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1238. And keeping up till-money for your branches? Keeping up till-money for our branches, independently, altogether, as I have already stated, of the gold which it would be necessary to hold against our other liabilities.

1239. Would you give us more in detail the way in which the amount you have just stated is arrived at, so as to let us know exactly what would be the extra capital required by the Scotch banks, supposing that their right of issue were totally withdrawn?-These figures were the result of consideration by all the bank managers, and I cannot hope to give it to you more accurately. (Mr Gairdner.) It is only experience that will tell us, and that is the estimate we make in the meantime.

1240. (To Mr. Gairdner.) There was a question as to why the banking system in Ireland had not extended more in the way of branches; have you gone into the scale of charges in the Irish banks, on the same footing as you have made out those for the English and Scotch banks?--I made the attempt, but I should rather not rely upon it, and I have no doubt that you will get it more accurately from the Irish banks themselves.

1241. (To Mr. Davidson.) I think you said that one of the features of the Scotch system of banking was the charging of no commission for keeping accounts?- The banks charge no commission for keeping accounts.

1242. Do you accept any account that anybody offers to you, if it is a mere deposit account?-A deposit account.

1243. Without asking any questions as to character or anything else?—I do not say that, but we give every encouragement to all classes to lodge their money with us.

1244. And you give a rate of interest on the daily balance of that account?-On the daily balance.

1245. I suppose that those are the two principal features of Scottish banking, are they not; viz., the making no charge for keeping accounts, and the allowing of the actual interest upon the balance to credit? It is that system which attracts the large amount of deposits that we keep.

1246. And it is that system which has caused economy in the currency of the country?— Certainly.

1247. And that enables Scotland to do with a

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Mr. Anderson-continued, very much less amount of floating currency, as compared with the population, than is required in England?-Certainly.

Mr. Mulholland.

1248. (To Mr. Davidson.) I think you said that the 70,000,000 7. of deposit in the hands of the Scotch banks included balances of account; do you know what proportion of it would be balances of account?-I am enabled to give some information upon that subject, although it is not complete. It will be more complete in the course of a few days, but taking some of the large banks, I find that the deposit receipt holders average 75 per cent. in amount.

1249. (To Mr. Gairdner.) In comparing your statements with those of the English banks, do you include the balances of account current with the English banks?-I take the statements of their liabilities to the public as given by their balance sheets, which do not distinguish between deposit receipts and current accounts.

1250. In this printed Return the note circulation is stated at 6,600,000l.; does that include your notes in the hands of other banks? it does at the dates at which those Returns were made up.

1251. And that, I suppose, is the chief cause of the difference between those figures and the amount outstanding?-Yes, no doubt.

1252. I suppose that one reason why the reserve of coin in the hands of the Bank of Scotland was so much smaller than that of the others was, that the circulation of the bank is less than that of the

others in proportion to its other banking business? -I do not know; every bank must judge for itself the amount of coin that it keeps. It is a question of experience as to the amount that you find necessary at any particular branch.

1253. But I think you stated that under the present system the reserve required for the readjustment of balances is chiefly kept in London? -No doubt the bank reserves are, to a large extent, kept in London; and I explained the necessity why they should be so.

1254. (To Mr. Davidson.) The acceptances and the deposits of the Bank of Scotland being relatively larger, the amount kept by the Bank of Scotland in London is larger than the amount held in Scotland?-The fact that the coin held by the Bank of Scotland is small in amount relatively to the others arises from the fact that it is not required to hold so large an amount, because the authorised issue is larger than that of some of the other banks.

1255. (To Mr. Gairdner.) I was not speaking of the reserves that you keep against surplus issue, but of the 100,000 7. that you keep beyond the amount required; in fact, I suppose you look upon the second column of assets as being your banking reserve, and the other more as cash in the till?--Just so.

1256. Do you not in that respect follow the example of the English provincial banks ?-I cannot speak for the English provincial banks; but I imagine that the English provincial banks must keep large reserves in London also, for the reason which I have already explained.

1257. So that in looking at your reserve, with reference to your liabilities, you should certainly include this column of assets?-Certainly I think

So.

1258. I think you stated that some banks had

Mr. Davidson,

and Mr. Gairdner.

10 May
1875.

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1261. I have a return from a banker in which he states that there are only the Hibernian, the Royal, and the Munster Banks, which do not issue notes?-There are three banks which do not issue notes.

1262. Are you not aware that the only one which has been established since 1845 is the Munster Bank?-I decline to speak as to the Irish banks, for I am not familiar with the facts. 1263. Would not a comparison of the reserve kept by your bank be made more fairly with other English banks than with the Bank of England? I think so. I think the Bank of England is in an altogether different position from that which we are in, chiefly for this reason: that they are custodiers of the reserves of other banks. It is of quite as much importance to look to the character of the deposits as to the amount of the deposits in considering the question of what reserve a bank ought to keep.

1264. In fact, an important reason why the Bank of England keeps so large a reserve is, that its deposits are bank deposits upon which it pays no interest? Quite so; if 20 men came to me each with 5,000 7. to deposit, in the ordinary course of business, I should be very glad to see them; but if one bank paid 100,000l. to its credit with me I should probably decline to take the money and allow interest upon it.

1265. I think you said that you were enabled to keep up the branches in the small towns in consequence of the facilities offered by your having the power of issue, and it was suggested that in some towns there is an unnecessary number of branches; but is it not the fact that in 73 places of under 1,000 inhabitants you have 97 branches altogether, so that two-thirds of those must have only one branch each ?-Yes, I should think that is generally true.

1266. In looking at the average rate of profit, ought you not to take into account the reserve capital and undivided profits, as well as taking the 4 per cent., or is it not rather accidental what amount one bank may happen to have in their reserves, and yet the profits must be earned upon the reserves capitalised, as well as upon the capital? The reserves spoken of there are the undivided profits. The principle adopted with reference to this statement is the principle of the "Economist" newspaper, which has been used for many years, and which appears to me to be a perfectly fair mode of contrasting the margin of profit earned by the different banks, and, therefore, I adopted it, and applied it to the provincial banks in England.

1267. You adopt it with respect to the 4 per cent. interest upon capital and reserve, but did you also adopt it with respect to the average percentage of profit?—I did. The same principle is applied to the English provincial banks as was applied by the "Economist" to the Scotch banks, and the 11 London joint stock banks.

1268. I think that Mr. Davidson gave the 4

Mr. Mulholland-continued. per cent. upon the capital and reserve, but took the profit merely upon the capital?-We take the profit declared in the balance sheet, and from that we deduct 4 per cent. upon the capital and undivided profits. The balance is held to be the pure business profit earned by banking.

1269. But when you came to see how much that was per cent. you took it upon the capital, did you not? We applied it in the first place to the capital, secondly, to the cash deposits, and in the third place to the total liabilities.

Mr. Orr Ewing.

1270. The charge which you make for discounts is regulated by the rate charged by the Bank of England, is it not?-Yes; no doubt the rate of the Bank of England is the rate by which we regulate our rates.

1271. And then the interest that you allow upon deposits depends upon the charge which you make for discounts, does it not?-Nowadays the interest that we allow upon deposits is, as a rule, the same rate as is advertised in London by the London joint stock banks.

1272. It goes up and down according to the discount which you are charging ?-Yes, and that again is regulated by the Bank of England rate; but we differ from the London banks, in so far as we allow a rate upon the daily balances of current accounts.

1273. This union that exists for regulating charges and payments for discounts and deposits is the same system as is adopted in England, is it not? I do not know that there is any such arrangement in England; but the rates are the

same.

1274. It has been doubted as to the competition of the banks of Scotland, because you regularly charge the same price for discounts; but although that is the minimum charge made for discounts and the minimum allowance given for deposits, are you precluded from giving less for deposits?—No, we are not precluded from giving less for deposits. The rate fixed for deposits is the maximum, and the rate for loans and discounts is the minimum.

1275. Then do you charge some customers above the minimum ?-No, I think that, practically, those rates are the rates all round.

1276. There is a great advantage in that, is there not, to small traders ?-I think so.

1277. Notwithstanding that you have only a margin of profit of 17. 1s. 11 d. upon your deposits as against 17. 13 s. 10 d. to the English banks, you pay good dividends ?-We do.

1278. And those large dividends are based upon small profits which have accrued to the bank by the very large amount of deposits which the bankers have?--No doubt; the amount of the deposits is the key to the profits to be earned by the bank.

1279. Looking at the statistics which you have given of the increase of deposits from the year 1845 to the year 1875, and to the increase of branches throughout Scotland during that same time, the increase of deposits seems to be very much in the same ratio as the increase of branches ?-It may be so.

1280. For instance, you will find that in the year 1845, there were only 382 branch banks; in 1855 there were 480; in 1865 there were 654; and in 1875 there are 884. The deposits in 1845 were 33,000,000 7. odd; in 1855, 43,000,000 Z odd

Mr. Orr Ewing-continued.

odd; in 1865, 56,000,000/. odd; and in 1875, 78,500,000l. Therefore the deposits appear to increase in almost the same ratio as the number of branches throughout Scotland?-But it does not follow from that, that the fresh deposits came from the new branches.

1281. But are you prepared to say that they have not? I should think it extremely improbable that the new branches have brought these fresh deposits.

1282. I suppose that one of the principal modes in which competition exists between Scotch bankers is in their efforts to obtain deposits?— Yes.

1283. And they give facilities to customers for the purpose of competing with each other?— Certainly, and I think that the competition has been to a large extent the means of getting in small deposits from small traders, and the lower strata of the working classes. There are 20,000,000 7. held in sums under 200 l., and I have no doubt that the competition among the branches has been the means of getting in those small deposits.

1284. Then you look upon those branches scattered throughout Scotland as of great importance, and great advantage to the country?I think very great indeed.

1285. Do you think that if the circulation of 17. notes was stopped in Scotland, you could possibly maintain the same number of branches which you have at present?-I think not.

1286. They could not be conducted at a profit, you think?--I should think not; I should think that some of the smaller branches would require to be put down.

1287. And even although bankers might be compensated as bankers for any loss that might accrue by the deprivation of that circulation, the country might suffer great loss by any change of system? I think it would; I think that the manner in which the Scotch banks have sought out the savings of the working classes is a very important feature of the system looked at from the point of view from which, I presume, this Committee look at it: that is to say, rather from the non-banking point of view.

1288. To a certain extent, the interests of the public of Scotland and the interests of the bankers of Scotland are identical upon that question?--I think so.

Mr. Orr Ewing-continued. Royal Bank; and then on Saturday morning they' would exchange the amounts held by them respectively, so that no doubt there is an excess of actual issue, if you deal with the issue as representing the notes which are lying useless in the hands of the respective banks; but there is certainly no excess of circulation in the hands of the public as distinguished from the banks." Is it the case that you make a distinction between notes held by bankers other than their own notes, and notes held by the public?-We cannot tell what are held by the public and what are held by the other banks.

1289. I should like to call your attention to Question 34 in Mr. Fleming's evidence; he was asked: "Are you aware that it is alleged that, according to the mode in which the averages are taken, a larger amount of notes are issued by the Scotch banks than would be issued, for instance, if the amount of gold was ascertained in the same way as it is in the Issue Department of the Bank of England?-A. That, no doubt, is so, for under our system of exchanges in Scotland throughout the country (I am not speaking at present of Edinburgh or Glasgow, but of various small branches where there are more banks than one) exchanges only take place once a week, and notes are exchanged between banks on a Saturday morning; then it is the etiquette of the Scotch banks that they do not issue the notes of each other, so that supposing that the Bank of Scotland and the Royal Bank were both represented in some town in Scotland, the Bank of Scotland would go on from Monday morning to Friday evening issuing its own notes, and so would the

1290. But all notes issued by a bank, and held by another bank, are as much in the hands of the public as if they were held by anybody else, are they not?-For the purposes of the Act, undoubtedly so; but if you will allow me to make the explanation a little more clear, I should like to do so. The question points to the fact that the law in Scotland is different from the law affecting the Bank of England, and the difference is most important. In Scotland any existing bank of issue may issue as many notes as the public require, subject only to the conditions of the Act of 1845; and the restraints imposed by the Act of 1845 are contained in the sixth and tenth clauses. The sixth clause states "that from and after" such a date "it shall not be lawful for any banker in Scotland to have in circulation upon the average of a period of four weeks" (which is quite different from the Bank of England), "to be ascertained as hereafter mentioned, a greater amount of notes than an amount composed of the sums certified by the Commissioners of Stamps and Taxes as aforesaid, and the monthly average amount of gold and silver coin held by such banker at the head office, or principal place of issue of such banker during the same period of four weeks, to be ascertained in manner hereinafter mentioned." Clause 10, you find what is the "manner hereinafter mentioned." "And be it enacted, that for the purpose of ascertaining the monthly average amount of bank notes of each banker in circulation, the aggregate of the amount of bank notes of each such banker in circulation at the close of the business on Saturday of each week during the first complete period of four weeks next after the 6th day of December 1845, shall be divided by the number of weeks, and the average so ascertained shall be deemed to be the average of bank notes of each such bank in circulation during such period of four weeks, and so in each successive period of four weeks;" that brings in a most important difference in the system as system as applied to Scotland and Ireland, as compared with the more rigid system of the Bank of England.

Then in

1291. But you make no distinction between bank notes held by bankers and bank notes held by the public?-We do not. (Mr. Davidson.) The return from the bank of Scotland differs in some respects as regards its acceptances from those of other banks. The other banks apparently include their acceptances among their general loans, but the Bank of Scotland puts them separately.

Sir Graham Montgomery.

1292. (To Mr. Gairdner.) With reference to the question of all the banks of Scotland doing business on the same terms, did the Western

Mr. Davidson, and Mr. Gairdner

10 May
1875.

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1293. The Oriental Bank Corporation and Colonial banks only take money for a lengthened period, for a time not less than six months; is not that so?-For one to two years, I believe.

1294. On deposit ?-On deposit, and that money is taken out of the country and used abroad, I suppose.

1295. You alluded to some banks that had been attempted to be established in Scotland since 1845; were those what were called exchange banks? They were banks that had their head quarters in London, and they were got up for the purpose of carrying on business partly in London and partly in Scotland, and they opened branches in Glasgow and Edinburgh, and I think in some other towns, but they did not prosper.

1296. All of them were wound up, were they not?—Yes.

1297. As to the gold and other securities that you hold in London for your note circulation and deposits; does it amount to one-fourth or one-third of your liabilities?—The amount of our Government securities and short loans in London added to the gold in Scotland, and notes of other banks, will come, I think, in the cases of the larger banks, to about one-third of the liabilities.

Mr. Campbell-Bannerman.

1298. I think you have explained that the reason why the return of your extra issue is based upon the amount in circulation after the exchange between the banks on Saturday, is that that form is prescribed by Act of Parliament ?-Certainly. The Act of Parliament prescribes that the return is to be made at the close of business on the Saturday night, and we make our exchanges on the Saturday prior to giving our return.

1299. There would be no reason, I suppose, except that of some additional difficulty or inconvenience, why the banks should not exchange their notes every day if it was required?-None whatever.

1300. As a matter of fact, in the large towns it is done three times a week, is it not?It is.

1301. The notes which are held by one bank and which have been issued by another, are practically not, in the common sense of the term, in circulation, are they?-They are held by the banks on the understanding that they will not be re-issued, but returned to the bank from which they emanated.

1302. So that, practically, the amount of notes in the hands of the public may not, after all, be

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Mr. Campbell-Bannerman-continued. at all greater than the amount on the Saturday? -The amount on any day during the week held by the public is not likely, under any circumstances, to be greater than the amount returned upon the Saturday; and as explained by Mr. Davidson, that has been tested very thoroughly by having an exchange daily, which did not in the least degree affect the notes in the hands of the public, but merely brought back into the issuing banks the notes held by the other banks; and we have proved thereby that the Saturday returns are slightly in excess of the average returns of the other days in the week.

1303. The notes are received by the Scotch public with absolute confidence, are they not?Undoubtedly.

1304. It would be scarcely too much to say that they are preferred to sovereigns?-They are very much preferred to sovereigns.

1305. Because sovereigns may be under weight, and the notes are never under weight?Quite so.

1306. And that confidence does not arise, because the Scotch public know that gold is held against the small over-issue, but it arises from the general belief in the stability of the banks, and the experience, during years and years, of no loss having occurred?—I think it is so.

1307. And probably apart from any general question of securing the convertibility of the Í l. note, such a state of feeling as that amongst the whole community in which the note circulates may, I presume, in your opinion, very well be taken into account in dealing with the subject? -I should think it ought to be.

1308. No loss has ever occurred to a note holder in Scotland I believe?—I should think in the case of some of the smaller private banks, losses may have occurred, but of very trifling amount. There is no case I think in which a joint stock bank has involved loss either to the note holder or to the depositor; and those private banks that may have involved loss are of former generations, they have not been known to me.

1309. This state of feeling with regard to the note circulation in Scotland, extends all over Scotland, does it not?-It does.

1310. And the Scotch notes do not circulate anywhere else?—They do not.

1311. So that the two things are geographically co-incident?-Yes.

Mr. Goschen.

1312. Do not the Scotch notes circulates anywhere else?—Not to my knowledge.

Mr. Backhouse.

1313. Do they not circulate in the north of England?-Not to my knowledge. They are taken to the north of England by people, and are returned through the bankers to Scotland, but they are not circulated. We have no branches near the borders, however, and therefore I am not a very good authority upon the subject.

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Mr. CHARLES GAIRDNER and Mr. JAMES SIMPSON FLEMING, recalled; and further Examined.

Chairman.

1314. (To Mr. Gairdner.) I THINK you have some further Papers that you would like to put in with reference to your examination on the last day of the meeting of the Committee?-Yes. When Mr. Davidson and I spoke to the deposits of the 11 banks, and to the classification of them, we spoke from partial information. I am now in a position to put in a Paper showing, in a classified form, the deposits of all the banks in Scotland. They are arranged under the heads, first, of sums not exceeding 100 l., and then 200 l., 300 l., 400 l. and so on to 1,000.; then 2,000 l., 3,000 l., 4,000 7., and 5,000 7., and then 10,000 l., 15,000 7., 20,000 l. and upwards. The figures brought out show that the sums under 100 7. amount to 11,768,317 l. or 15.44 per cent. of the whole deposits of Scotland. Then the sums exceeding 100 l., and not exceeding 200 7. amount to 8,848,000 7., being equal to 1166 per cent of the whole. So that the sum total of the deposits held, not exceeding 200 l., amounts to 20,616,000l., and they are equal to 27.10 per cent. of the whole deposits of Scotland. I suppose I need not particularise the others, as they will be found in the print. (The Paper was delivered in, see Appendix.) Then I have another statement, showing the number of deposit

customers in Scotch banks classified in the same We find that the total number of deposit way. customers is 417,657, and that of those the depositors of sums not exceeding 100 l., are 290,885, forming 69.65 per cent. of the whole number of deposit customers. Then of the depositors of sums exceeding 100 l., and not exceeding 2007., the number is 56,445, forming 13.52 per cent. of the whole. So that the number of depositors in Scotland whose deposits do not exceed 2007. per individual is 347,330 out of a total of 417,657, being 83.17 of the whole. The other details are also given in the same form. (The Paper was delivered in, see Appendix.) It has been already explained, that by individual depositors we do not mean merely deposit receipt holders, but individuals who have money to their credit with the bank in any form.

Mr. Backhouse.

1315. If a depositor has, for instance, 12 deposit receipts for 100. each, does he count for the 12 receipts, amounting to 1,200 l., or as one depositor for 1,200 l. ?-He counts as one depositor; but it is only right to say that while each bank, in making up its statement, has been instructed to reduce it to the form which you have mentioned just now, it is possible that one individual might reappear as a depositor in another bank, so that there may be some repetition in that way; but we do not think that it can be to any material extent.

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1318. You were asked a question last Monday (No. 1141), by the honourable Member for Maidstone, with regard to the discrepancy appearing in the amount of the circulation of the notes of the Western Bank in the private balance sheets in 1854, 1856, and 1857, as compared with their authorised issue; are you able to give any further explanation upon that subject?-Yes, that can quite easily be explained. It is quite a mistake to suppose that these figures are taken from private balance sheets; they are not taken from the balance sheets of the bank, but from a balance made up at the head office of the bank, and the figures shown as notes represent the total amount

Mr. Gairdner, and Mr. Fleming.

13 May

1875.

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