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Sir John Lubbock-continued.

till-money in proportion; I suppose by that you mean in proportion to their transactions ?—Yes; to carry on their business with a less amount of cash.

8188. But that would affect their transactions rather than their deposits; the smaller proportion of till-money which would be required would be in proportion to the amount of their transactions, would it not?-To the amount of their transactions.

8189. I believe that the Scotch banks have clearing houses also at Aberdeen, Dundee, Glasgow, Leith, and Edinburgh, have they not?-I understand so.

8190. You have spoken of the Bank of England reserve as being the ultimate reserve of the country; but, of course, there is a very large sum which is held by the different bankers in London and throughout the country, which also constitutes a portion of the banking reserve, is there not? Of course the reserve of other bankers is kept at the Bank of England, and then the Bank of England lends a portion of it; but the only unused cash is notes in the banking department; that is the only ultimate reserve in mere cash. The rest, which other bankers hold, is, in the main, till-money, I should say, and not to be reckoned as reserve, either in town or country.

8191. I have always understood that both the London and the country bankers hold in their own houses a much larger amount than would be required as till-money. I presume that, upon that point, you are speaking rather from general impression than from any absolute information upon the subject?-My own impression is that people do not hold much more than, taking a large view of till-money, was absolutely required for their business.

8192. In that, you are expressing what is your impression, are you not?-I have, of course, no absolute knowledge of the condition of the bankers in the country, generally.

8193. Or of the London bankers?-Or of the London bankers.

8194. I think that, in answer to a question put to you by the honourable Member for Hertford,, you used the expression in reference to panics, and particularly with regard, I think, to one of the large joint stock banks, that they re-discounted bills. Is not what happens rather this: that the London bankers lend to the bill brokers, and on the Stock Exchange, very large sums of money, and mostly from day to day, upon the deposit of bills of exchange and securities (principally consols and Government securities); and that in times of pressure they call in those loans; that then the stockbrokers and bill brokers, in order to repay the bankers, take the securities to the Bank of England and obtain, or endeavour to obtain, advances upon them?-Yes, that was what I meant to express; I did not know that I had used the word "re-discount"; If I did so it was used inadvertently. The instance which I cited was that which the London and Westminster Bank themselves gave when they did not call in any money from the brokers, but allowed the bills which they held from the brokers to become due; I said that those bills could only be paid by other bills being discounted, and those second bills which were necessary for that payment were discounted by the Bank of England.

8195. It is the fact, is it not, that even in the worst panics the London and country bankers

Sir John Lubbock-continued. continue to discount the regular trade bills of their regular customers; but that the sums which they call in are the amounts which they have lent out from day to day, in the manner which I have just described ?-A banker is bound to discount for his regular customers, and no doubt bankers do so at all times, whether of pressure or not.

8196. The regular customers have no difficulty in getting their bills discounted either in times of pressure, or at other times?-No, else they would be ruined. The banker is under a tacit engagement, I think, to discount for his customers.

8197. And it is not only a tacit understanding, but it is the actual fact, is it not?-No doubt.

Mr. Anderson.

8198. In your answer to the honourable Member for Maidstone, did you mean that it would be impossible to put a State issue under such control that the Chancellor of the Exchequer, or another Member of the Government, could not use it improperly?" Impossible" is a strong word; but I say that under Parliamentary Government in time of panic it would be a very dangerous machinery; I am fearful that it might be used for making improper loans, and I am still more fearful that it would be thought to be used for making such loans even when it was not so used.

8199. But could not Parliament put it out of the power of the Government to do that? Then Parliament must put it into the power of somebody else.

8200. Might not the power be vested in trustees, for instance ?-Who are the trustees to be? The trustees must be nominated by somebody.

8201. They need not be members of the Government, I suppose?-They may be nominally independent Commissioners.

8202. Might they not be entirely independent, subject only to Acts of Parliament, so that there could be no control over them except by an Act of Parliament specially passed?-It would be possible to make them theoretically independent, but I very much question whether they would be practically independent, and I still more doubt whether they would be thought by the public to be independent, whether they would have the confidence of the public, and whether the public would not believe that persons of high interest obtained loans for their friends in times of panic, which persons who were not so befriended did not obtain.

8203. But would giving Commissioners control over a State issue necessarily involve giving them power to make loans to anybody?— I say that in a panic there would be a fearful rush upon the Government to make loans; I believe that there is an extremity of panic in which more notes must be issued; the orthodox doctrine laid down by Ricardo is that there is a period of panic at which the restrictions upon the issue of legal tender must be removed; supposing that to be so, and that you put the legal tender absolutely into the hands of the Government, I fear that loans would be made to improper persons, and I still more fear that it would be thought that they were made to improper persons.

8204. Would that pressure be stronger upon Parliamentary Commissioners than it would upon Directors of the Bank of England?-The Directors of the Bank of England know how to manage it, and the world have confidence in

Mr. Bagehot.

22 July 1875.

Mr. Bagehot.

22 July 1875.

Mr. Anderson-continued. · them because they conduct the management as part of their general business.

8205. You think that Parliamentary Commissioners would not know how to manage it? They would not know how to manage it, and they would be subject to all manner of political pressure, whereas the Bank of England is a body withdrawn from the political world, and not subject to political pressure.

8206. Then you would not be in favour of taking away the issue department from the Bank of England or making it more distinct than it is at present?—In my judgment it would be a very dangerous thing to do, for the political reason that in time of panic it would never be thought that any lending power in the Government would be well exercised.

8207. You look upon the Bank of England as the holder of the ultimate reserve, and you say that it is bound to lend money very largely in time of panic; how do you propose to give it means to do that?-It ought to hold such a reserve as will enable it to do so, subject of course to what I was also saying, viz., that there is a period of panic at which any restrictions upon the issue of legal tender must for a moment be broken, and in which any Issue Department which you may have must probably have to make advances in some irregular manner.

8208. Then you admit that there is a time of 8208. Then you admit that there is a time of panic when, whether there are Parliamentary Commissioners or Directors of the Bank of England, they must go against the law?-If you limit the issuing department in any way, you will probably have to break that limitation somehow or other at a certain time.

8209. Have you any suggestion to make as to the orthodox manner of breaking that limitation so that it should not be a breaking of the law? It might of course be put in the discretion of certain persons, as was proposed in the last Parliament. And theoretically, that might be better; but it comes very much to the same thing in my judgment; it is economically the same thing, at any rate.

8210. You showed that the whole banking, system of the country hangs upon the Bank of England, and therefore upon the Bank of England reserve; would it not be desirable that the public should have a little more information as to what that reserve really consists of?-I should have thought that we knew now the amount of notes in the till and the coin.

8211. Do you know what part of it consists of bankers' balances?-By the reserve I mean the notes and coin; that is what I call the reserve of the Bank of England. The deposits are its liabilities.

8212. The difference between liabilities and assets?—I do not call that the reserve. I call the reserve the actual amount of cash held.

8213. Do you see any objection to stating what are the balances held by the Bank of England for country bankers ?-I see no objection or the reverse. I do not think that it would be any material advantage.

8214. Is it not the fact that at certain times it has been quite well known that certain banks have such large deposits with the Bank of England, that at any time they could swamp the whole reserve by drawing those reserves out?—I cannot speak of any particular banks, but the returns which have been presented to Parliament show

Mr. Anderson—continued. that the aggregate of bankers' balances has often been more than the reserve.

8215. And therefore, that those bankers by withdrawing their balances, could have exhausted the reserve of the Bank of England?-Undoubtedly they could have done so, if they had so chosen.

8216. Does not that give a very improper or dangerous power to bankers over the Bank of England? I am not afraid that the bankers would ever ruin the Bank of England, because they all depend upon the Bank of England.

8217. Did they never threaten to do so?—Not within my recollection. I have never known of any such threat. In former times, I think Overend's house suddenly drew out 3,000,000 1, but they had to put it back again.

8218. Have you ever heard that certain banks made a threat that they would take out the whole of the reserve of the Bank of England if the Government did not break the law ?—I have heard a good deal of conversation about such things, but I cannot say that anything of that kind is within my knowledge.

advantage to the public to know what was the 8219. Such being the case, would it not be an

amount of bankers' reserves which could be so

easily drawn out?-I see no harm in stating it; but I think that the bankers are the less likely than anybody to draw out their balances.

bankers' reserves being held at the Bank of 8220. Therefore you think that the fact of the England is not an element of danger at all ?—I think that they are the deposits which are the least likely to be taken from the bank. As I explained before, I do not think that depending upon a single reserve is at all what a sound political economist would have wished to establish; but still there it is, and we must make

the best of it.

Mr. Orr Ewing.

8221. You seemed to assent to a question put to you by the honourable Member for Maidstone, cluded from going into Scotland; they are not which assumed that banks in England were exexcluded by law, are they?-Certainly not.

8222. Then how are they excluded? - Of course, I meant that the English banks could not go to Scotland with the same privileges which the Scotch banks have.

8223. But can the banks in Scotland come to

England with the same advantages that the banks in England have?-No; but they have considerably greater advantages of their own.

8224. Have they considerably greater advantages than banks of issue in England?-Yes, I should say so.

8225. In what way?-They can extend their issues upon gold, and that I consider to be a great advantage when there is a 17. note issue, which constitutes the whole money of the country.

8226. Would you like to have that privilege of extending issues upon gold conferred upon the provincial banks of England?-With a 5 7. note circulation I do not think that it would be of any great importance, but with a 17. note_circulation it would be of great importance. It must be taken in connection with this; that no unsecured 17. note circulation would be of any value in England.

8227. You are not in favour of a 17. note circulation,

Mr. Orr Ewing-continued. circulation, are you?-If it was secured I see no disadvantage in it.

8228. Are you in favour of it ?-As a theoretical political economist I see no objection to it, but I am not in favour of its practical introduction at this moment. The two things must be kept carefully distinct.

8229. Is it not the case that banks in England that have not the privilege of issue compete successfully with banks of issue, and pay the highest dividends in England ?-Banks which are not banks of issue are very prosperous indeed; I forget the exact figures.

8230. Then what did you mean when you spoke of a monopoly which exists in Scotland, as to Scotch bankers which prevents banks without the privilege of issue succeeding in Scotland?-I only appeal to history. No bank goes to Scotland and sits down there without issuing notes; and the number of banks in Scotland is much less than it was 30 years ago. In that way (I do not know whether you call it a monopoly or not) a very small number of banks command the country.

8231. The principle in Scotland is to have very few principal banks and a very large number of branches; do you think that that is a system which is more conducive to the safety of the banking arrangements of a nation than to have a very great number of small banks with few branches?—I should say that it must be determined by circumstances, and before trial I do not think that any absolute rule could be laid down. I am inclined to think that banks may be too large, and that they may be too small.

8232. Do you know any banks that are too large? I should not like to name any individual banks, but the events which have been occurring in the money market during the last week have made many people discuss whether such may not be the case.

8233. You think that a bank may be so large that the directors and managers cannot properly manage it? It is very possible. I have no doubt that you would arrive in time at a point of extension when that was the case.

8234. Are you aware that in Ireland, where a greater privilege exists as to the power of issue, the non-issuing banks, of which three have been established since 1845, succeed very well?-I am not very minutely conversant with Irish banking, but I know generally that that is the case.

8235. Assuming that that is the case (as it is), can you account to the Committee for the fact that in England and in Ireland banks without the privilege of issue can successfully compete with banks that have the privilege of issue, and that such is not the case in Scotland ?—I should not like to deal with the case of Ireland, because I am not conversant with it; but in the case of England I should say that the advantages are so much less that the cases are hardly parallel.

8236. But in Ireland the circumstances are exactly the same?-I am not accurately conversant with the state of Irish banking.

8237. You know the Act of 1845 as to Ire

Mr. Orr Ewing-continued. land, do you not?-I am aware that the law is the same, but I cannot speak to the peculiar circumstances of Ireland, as I am not acquainted with them.

8238. Have you, in the course of your acquaintance with the manufacturers in this country, known any who have so conducted their business that they have practically obtained a monopoly of a particular trade?-I can imagine a case in which persons have practically a monopoly of a particular trade

8239. Do you know any case that you could mention at this moment of a practical monopoly of a trade in this country without having any privilege by law?-I do not at this moment remember any such case, but it is quite possible that there may be such cases.

8240. May it not be the case, that from the admirable and economical manner in which the banks in Scotland conduct their business, there is no room for any other bank to succeed there?— It is conceivable, but at the same time the presumption is rather the other way. If the law gives great privileges, and great results accrue, one would rather presume that those results are the effects of the law.

8241. But the same privileges exist, do they not, in another country, viz., Ireland, where nonissuing banks do succeed?-I cannot be responsible for any statement about Ireland. I am generally acquainted with the law of 1845, but I am not able to speak accurately as to Irish banking. Mr. Backhouse.

8242. Is it not the fact that in England there is a legal tender currency both of coin and bank notes, whereas in Scotland there is no legal tender currency, and therefore any bank established in England without the privilege of issue is able to employ for all its monetary operations a legal tender currency, while if a new bank starts in Scotland it has no currency whatever with which to perform the usual functions of banking?— Sovereigns would be legal tender.

8243. But sovereigns are not in ordinary use in Scotland, and therefore, practically, the whole currency of the country consists of the notes of the Scotch banks, does it not?-No doubt that is a great advantage which they have.

8244. It is from that cause, is it not, that new banks cannot be established in Scotland, because they have no means of providing the ordinary currency which is used in the country?—Yes.

Sir John Lubbock.

8245. In fact, as regards the monopoly of the Scotch banks, is it not your opinion that the legislative advantages which they enjoy in the matter of issue practically prevent the establishment of new banks in Scotland ?-That is what I understand and believe.

8246. Whereas, if the Scotch banks came to England, they would possess all the advantages which are enjoyed by the English non-issuing banks?-Certainly.

Mr. Bagehot. 22 July 1875.

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445

Average Amount of Bank Notes in Circulation, and of Coin held Four Weeks
ending 21st March 1874

448

Appendix 1.-Summary of Acts in Force relating to Banking in England
Appendix 2.-Memorandum as to Banking in Scotland, by Mr. James Simpson
Fleming

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Appendix, No. 2.

Paper handed in by Mr. Tatham (in answer to Question, No. 646):

Copies of Opinions of Sir James Scarlett, Sir Edward B. Sugden, and Mr. Richards, on the Privilege of the Bank of England.-August 1833

Appendix, No. 3.

449

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Daily Note Circulation of Five of the Scotch Banks (after giving effect to Daily Exchanges) for the Four Weeks from Monday 29 March to Saturday 24 April 1875, inclusive

456

Daily Average Circulation of Five of the Scotch Banks for 24 days, to 24 April 1875; also, General Daily Average of the whole

457

Daily Note Circulation of Five of the Scotch Banks (before giving effect to Daily Exchanges) for the Four Weeks from Monday 29 March to Saturday 24 April 1875, inclusive

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Daily Average Circulation of Five of the Scotch Banks (before giving effect to the Daily
Exchanges) for the 24 days to 24 April 1875; also, General Daily Average

458

459

Appendix, No. 4.

An Account of the Daily Note Circulation of the Banks of Issue in Scotland before giving
effect to Daily Exchanges (also the Amount of Notes received at these Exchanges, and
the Daily Note Circulation after giving effect to the Exchanges), for the Period from
29 March to 24 April 1875, inclusive.-Ordered by the Committee, 17 June 1875
An Account of the Notes received by the Banks of Issue in Scotland at the Daily Exchanges
in the Period from 29 March to 24 April 1875, inclusive.-Ordered by the Committee,
17 June 1875

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London Joint Stock Banks.-Analysis of Balance Sheets for 1874, extracted from "Economist" Newspaper of 13 February 1875

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