have been
defensible upon principle, but it gave it a partial
monopoly; it said that no combination of per-
sons more than six in number should issue notes,
but it allowed any number of persons less than
six to do so. That made the Bank of England,
as far as possible, the only strong bank in the
country, but it allowed a great many small banks
to grow up.
This law did not extend to Scot-

land.
7970. If you were now attempting to apply

22 July 1875.

« PreviousContinue »