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 LIBRARY 
 
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 Latest Date stamped below. 
 
 University of Illinois L ibrary 
 
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 «o 
 
 AN EXAMINATION 
 
 OF 
 
 THE REPORT 
 
 OF THE 
 
 JOINT STOCK BANK COMMITTEE, 
 
 8fc. Sfc. 
 
 THIRD EDITION. 
 
 TO WHICH IS ADDED AN ACCOUNT OF THE 
 
 LATE PRESSURE IN THE MONEY MARKET, 
 
 AND 
 
 EMBARRASSMENT OF THE 
 
 NORTHERN AND CENTRAL RANK OF ENGLAND. 
 
 BY T. JO P LIN. 
 
 LONDON : 
 JAMES RIDGWAY AND SONS, PICCADILLY. 
 
 MDCCCXXXVM-
 
 NOTICES. 
 
 " Before he sat down he was anxious to call the attention of the 
 House to a very interesting document which he held in his hand. It 
 had been published to the world in the shape of a commentary on the 
 Report of the Committee which had sat upon this subject last 
 Session," &c. — Speech of the Chancellor of the Exchequer, Times, 
 1th Feb. 1837. 
 
 In the pamphlet before us, Mr. Joplin has demonstrated the errors of this 
 Report with a perspicuity which few men else could have successfully accom- 
 plished. 
 
 He has shewn, as he always does when he becomes the expositor of questions 
 on Banking and Cui'rency, that a practical knowledge of such matters is the 
 only safe guide by which we can arrive at a perfect understanding of their 
 errors and defects, and the only rational foundation upon which a statesman 
 can proceed with the certainty of his labours becoming permanently beneficial 
 to the community. 
 
 To every man, whether engaged in business or not, we earnestly recommend 
 a perusal of Mr. Joplin's pamphlet, for in its pages may be found more solid 
 and useful information on this prominent topic, than is to be met with in all 
 the imperfect lucubrations incessantly put forth by the whole Metropolitan 
 press. — Kent and Essex Mercury. 
 
 The author of this pamphlet brings to the task of examining the Report of 
 the Joint Stock Bank Committee much practical experience, a thorough know- 
 ledge of the principles of Banking, and a large fund of sound common sense. 
 
 With such aids we are not surprised at the complete demolition he has 
 effected of the hazy views and fine spun theories indicated rather than stated 
 in the Committee's Report. 
 
 The principle of free trade in Banking is vindicated triumphantly, and 
 the futility of the superfluous legislation the Committee recommended is 
 thoroughly exposed .... 
 
 The pamphlet is carefully and accurately divided into two sections ; the first 
 of which treats of Banking, disconnected with questions of currency, and 
 it is with that question only we propose to deal in the present notice. 
 
 We shall shortly return to the second section of this very 
 
 able pamphlet. — True Sun. 
 
 We have before us not only an interesting, but at the present moment a most 
 important pamphlet upon the subject of Joint Stock Banks, a national currency, 
 the present pressure in the money market, and the means which ought to be 
 adopted for regulating upon a sound and safe basis the monetary and commer- 
 cial transactions of the country 
 
 We do not participate in all the opinions promulgated in this pamphlet to 
 which we refer, but, take it as a whole, nothing so satisfactory, practicable, 
 or appealing so forcibly to the common sense of the people of England, has as 
 yet been published on the subject. — Morning Advertiser.
 
 CONTENTS. 
 
 Circumstances which gave rise to the Enquiry . . 1 — 5 
 
 Report — First Part . . . . 5 — 10 
 
 Case of the Norwich and Norfolk Bank . . 10 — 12 
 
 Liability of Joint Stock Banks to Panics, and provision 
 
 made against them 
 Re-discounting considered . , 
 
 Accommodation Bills ditto 
 Report — Analysis of Deeds of Settlement 
 On Banks taking real Security 
 
 Thirteen Propositions for improving the Law : — 
 
 1 . Obligations preliminary to forming a Bank 
 
 2. Person to review the Deeds of Settlement 
 
 3. Nominal Capital 
 
 4. Reserved Shares 
 
 5. Nominal Amount of Shares 
 
 6. Capital paid up before Commencement 
 
 7. Publication of Accounts (spoken of afterwards) 
 
 8. Dividends out of Profits 
 
 9. Purchases of and advances upon Shares 
 
 10. Guarantee Fund 
 
 11. Number and Distance of Branches from the Central 
 
 Bank . . 38—43 
 
 1 2. Registration at the Stamp Office . . 44 
 
 13. Notes payable at Places of Issue . 44, 45 
 
 EflPect of Competition . . . 45, 46 
 
 Suggestions of the Committee inconsistent, and would not 
 
 improve the Law , . . 46, 47 
 
 12—15 
 15—17 
 17—20 
 22—27 
 . 27 
 
 28,29 
 
 29 
 
 30 
 
 30—32 
 
 32—34 
 
 34 
 
 34 
 
 35 
 
 36 
 
 37, 38
 
 VI ~ CONTENTS, 
 
 PAGE 
 
 Propositions of the Committee most injurious to the Private 
 
 Bankers . . . . 47 — 49 
 
 Publicity of Accounts premature . . 49, 50 
 
 Report — conclusion of, relative to Circulation, &c. 51 — 53 
 
 Errors of the Committee in supposing that Banks regulate 
 
 their issues . . . 53 — 55 
 
 Joint Stock Banks erroneously blamed . . 55, 56 
 
 National Currency . . . 56 — 62 
 
 Pressures in the Money Market ... 62 
 
 Cause and Cure of the Panic of 1825, and erroneous Prin- 
 ciples upon which the Bank has subsequently acted, 63 — 112 
 Money Pressure of 1836, and Embarrassment of the 
 
 Northern and Central Bank of England . 113 — 122
 
 AN EXAMINATION, 
 
 It is the opinion of well informed persons, and I 
 believe a perfectly correct one, that the private 
 Bankers of England were never more respectable, 
 prudent, and trustworthy than at present. But 
 this has not been attained without a very expensive 
 process of purification. Since 1780, previous to 
 which time we have no distinct record of the failures 
 of Bankers, we may reckon, in addition to a con- 
 siderable number of compositions, about four hun- 
 dred bankruptcies, eighty of which occurred in the 
 years 1825 and 1826. Each of these operated 
 like the eruption of a volcano, in the town and 
 neighbourhood in which it occurred : producing 
 the ruin and embarrassment of hundreds. But 
 this was not the only inconvenience. Besides issu- 
 ing their promisory notes payable on demand, Banks 
 are places of deposit to a great extent of the surplus 
 money of individuals, great part of which they also 
 promise to repay when demanded. This money they 
 lend out at interest to those who wish to expend and 
 employ it in different ways, and being spent, though 
 
 B
 
 it may assume the form of capital, it ceases to exist 
 as money, ready to answer the depositor's call. 
 And the consequence is, that they are under obliga- 
 tions to pay on demand large sums which have no 
 real existence. This, under ordinary circumstances, 
 is productive of no inconvenience ; as, by a natural 
 law, the real demand for money and the actual sup- 
 ply regulate and are accommodated to each other. 
 But if the Banks fall into general discredit, and the 
 whole, or even a limited portion of the depositors 
 and note-holders make a simultaneous demand upon 
 them for money, not for the purposes of traffic and 
 circulation in the usual manner, but with a view to 
 take it out of circulation, and keep it at home for 
 better security, a derangement of the currency takes 
 place, attended with the most frightful consequences 
 as well immediate as remote. Nor is it alone the 
 distrust and failure of bad Banks from whence this 
 evil results. The discredit of good ones will 
 equally produce it ; this was proved by the panic 
 of 1825. The failures that then occurred formed the 
 least part of the evils of it, which were chiefly 
 caused by the derangement it produced ; and so 
 fatally injurious to the country were its effects, as 
 loudly to call for the application of a remedy. 
 
 The law, which, by confining the number of 
 partners in Banks to six, prevented the establish- 
 ment of Joint Stock Banking Companies, was con- 
 sidered the source of these evils, and the remedy 
 proposed was an alteration of that Law, It was in 
 consequence so far altered as to permit the estab-
 
 lishment of Banking Companies at the distance of 
 sixty-five miles from London. 
 
 The act of the 7th of Geo. IV. chap. 46, by which 
 this alteration is effected, is extremely simple in 
 principle. After authorizing the formation of 
 Banking Companies, consisting of an unlimited 
 number of Partners, at any distance, not being less 
 than sixty miles from London, it provides that the 
 names of all the partners in each, shall be regis- 
 tered at the Stamp Office ; that the company shall 
 sue and be sued by a public officer; that each part- 
 ner shall be liable for the engagements of the Com- 
 pany to the virhole extent of his fortune ; and that 
 after obtaining judgment against the proper officer 
 of the Company, the property of any shareholder 
 may be taken in execution. 
 
 The severity of the law in this latter respect, 
 and the great respectability and personal influence 
 of the private Bankers throughout the country, pre- 
 vented the public for some time from availing them- 
 selves of it. But a few Banks, after great efforts, 
 having been established, and proving pre-eminently 
 successful, others followed with like results, until 
 they have at length become general throughout the 
 country, many private Bankers having been induced 
 to coalesce with, and others to convert themselves 
 into these companies. This state of things attracted 
 the attention of Parliament during the last session, 
 and a Committee was appointed by the House of 
 Commons to inquire into the operation of the Act ; 
 and whether it be expedient to make any alteration in it.
 
 The intelligent member who moved for the ap- 
 pointment of the Committee, appeared to think 
 that these Joint Stock Companies might be pro 
 ductive of much evil, if they had not been so al- 
 ready, and that they required further regulations. 
 The Government, whose views were expressed 
 through the Chancellor of the Exchequer, in an 
 able and judicious speech, thought them one 
 of the great improvements of modern times, but 
 deemed investigation desirable, and proposed that 
 the Committee should be one of secrecy. A secret 
 Committee was accordingly appointed, and has now 
 published its Report. 
 
 The country has perhaps never been more pros- 
 perous than it is at this moment. Every interest is 
 either improving, or in so flourishing a condition as 
 scarcely to need improvement. This state of pros- 
 perity has been partly attributed to the increased fa- 
 cility which the Joint Stock Bankshaveaflbrded to the 
 commerce of the country. The public feel therefore 
 immediately concerned in the subject of the present 
 inquiry ; while the Banking interest, both public 
 and private, are still more deeply involved in the 
 result of it. The Report of the Committee is con- 
 sequently a document of considerable interest, and 
 as it proposes important changes in the existing 
 law, it is desirable that it should be well examined. 
 
 1 have little doubt that others more competent 
 than myself will undertake this task. But as the 
 author or originator in this country of the system of 
 banking, referred to in the Report, it may not be im-
 
 proper in me to offer a few observations upon a sub- 
 ject to which I have been thus led to give my attention. 
 
 I may possibly, however, be considered an inte- 
 rested party ; and as some odium has been thrown 
 upon those who have made a profit by the shares in 
 these Joint Stock Banks, it may be as well to state, 
 that this charge is not applicable to me in the re- 
 motest degree ; though I do not participate in the 
 feeling on this subject, being satisfied that the demand 
 and the price given for their shares, have laid the 
 foundation of a very great and rapid improvement in 
 our monetary system, which would otherwise have 
 been very slowly brought about; and that the process 
 complained of, is the natural one for giving effect 
 to the law in question, and promoting the improve- 
 ment it was intended to introduce. 
 
 The Report, which is not long, I propose to ex- 
 amine in detail, referring, as may be necessary, to 
 the evidence from which it is deduced, and adding 
 such general observations as the consideration of it 
 may suggest. 
 
 REPORT. 
 
 The Secret Committee, appointed to inquire into the opera- 
 tion of the Act of 7th Geo. IV, c. 46, permitting the establish- 
 ment of Joint Stock Banks, under certain restrictions, and 
 whether it be expedient to make any alteration in the provi- 
 sions of that act, have considered the matters referred to them, 
 and have agreed upon the following Report : — 
 
 " Although their inquiries have not been yet brought to a 
 close, your Committee feel it to be their dutv to state that the
 
 evidence already taken before them has fully proved not only 
 the expediency, but the urgent necessity of having instituted a 
 close and searching examination into the laws which regulate 
 Joint Stock Banks, the principles on which those establish- 
 ments are conducted, and the consequences to which they 
 lead. No subject at the present moment more deeply important 
 to the interests of the public, as well as to the interests of in- 
 dividuals, could have engaged the attention of Parliament; 
 and your Committee have endeavoured to apply themselves to 
 the execution of their duties with diligence, attention, and 
 zeal. 
 
 " In order to bring before your Committee the more im- 
 portant facts of the case, their Chairman was instructed to 
 address, to the several Joint Stock Banks throughout Eng- 
 land and Wales, a circular to the following effect : — 
 
 (private circular.) 
 
 " ' Downing Street, May 21. 
 
 " * Gentlemen, — In pursuance of a resolution of the House 
 of Commons, adopted unanimously on the 13th instant, a com- 
 mittee has been appointed " to inquire into the operation of 
 the Act of the 7th Geo. IV. c. 46, permitting the establishment 
 of Joint Stock Banks under certain restrictions, and to exa- 
 mine whether it be expedient to make any alterations in the 
 provisions of that Act." Of that Committee I have the honour 
 to be Chairman, and at the first meeting I was requested to 
 obtain from the Joint Stock Banks such information as may 
 enable the Committee to execute the duties confided to them 
 by the Legislature. 
 
 *' ' As it was considered just to the parties concerned that 
 the Committee appointed should be one of secrecy, for the 
 purpose of avoiding any disclosure of private transactions not 
 required by the public interest, in place of transmitting to you 
 the usual order of the Committee, issued under the power and 
 authority of the House of Commons, it has been judged more
 
 advisable that this communication should be addressed to the 
 Joint Stock Banks by me as Chairman, and that your reply 
 should be addressed under cover to " The Chancellor of the 
 Exchequer," and marked "Confidential Bank Returns." I 
 inclose two papers, calling your attention to the ^particular 
 points on which the Committee require information, and you 
 will be so good as to fill up the return with as little delay as 
 possible. The account of liabilities and assets (No. 2) should, 
 if possible, be furnished for the three last half-yearly periods 
 to which your accounts are made up, and the answers to the 
 questions in the paper (No. 1) may be made in reference to 
 your last period of balance. This may, I hope, diminish the 
 trouble imposed upon you: and the returns called for may 
 also limit the examination of witnesses. You will not hold 
 yourself precluded from adding any explanations not coming 
 within the scope of these inquiries; and I can assure you that 
 whilst I place every confidence in the zeal and readiness with 
 which you will promote the objects of this inquiry, it is at 
 the same time the earnest desire of the Committee so to govern 
 their proceedings as most to conduce to the convenience of 
 all parties concerned. 
 
 I am, &c. 
 
 (Signed) *' T. SPRING RICE.' 
 
 " The questions and form of account alluded to in the cir- 
 cular are as follow : — 
 
 " * QUESTIONS. " ' ANSWERS. 
 
 " ' 1. Name of the joint stock bank, and date of 
 commencing business ? 
 
 *''2. Number and situation of branches, and 
 distance of each from central bank ? 
 
 " ' 3. Amount of nominal capital ? 
 
 " ' 4. Number of shares, and nominal value of 
 each share ?
 
 8 
 
 QUESTIONS. ANSWERS. 
 
 *" 5. Number of shares issued? 
 •' * 6. Amount of paid-up capital ? 
 " * 7. Date of the several calls for paid-up capi- 
 tal, and amount of the several instalments paid 
 up? 
 
 " * 8. Number of shares (if any) which may 
 have been forfeited for non-payment of instal- 
 ments ? 
 
 " ' 9. Rate of declared dividend ? 
 " ' 10. Variations in rate of dividend, and date 
 of such variations ? 
 
 " * 11. Date of deed of settlement, and number 
 of persons who have signed such deed? 
 
 " ' 12. Copy of deed of settlement ; when it has 
 been printed and published ? 
 
 " ' 13. Copies of the last reports and accounts 
 laid before the proprietors ; a statement of the na- 
 ture of the audit and examination to which such 
 accounts are subjected, and of the responsibility 
 under which such reports are prepared ? 
 
 " ' 14. Statement whether the bank holds any 
 and what amount of its own shares or stock, either 
 in trust, as security for advances, or in its own 
 right ? 
 
 " ' 15. Places at which promissory notes and 
 bank post-bills are made payable ? 
 
 " ' 16. At what date or sight bank post-bills i 
 issued ? 
 
 " ' 17. Rate of interest paid by the bank, whe- 
 ther on deposits or balances of account ? 
 
 *" 18. Variations in such rate, and date of such 
 variations ? 
 
 " * 19. Date to which the account is made up ?
 
 9 
 
 «'No. II. 
 ■ Account of the Liabilities and Assets of the Joint Bank of 
 
 " ' LIABILITIES. 
 
 i 
 " ' Amount of Promissory 
 Notes payable on de- 
 mand 
 
 " ' Bank Post Bills . . 
 
 " ' Other original Bills 
 drawn or accepted by 
 the Bank 
 
 " ' Bills bearing the en- 
 dorsement or guaran- 
 tee by the Bank . . 
 
 Deposits : — 
 
 '' ' 1. Bearing interest 
 and at what rate . . 
 
 '"2. Not bearing interest 
 
 " * Balances of Accts. 
 current due from 
 the Bank: — 
 
 " ' 1. Bearing intere-t, 
 and at what rate 
 
 " ' 2. Not bearing interest 
 
 " ' All other liabilities, 
 not included as above 
 
 " * ASSETS. 
 
 " ' Cash in Coin and Bank 
 of England Notes . . 
 
 Stock :— 
 
 " ' 1. Government Stock, 
 Exchequer Bills, Bank 
 of England Stock, In- 
 dia Stock or Bonds . 
 
 " * 2. All other Stock and 
 Shares in Public Com- 
 panies, distinguishing 
 the amount (if any) of 
 its own shares or stock 
 held by the Bank itself, 
 or in trust for theBank 
 
 " ' Bills of Exchange 
 
 " ' Distinguishing the a- 
 mount (if any) overdue 
 
 " ' All other Securities 
 not included as above 
 
 £. 
 
 *"Totalliabilities£ 
 
 « ' Total Assets £ 
 
 " An objection was at first raised on tlie part of some of 
 these establishments against furnishing the information re- 
 quired ; but this objection was very soon abandoned, and the 
 greatest readiness was generally expressed, on the part of the 
 Joint Stock Banks, to lay before your Committee the most 
 minute details illustrative of their mode of transacting business. 
 
 *' Your Committee cannot avoid remarking, that this readi- 
 ness to meet inquiry is in itself the surest pledge and guarantee 
 of the sound principles on which these or any other establish- 
 ments are conducted, and of the fidelity with which the duties 
 confided to directors and managers are performed. Had the 
 objection been persisted in, your Committee would not have 
 hesitated in reporting the facts specially, confident that the
 
 10 
 
 House M'ould not have permitted any individuals vrhatever to 
 impede an inquiry instituted by Parliamentary authority, and 
 with a view to the public interests. 
 
 " Your Committee have felt it to be their duty to submit 
 the evidence to the reconsideration of the several witnesses 
 examined, in order that they might be enabled to express an 
 opinion whether the same might be published without risk or 
 inconvenience. 
 
 " To this rule they made one exception ; in the case of the 
 Norwich and Norfolk Bank, which has now ceased to exist, 
 and in respect to which the same motives for reserve could not 
 be held to apply, your Committee have published the whole 
 evidence as it was given, without any second communication 
 to the witnesses. That case illustrates most forcibly the evils 
 consequent upon a misapplication of the principles of joint 
 stock banking, and the danger resulting from mismanagement 
 and irregularity. At the same time your Committee must 
 guard against the inference that the disclosures made in that 
 case by the three witnesses examined, furnish any evidence of 
 the mode in which the Joint Stock Banks of England are 
 generally conducted. On the contrary, many of the establish- 
 ments appear to be prudently conducted ; and though an in- 
 attention to the sound principles on which banking operations 
 should be conducted is exhibited in several cases, the ultimate 
 solvency of the banks, and their power of fully meeting their 
 engagements, must not be brought into doubt." 
 
 The case of the Norwich and Norfolk Joint Stock 
 Bank, which is said to illustrate so forcibly the 
 evils consequent upon a misapplication of the 
 principles of joint stock banking, is as follows. 
 It was established by some gentlemen of con- 
 siderable fortune, respectability, and influence. The 
 proposed capital of the bank, was 1000 shares of£100
 
 11 
 
 each ; 700 of which were issued previous to its com- 
 mencement, and £20 per share was paid up. The 
 bank, from the influence of its directors, soon got into 
 an extensive business, in the management of which, 
 no great acateness appears to have been exercised, 
 and in the second year they incurred a bad debt 
 which eventually swept away all their first capi- 
 tal, a fact perfectly notorious to every shareholder. 
 But having established a business, which, with 
 good management, would soon redeem the loss, 
 besides paying a dividend to the shareholders, the 
 directors deemed it advisable to continue, rather 
 than break up the bank. In this line of proceeding 
 the shareholders acquiesced, without demanding 
 such explanations as the position (notorious to every 
 one) in which the bank stood, might have suggested. 
 No sooner, however, had one bad debt been cleared 
 off, than another was contracted. The losses 
 amounting at length, to more than £25,000, the 
 sum of loss, which, according to the deed of set- 
 tlement, was to dissolve the concern, the direc- 
 tors thought the best course was to sell it to a new 
 company, (which they did for a premium of 
 £20,000,) resolving to take the chief part of any 
 deficiency there might be upon themselves. 
 
 Now, what are the evils which this case so forcibly 
 illustrates^ The customers of the bank lose no- 
 thing, nor were they or the public put to the least 
 inconvenience, by any suspension of payments or
 
 12 
 
 other interruption usually attendant upon a Bank 
 suddenly declining business, so that they have no- 
 thing to complain of; the public have not suffered in 
 any way. The Directors no doubt paid a dividend 
 without reference to past losses, considering it advi- 
 sable for the well-being of the Bank, and anticipating 
 the approbation of the shareholders, which has 
 been fully granted. But neither this circum- 
 stance nor the losses incurred, prove any thing 
 against the general safety of the management of 
 Banks by Boards of Directors. This Bank was, in 
 point of fact, a Joint Stock Company, under private 
 management. Had the Directors been more nume- 
 rous, or had the management been under the super- 
 vision of a London or other direction, the misma- 
 nagement would have been corrected. The Bank of 
 England from similar management had one se- 
 vere loss at Norwich, but took care never to have 
 another. If this case illustrates the evils of Joint 
 Stock Banking, it shows how trifling those evils are, 
 and furnishes an argument in favour of the system, 
 by exhibiting it in* what the Committee think, its 
 most questionable form. 
 
 In conducting their investigation, there are some 
 points on which the Committee appear to have be- 
 stowed a good deal of attention, but which the public 
 may not perhaps consider of much importance — 
 such as determining the amount, real and nominal, 
 of the share which Banks ought to issue, &c.
 
 13 
 
 There are others again not mentioned in the Report, 
 of more interest to the commercial world, which, 
 before proceeding further, it may be well briefly to 
 notice. 
 
 Banking may be considered to be based on an 
 irrational principle. It consists in promising to 
 pay very large sums of money on demand, which 
 are lent out at interest, to parties who expend 
 it in different ways, so that it ceases, as before 
 stated, to exist as money, and could only be recalled 
 in the most gradual manner. It would, therefore, 
 be impossible for the most prudent banker in 
 England to fulfil the obligations he is under if he 
 were suddenly called upon so to do. Hence 
 prudence in banking proceeds on calculation. 
 It consists in estimating correctly the probable 
 amount of this obligation that may at any one 
 time be enforced, and being prepared to meet it. 
 In making this estimate every banker naturally 
 takes his own credit into consideration, and calcu- 
 lates upon the effect which his known wealth will 
 have upon his customers. 
 
 But the Committee appear to have thought that 
 this is a calculation which Joint Stock Banks ought 
 not to make. 
 
 The Northern and Central Bank of England, 
 for instance, has 1,200 partners; the whole pro- 
 perty of each partner is liable for the engage- 
 ments of the Bank, and the paid-up capital is 
 £700,000. This, if there be any degrees in per-
 
 14 
 
 feet safety, renders it safer than the Bank of 
 England, and the circumstance of its chief deal- 
 ings being with its own partners and their con- 
 nections, (who so far from being likely to run 
 upon it, would uphold its credit in periods of emer- 
 gency,) adds to the probability that in the event of a 
 panic, the run would be, not to take money out, but 
 to put money in for better security, and thus 
 its resources rather be increased than diminished ; 
 yet the examination of Mr. Cassels, one of its ma- 
 nagers, touching its financial arrangements, pro- 
 ceeds on the assumption of its being under the 
 necessity of providing against panics, without 
 dependance upon its own credit. 
 
 The Committee appeared to think that it should 
 hold stock instead of keeping all its reserve in bills of 
 exchange ; it is, however, a fact proper to remark, 
 that none of these Joint Stock Banks do hold stock. 
 When not more than five per cent, could by law be 
 given on bills of exchange, it was an established prin- 
 ciple that Bankers, particularly Country Bankers, 
 should hold Government securities, by the sale of 
 which, though at a great sacrifice, they could raise 
 money in periods of emergency. They frequently on 
 such occasions had to sell their stock, &c. at from 5 
 to 10 per cent, loss, which, if they only wanted the 
 money for a month, was raising it at the rate of 
 from 50 to 100 per cent, for that period. But the 
 usury laws having been altered as regards bills of ex- 
 change, and the JointStock Banks being thus enabled 
 on such securities to give a higher rate of interest,
 
 15 
 
 if necessary, appear to think that they will obtain 
 money upon them at any time at a less sacrifice 
 than by holding stock, and they consequently keep 
 all their reserve in bills of exchange. This is 
 worthy of observation, since the practice of re-dis- 
 counting has become so general : for should the 
 Bank of England as heretofore, at particular pe- 
 riods set their faces against the paper of any of 
 these banks, though the banks themselves might not 
 suffer much by it, their customers would. The 
 banks would give a high rate of interest to prevent 
 any inconvenience to themselves, but might not be 
 willing in all cases to do this for the benefit of 
 their customers, and consequently such a step on 
 the part of the Bank of England would be deeply 
 injurious, and ought to be prevented. 
 
 This leads to the question of re-discounting, about 
 which the Committee appear to be much alarmed, 
 and which it will be therefore necessary to consider. 
 
 To persons not conversant with such matters, it 
 may be proper briefly to explain, that there are a 
 great many, particularly private bankers, through- 
 out the country, who have more money deposited 
 Math them than they can find employment for at 
 home, and they send it up to London to be em- 
 ployed in discounting bills of exchange. They are 
 liable to have this money called for at a short 
 notice, and instead of holding stock they conceive 
 that by having it thus employed they are in the 
 best position, for meeting such a call whenever it 
 may arise.
 
 16 
 
 In manufacturing places, such as Manchester, 
 Birmingham, &c., on the contrary, the money 
 deposited with the Joint Stock Banks is not equal 
 to the demand of their customers for money in 
 discount of bills of exchange. They, in conse- 
 quence, send the bills they discount up to the 
 London market, and re-discount or dispose of them 
 to the Banks above-mentioned, who cannot get a 
 sufficiency of such bills at home. 
 
 These bills are payable in London, and with 
 the exception of the very limited portion which 
 are on the average returned unpaid, the Joint 
 Stock Banks have nothing further to do with them. 
 Now the Committee think, that in cases of emer- 
 gency these Joint Stock Banks are in a dangerous 
 position. While the private Banks which have dis- 
 counted the Bills with the money of their customers, 
 which they may be called upon to pay at a moment's 
 notice, are not in a dangerous position : that the 
 Joint Stock Banks who have nothing to pay are in 
 danger, and those Banks who have every thing to 
 pay are safe. This at least appears to be the tenor 
 of their views. 
 
 But the Committee not only think re-discounting 
 dangerous for the Banks, but also for the public. 
 Now the danger, if any, to the public, must result 
 from the discounts being withdrawn. For if the 
 Joint Stock Banks should at any time be unable to 
 re-discount their bills in the London market, they 
 would in like manner be unable to discount for 
 their customers, by which many might be injured,
 
 17 
 
 and some ruined. But it must be remembered 
 that in resorting to the London market, the Joint 
 Stock Banks do not make the money they borrow, 
 and if not lent to them, it would, directly or indi- 
 rectly, be lent to private traders in London. When 
 therefore a pressure came, if it did not fall upon 
 the customers of the Joint Stock Banks it would 
 fall upon some other customers, and whether is it 
 the most dangerous, to have it fall with concentrated 
 force upon one point, or to have it spread by the 
 Joint Stock Banks over a wide surface ? It would 
 certainly be very dangerous to the customers of 
 these Banks if the Bank of England at such periods 
 were to throw the pressure upon them, or any 
 of them, exclusively, which they have the power to 
 do, and are doing at this moment. But otherwise, 
 it must be a great advantage for the pressure to be 
 lightened by being more extensively diffused. Re- 
 discounting, in short, conducted with the prudence 
 which is necessary to the safety of all Banking, is 
 neither dangerous to the Banks nor the public, 
 and it is difficult to imagine how the Committee 
 could have been led to entertain the opinions with 
 which they seem to be impressed on the subject. 
 Nor can there be much reason to doubt, as will here- 
 after be perceived, that it is upon views of this des- 
 cription that many, if not most, of the suggestions 
 or recommendations in their Report are founded. 
 
 There is one evil however connected wdth Joint 
 Stock Banking which has escaped the attention of 
 
 c
 
 18 
 
 the Committee, and which it may be well to notice. 
 The superior credit of Joint Stock Banks gives 
 them, both in the form of deposits, and by means 
 of re-discounting, a greater command of capital 
 than private Banks, which they are of course desirous 
 to turn to account by lending out again with ad- 
 vantage to themselves. In doing this, bills of 
 exchange are preferred to any other security, and a 
 temptation is held out to parties to create fictitious 
 bills, which often proves too great for persons in 
 want of capital to resist. They are thus led 
 into a system of accommodation which terminates 
 in consequences fatally injurious both to them- 
 selves and the public ; whilst the Banks, if they 
 manage well, are kept harmless. This is the effect 
 of too much credit and capital in banking, and is a 
 serious evil to which the system of Joint Stock 
 Banking is at present, though not exclusively liable, 
 and from which Scotland has suffered to a great 
 extent. The Banks there, as long as they are safe, 
 frequently accommodate parties in this manner, 
 who, they believe, must ultimately fail ; and 
 when they at last will do so no longer, and the 
 parties are obliged to stop, it is found that the 
 banks are covered, but nothing is left for the 
 public. Some persons have thought that the proper 
 remedy for this would be to have banks with less 
 credit, as if bad banks were not more injurious than 
 bad bills, proposing a remedy much worse than 
 the disease. The real source of the evil however
 
 19 
 
 is not in the banks, but in the bills ; and the 
 remedy must be looked for in the laws affecting 
 them. The holder of a bill of exchange can 
 bring actions at one and the same time, against 
 every party whose name is attached to it, and 
 in event of the failure of them all, can prove upon 
 the estate of each for the full value of the bill. 
 Thus, if there be six parties to it, and he receives 
 upon the average 3s. Ad. in the pound from each 
 estate, he is paid his whole debt. He is in fact 
 permitted to prove six hundred pounds, where 
 other creditors can only prove one. A system of 
 bill accommodation can never be long pursued with- 
 out the banker not only being aware of, but acces- 
 sory to it, and thus the law, in effect, encourages a 
 species of fraud between the banker and his custo- 
 mers, which there would be more propriety in its 
 endeavour to prevent, and the means of doing so 
 is a subject worthy of the attention of the legisla- 
 ture. My own impression, which I offer rather 
 to turn attention to the subject than as a matured 
 opinion, is, that in the event of failure, the holder 
 of a bill should have no preference, and only be 
 allowed to prove upon the estate of the party who 
 owed him the money upon it, giving the bill over 
 to the assignees of the estate to recover upon it 
 in their turn. That so long as any of the parties 
 to the bill were solvent, he should be allowed to 
 proceed against them, but not otherwise: upon the 
 principle that they may be permitted to involve 
 
 c 2
 
 20 
 
 their own property by a bill transaction, but not 
 that of others. They should likewise only be al- 
 lowed to bring one action at a time. By this none 
 but a just debt could be proved upon any estate, and 
 every creditor would be placed upon an equal 
 footing. It strikes me that a law to this effect, 
 would not in any great degree prevent the negotia- 
 tion of bona fide bills of exchange, by which the 
 bankers very seldom lose any thing. But as par- 
 ties to accommodation bills mostly fail together, 
 bankers, for their own security, would mark them as 
 peculiar objects of distrust, by which these bills 
 would be checked, if not extinguished. At all 
 events, Banks with inferior credit are not the pro- 
 per remedy for bad bills, which must be sought for 
 in the laws by which the bills are fostered. 
 
 We shall now proceed to examine the report 
 more in detail. 
 
 " The evidence taken before your Committee, and the re- 
 turns from the Stamp-office, establish the fact that these hanks 
 are rapidly extending in all directions ; that new companies 
 are daily forming, and that an increased number of branches 
 and agencies are spreading throughout England., even in small 
 towns and villages, — that a principle of competition exists, 
 which leads to the extinction of all private banks, and to their 
 conversion into banking companies. The mode in which this 
 is effected, and the principle on which the issue of transfer- 
 able shares acts at once on private banks, and generally on 
 commercial credit, is fully developed in the evidence." 
 
 From the style of these observations, coupled 
 with those which precede them, it might be in-
 
 21 
 
 ferred, that the fact of these companies being formed 
 in all directions, spreading their branches and 
 agencies, even in towns and villages, and the pro- 
 bable extinction of all private Banks, by conversion 
 into Joint Stock Companies, was an alarming 
 evil. If however the institution of banking be de- 
 sirable in a great city, it cannot be less so, in a 
 small town or village, where the credit of indi- 
 viduals can be more accurately appreciated, and 
 the facilities of banking more safely and bene- 
 ficially afforded to the public. A bank, in its 
 eagerness for business may form establishments in 
 places where sufficient good business m.ay not be 
 found to render them profitable, but this, though it 
 may injure the bank, will not injure the public. 
 Neither can the conversion of private banks into 
 Joint Stock Companies, be an evil : for it is obvious 
 that nothing can be more desirable than to found 
 the superior credit and stability of a Joint Stock 
 Company upon the skilful and prudent manage- 
 ment which may be said to be the general charac- 
 teristic of the private banks of the present day. 
 In short, if to get rid of bank failures and panics, 
 and to introduce that improvement which it was 
 the object of the Act of the 7th of Geo. IV., 
 to promote, be still desirable, this ought to be con- 
 sidered by the legislature a gratifying state of 
 things for the public, whatever it may be thought 
 by the private bankers, who suffer from it, and 
 have been the subject of congratulation, by the
 
 22 
 
 Committee, rather than of alarm. The Report fiir- 
 tlier proceeds : — 
 
 " Your Committee have had before them the deeds of settle- 
 ment of the greater number of the existing Joint Stock Banks, 
 and they proceed to submit to the House an analysis of some 
 of their leading provisions. 
 
 "Though the general objects of these establishments are 
 much alike, yet there are some variations in their deeds of 
 settlement, which it may be material to point out. 
 
 " First, as to, the power of altering the regulations of the 
 Company. 
 
 " The active duties are generally delegated to a small body 
 called the Directors, while the main body of proprietors reserve 
 to themselves the power of selecting the directors, and of al- 
 tering fi'om time to time the rules by which the directors are 
 to be governed. Indeed, it might have been expected that the 
 proprietors would always have reserved to themselves this 
 power ; nor should this general rule have been noticed, had it 
 not been necessary to point out a single exception to it, in the 
 case of one particular Company, in which all the powers of the 
 Company are vested in the directors of the Central Bank, till 
 January, 1838, and even after that date this authority is only 
 to be controlled by the ' General Board of Directors,' consist- 
 ing of the central directors themselves, and of the local direc- 
 tors of branch banks, appointed by them. The deeds of all 
 the other Companies expi'essly give a power to the shareholders 
 to make new laws and regulations." 
 
 The power given to the Directors in this single 
 exception appears objectionable ; and it becomes de- 
 sirable to know, whether it was conferred at a public 
 meeting, attention having been called to a power so 
 unusual, or whether it was obtained covertly, by 
 forming part of a deed, presented to them for sig- 
 nature, without their being previously made ac-
 
 23 
 
 quainted with its contents. The particulars of the 
 case were not the subject of any inquiry, without 
 which it would hardly be correct to come to any 
 decision upon it. 
 
 Report continued. 
 " Secondly, as to the mode of conducting the business of 
 Banking. 
 
 *' This is for the most part set out in general terms. Some 
 Banking Companies content themselves with defining the 
 business to be, * Banking in all its branches ;' in other cases 
 it is called, ' the business of Bankers.' 
 
 " Advancing money on real security is in no instance for- 
 bidden. The deeds of three Companies are silent on the sub- 
 ject ; the rest expressly allow it. 
 
 "The majority of the deeds are silent on the subject of the 
 
 purchase of land. The — Banking Company expressly 
 
 allows it. The Banking Company and the Union 
 
 Banking Company expressly forbid it. 
 
 " An advance of money on mining concerns is in no instance 
 expressly allowed ; in many it is expressly forbidden ; in the 
 majority it is passed over in silence. 
 
 " Advances of money upon any ' public foreign government 
 stock, or the stock of any foreign chartered public company,' 
 is directly sanctioned in the deeds of four Banking Compa- 
 nies. Investment in foreign government stock or funds is 
 allowed by tlie deed of another Bank. Such advances are 
 expressly forbidden by many of the deeds, and are passed 
 over in silence by many others. 
 
 " In no instance is the Company forbidden to become the 
 purchaser of its own shares ; but, on the contrary, power is 
 expressly given to do so by means of the deeds, and that to 
 any amount. The only modifications of this power which 
 your Committee have found are in the case of one Banking 
 Company, in which the directors are authorized to purchase 
 shares in the case only of a refusal to admit as a projirietor
 
 24 
 
 the person proposing to buy ; and in the case of another Bank, 
 the number of shares to be bought in by the directors is re- 
 stricted to 40. 
 
 " Thirdly, as to the degree of publicity to be given to the 
 proceedings. 
 
 *' No principle seems to be more attended to or prominently 
 put forward, than that of preserving secrecy as to the state of 
 accounts of the customers of the Banks. To this principle 
 there does not appear to be an exception. 
 
 " The directors are in general required to sign a declaration 
 pledging themselves to observe secrecy as to the transactions 
 of the Bank with their customers, and the state of the accounts 
 of individuals. In some of the Companies this declaration is 
 also to be signed by all the clerks and officers. One Banking 
 Company goes so far as to require an oath to this effect. If 
 the proprietors are dissatisfied with the statement of accounts 
 made by the directors, a power is generally reserved to ap- 
 point auditors or inspectors for the examination of the books ; 
 but these auditors or inspectors are required to sign a similar 
 declaration of secrecy. 
 
 " No proprietor, not being a director, is entitled to inspect 
 any of the books of the Company. 
 
 " The directors are in general bound to exhibit to the gene- 
 ral meeting of the shareholders a summary or balance-sheet 
 of their affairs, and to make such further statement or report 
 as the directors may deem expedient and conducive to the 
 interests of the Company. In the case of one of these Banks, 
 even this is not obligatory by terms of the deed, which leave 
 it to the discretion of the directors whether they do or do not 
 exhibit a balance-sheet. In a very extensive Bank, the pro- 
 prietors annually appoint auditors to examine the affairs of 
 the Company, and to report thereon. 
 
 " In some of the Companies the principle of secrecy is car- 
 ried still further : two of the directors, selected from the rest, 
 are the exclusive depositors of the power of inspecting the 
 private accounts of customers. These persons are sometimes
 
 25 
 
 called * confidential directors.' This provision is stated to be 
 made, ' in order that the credit and private transactions of 
 individuals may be preserved inviolate/ Sometimes they are 
 called ' managing directors,' sometimes * special directors.' 
 In other Companies, though all the directors have the power 
 of inspection of the accounts of customers, two of the direc- 
 tors are selected to inspect bills and notes, ' in order to prevent 
 the exposure of such bills of exchange and promissory notes 
 as may pass through the Bank.' These two directors are 
 called ' the bill Committee.' In two of the Companies a 
 single person, called ' the manager,' has the exclusive power 
 of inspecting bills and notes. 
 
 " Fourthly, as to the terms on which the Company is to be 
 dissolved. 
 
 " The deeds of all these Companies contain some provision 
 for dissolution in certain contingencies. It is in general pro- 
 vided that a dissolution of the Company shall ^take place by 
 reason either of a certain amount of loss, or of a voluntary 
 agreement. Dissolution by reason of loss in the great majo- 
 rity of the deeds is provided for in the following manner : — 
 
 " It is necessary to premise that the directors of each of 
 these Companies are bound to set aside a certain portion of 
 the profits to form a fund to meet extraordinary demands, 
 which fund is sometimes called the ' surplus fund,' sometimes 
 the ' reserve fund,' but more usually the * guarantee fund.' 
 The ordinary provision for dissolution is to this effect : — That 
 if the losses sustained shall at any time have absorbed the 
 whole of this guarantee fund, and also one-fourth of the capi- 
 tal paid up, then any one shareholder may require the dissolu- 
 tion of the Company, which shall take place accordingly, un- 
 less two-thirds in number and value of the shareholders shall 
 be desirous of continuing the Company, and shall purchase 
 the shares of those proprietors who wish to withdraw. In one 
 bank the dissolution of the Company takes place upon a loss 
 • of one-fifth instead of one- fourth of the capital. In two other 
 banks no mention is made of the guarantee fund.
 
 26 
 
 *' The provision of the great majority of deeds, as above 
 stated, is, that in the event of a given amount of loss, any one 
 shareholder may propose the dissolution. In some, three 
 shareholders are required. In the Banking Company A. the 
 requisition for dissolution must be made by ten shareholders 
 holding 200 shares ; in the Bank B.by one-fourth of the Com- 
 pany ; but if the loss amount to one-half of the capital, then 
 by any single shareholder. 
 
 " By the general provisions of the great majority of deeds, 
 the dissolution of the Company, though duly proposed, may 
 be averted by two-thirds of the proprietors ; but in some there 
 exists no such restriction ; and on the occurrence of a given 
 amount of loss, the dissolution, if proposed, is to take place 
 immediately, even though no partner should propose it. 
 
 " The Banking Company C. has provisions for dissolution 
 peculiar to itself, and among others it is set forth, that the 
 partnership shall determine on the 1st of January, 2001. 
 
 " The Bank of D., besides the usual provision for dissolu- 
 tion in case of a loss, has a provision for dissolution if the 
 Company shall not repay a contribution to a shareholder who 
 shall have been compelled to pay a debt of the Company. 
 
 " A dissolution, by voluntary agreement, may in general be 
 directed by a majority of two-thirds of the shareholders in 
 number and value, but with the concurrence of a certain num- 
 ber of the directors. 
 
 " In some Companies a voluntary dissolution may be ef- 
 fected by three-fourths of the shareholders ; in others by a 
 majority ; in a few others there is no provision for a voluntary 
 dissolution. 
 
 " The House will see from this analysis that these deeds of 
 partnership, on which depend the whole transactions of the 
 Banks and their responsibility to the public, so far from being 
 framed according to one common and uniform principle, differ 
 materially from each other in many most important particu- 
 lars ; and, in some instances, the deeds contain provisions open 
 to very serious objections, as entailing possible consequences
 
 •27 
 
 highly injurious to the interests of the public, and of the bank' 
 ing establishments themselves^ 
 
 The propriety of the conclusion deduced from 
 this analysis, is very questionable. When, for 
 instance, the Committee observe, that advances on 
 real securities are in no instance forbidden, they 
 surely do not mean to imply that in any instance 
 they ought to forbid a Bank to take any security it 
 can get. The Banks w^ould be much better pleased 
 by a law, that would prevent their lending without 
 security ; and when it is also observed that the 
 majority of the deeds are silent in respect to the 
 purchase of land, it can scarcely be inferred that 
 Banks are to trouble themselves about matters that 
 do not concern them. It would never answer the 
 purpose of any Bank to purchase land, except in 
 discharge of a debt, the payment of which they 
 could not otherwise obtain, and they never do 
 purchase it as a banking operation. It would be 
 as much a departure from the business of banking 
 to do so, as to set up a linen-draper's shop. Be- 
 sides, if persons could neither transfer nor pledge 
 their property to a Bank, persons of property would 
 find themselves shut out from the ordinary facilities 
 of Banking accommodation ; for they would never 
 be trusted without security, if the law prevented the 
 Banker taking it when it might become necessary. 
 I shall not dwell upon the various provisions 
 referred to in this analysis, but merely observe, 
 that it is difficult to define which can, with any 
 propriety, be stigmatized by the Committee as
 
 28 
 
 highly injurious to the interests of the public and 
 the Banking establishments themselves. The 
 majority of them seem to be regulations for the 
 internal government of the Banks, with which the 
 public have nothing to do. 
 
 1 shall now proceed to a consideration of the 
 practical results of this inquiry, which I propose 
 to examine in detail. They are contained in thir- 
 teen propositions, each of which it is stated, " ap- 
 pears to the Committee deserving of the most 
 serious consideration, with a view to the future 
 stability of the Banks throughout the United King- 
 dom, the maintenance of commercial credit, and 
 the preservation of the currency in a sound state." 
 
 " Your Committee will now call the attention of the House 
 to some few facts, which illustrate the present system. 
 
 " Subject to the local restrictions imposed for the protection 
 of the privilege of the Bank of England, it is open to any 
 number of persons to form a Company for joint stock banking, 
 whether for the j^urpose of deposit, or of issue, or of both." 
 
 This, of course, is not an evil ; but the Report 
 goes on to state that — 
 
 " 1. The law imposes on the Joint Stock Banks no prelimi- 
 nary obligation beyond the payment of a licence duty, and the 
 registration of the names of shareholders at the Stamp-office." 
 
 It is difficult to conceive what are the preliminary 
 obligations thought necessary, unless they be ex- 
 plained in the following question. 
 
 " 646. Chairman. — Under the law, as it at present 
 stands, as we see in every newspaper, prospectuses 
 for Joint Stock Banks are given to the public with-
 
 29 
 
 out any very distinct declaration of the parties who 
 make themselves responsible at the first creation of 
 those Banks. Do you conceive that it w^ould be an 
 useful alteration in the law, that in any proposition 
 for the creation of a Joint Stock Bank, the persons 
 who were made bona fide responsible for such 
 undertakings, should be compelled to add their 
 names? Ans. I do think it would." 
 
 There is no bona fide responsibility incurred until 
 the Bank is formed, and the Directors elected, and 
 it would be curious to make parties legally respon- 
 sible for a Bank before it existed. The practice in 
 London is for parties to give their names as being 
 willing to become Directors, before the public 
 subscribe ; but in the country the public more 
 frequently subscribe first and elect their Directors 
 afterwards. The last practice I should imagine 
 would be found upon examination to be the best, as 
 well as the most natural. At the same time, if a 
 good Bank be formed, the manner in which indi- 
 viduals associate together for the purpose of its for- 
 mation, whether A invites B and C, or B and C 
 invite A, cannot surely with any propriety become 
 a subject of legislative interference. 
 
 " 2. The law does not require that the deed of settlement 
 shall be considered or revised by any competent authority 
 whatever, and no precaution is taken to enforce the insertion 
 in such deeds of clauses the most obvious and necessary." 
 
 It would be very difiicult to find a suitable person 
 
 for this office, if any discretionary power whatever 
 
 were allowed him.
 
 30 
 
 " 3. The law does not impose any restrictions upon tlie 
 amount of nominal capital. This will be found to vary from 
 ,£5,000,000 to £100,000, and in one instance an unlimited 
 power is reserved of issuing shares to any extent." 
 
 Nominal, is only in name : fifty pounds of nominal 
 capital, is of the same value as fifty millions ; and 
 it would be a work of supererogation to legislate 
 about a shadow. But this nominal capital implies 
 a real obligation, which is, that the parties will pay 
 up the whole of it if necessary, under the penalty 
 of forfeiting their shares ; and it is difficult to con- 
 ceive why the legislature should interfere to pre- 
 vent parties agreeing amongst themselves to pay a 
 large capital in the event of its being required in any 
 undertaking, much less in a bank. 
 
 In the instance referred to, in which an unlimited 
 power is reserved of issuing shares to any extent, the 
 Bank had a wide field before it, and could not deter- 
 mine the amount of capital it might require. Instead, 
 therefore, of commencing with a large nominal ca- 
 pital, and a great uncertainty as to the amount to 
 be called up, it preferred commencing with a com- 
 paratively small capital, reserving to itself the 
 power of enlarging it by fresh issues of shares 
 when required, rendering nominal capital unne- 
 cessary. The Committee thus object both to no- 
 minal capital and to the want of it. 
 
 "4. The law does not impose any obligation that the whole 
 or any certain amount of shares shall be subscribed for before 
 banking operations commence. In many instances Banks 
 commence their business before one-half of the shares are sub-
 
 31 
 
 scribed for, and 10,000, 20,000, and 30,000 shares are re- 
 served to be issued at the discretion of the directors." 
 
 This is the best method of raising the capital of 
 a bank. The first persons who form it, run any 
 risk there may be in its formation, and should they, 
 upon favourable terms to themselves, be able to in- 
 duce parties to join them afterwards (for many will 
 be glad to join a bank after it is formed, who would 
 not incur the risk of forming it), there is no reason 
 why they should not be permitted to obtain the 
 junction of such parties, but many, on the con- 
 trary, why they should. First — The object of 
 the existing law is to afford additional security 
 to the public, and every additional subscriber 
 adds to that security : — second, the Committee 
 appear to think it advisable that subscribers to a 
 bank should not be speculators, and by this means 
 subscribers are obtained, who, at least, do not 
 speculate in setting it up ; a greater care can 
 also be exercised in the selection of parties, who 
 join a bank after it is formed, than of those who 
 take upon them the risk of the experiment. But it 
 may be said, that the bank may not get persons to 
 join it afterwards; if so, there is no necessity for a 
 law to prevent them. If a bank gets business, it 
 will easily obtain additional partners ; if it does 
 not, it is unimportant to the public whether ad- 
 ditional partners join it or not. Any legal inter- 
 ference to prevent banks enlarging their capital, by 
 fresh issues of shares, would be the best mode of 
 defeating the very objects which the Committee
 
 32 
 
 appear to have most at heart, namely — the oh- 
 taining of banks with large capitals and a respect- 
 able proprietary. 
 
 " 5. The law does not enforce any rule with respect to the 
 nominal amount of shares. These will be found to vary from 
 1000/. to 5/. The effects of this variation are strongly stated 
 in the evidence." 
 
 Much of the attention of the Committee appears 
 to have been directed to an object rather Utopian, 
 namely, to the obtaining a class of persons to set 
 up banks who are not speculators. Now, every 
 man who subscribes to the original formation of 
 a bank, whether he eventually hold his shares 
 as an investment or not, is as far as that Bank 
 is concerned a speculator. I believe it was Mr. 
 Tierney who remarked, " that if a person failed he 
 was a speculator, if he succeeded, he was an enter- 
 prising British merchant;" and I am afraid there is 
 no other rule by wdiich to judge of speculation in 
 Bank shares. Speculation is generally most rife in 
 the shares of those banks that have the greatest 
 prospect of success ; and there is no reason to infer 
 that persons who give a premium for their shares, 
 are worse shareholders than those who obtain them 
 without a premium. 
 
 But the Committee appear to think, that parties 
 who would hold their shares as an investment, are 
 more likely to look after the management. Now 
 the broad distinction between a speculator and an 
 investor is, that the one desires to become a 
 shareholder after the bank requires no looking
 
 33 
 
 after, whereas the other looks for liis profit from 
 success, being- the result of those arrangements 
 he has a hand in making. The question, therefore, 
 is, whether the sharp and shrewd speculator, or the 
 idle investor is more likely to look after the ma- 
 nagement. If there be a difference at all, I believe 
 it will be found to be in favour of the speculator ; 
 though I do not imagine that either will be very 
 inattentive to his own interests. 
 
 The Committee likewise think that they \vould at- 
 tain the object they propose, by regulating the paid 
 up amount of the shares. It appears that most Banks 
 have £5 and £10 shares, no doubt with a view to 
 have them widely distributed, and to obtain a more 
 numerous proprietary, which must give additional 
 security to the public. The evidence likewise of 
 persons engaged in the formation of Banks w^ith 
 small shares, goes to prove that the respectability 
 of the shareholders is not thereby diminished. But 
 the Committee seem to think that the sum paid up 
 on each share ought not to be lesRthan £25. As few 
 Banks allow a person to hold shares on which a less 
 aggregate amount than £25 has been paid up, there 
 would be no g-reat harm in such a limitation. At 
 the same time nothing; can be more desirable than 
 that the poorer classes, who are the authors of panics, 
 should be induced to hold shares in Banks. The more 
 interest they have in the public institutions of the 
 country, the better for the country, and for that 
 general stability of Government upon which the na- 
 
 D
 
 34 
 
 tional welfare depends. Though I am afraid the 
 Banks will not take this view of the subject, and dis- 
 tribute their shares amongst them for the public good, 
 and therefore it is a matter of no practical impor- 
 tance whether the amount paid up on the shares be 
 under £25 or not, yet at the same time, any legis- 
 lative enactment for the express purpose of prevent- 
 ing the lower classes from holding shares in banks 
 would be most objectionable in principle, and if it 
 did no real harm, would certainly be productive of 
 no benefit. 
 
 " 6. The laAv does not enforce any rule Avith respect to the 
 amount of capital paid up before the commencement of busi- 
 ness. This will be found to vary from 105/. to 5/." 
 
 Any capital is sufficiently large for a Bank with- 
 out business, and very little capital is required 
 until its business be ascertained. The proper capital 
 for it to possess must be regulated by the extent 
 and character of its transactions, and it would be 
 very difficult for the law to determine that which 
 must vary in every case. 
 
 " 7. The law does not provide for the publication of the lia- 
 bilities and assets of these Banks, nor does it enforce tlie 
 communication of any balance sheet to the proprietors at 
 large." 
 
 Much may be said in favour of this proposition ; 
 the more especially that it would at once render 
 all the other proposed legislation on the subject an 
 act of supererogation. But there are reasons why it 
 might be premature, at the present moment, which 
 we shall have occasion to speak of hereafter.
 
 35 
 
 "8. The law does not impose any restrictions by which 
 care shall be taken that dividends are paid out of banking 
 profits only, and that bad or doubtful debts are first written 
 off." 
 
 It is proper that no dividend be made, without the 
 source of it being fully explained. But it will happen 
 that in some years the best managed banks will not 
 make any profit ; and yet the shareholders might 
 prefer the usual dividend being made, even though 
 it should be paid out of capital. If the law were 
 imperative, that dividends were only to be paid out 
 of banking profits, it would frequently operate as a 
 great hardship. The North of England Joint Stock 
 Bank has lost 80 or 100,000/. out of 250,000/., but 
 has obtained a valuable business, which is now well 
 conducted, and, as appears by the evidence of 
 General Austin before the Committee, its shares, 
 upon which 15/. have been paid, have been sold, 
 notwithstanding this loss, for 14/. But if a Bank 
 were not allowed to make any dividends by law, 
 until its capital was redeemed, it might be ten or 
 fifteen years before any dividends coald be paid. 
 It would in consequence either be broken up, or 
 the poorer shareholders would be obliged to sell 
 their shares for less than one-half of their true 
 value, to the rich speculator, who could afford to 
 wait so long for his dividend. This, by diminish- 
 ing the number of shareholders, would injure the 
 business of the bank ; so that such a law would 
 tend to prevent a bank recovering from any severe 
 loss it might sustain, and doable the hardship to 
 
 d2
 
 36 
 
 the shareholders, which would neither be an equit- 
 able nor wise interference on the part of the 
 Legislature. 
 
 "9. The law does not prohibit purchases, sales, and specu- 
 lative traffic on the part of the Companies in their own stock, 
 nor advances to be made on the credit of their own shares." 
 
 Every bank reserves to itself the power, to a 
 greater or less extent, of purchasing its own stock, 
 which in small places, where there is not a regular 
 market, is an advantage, and prevents directors 
 buying and selling on their own account. The 
 directors, for their own sakes, will take care not to 
 act upon this power to any such extent, as to limit 
 the means and credit of the bank, and the pur- 
 chases and sales being made for the benefit of the 
 Bank, and not for the benefit of the directors in- 
 dividually, there is no temptation to any sort of 
 traffic to which the least discredit could be attached. 
 
 With respect to advances on their own shares, 
 this is a convenient power for every bank to pos- 
 sess : there are two classes of shareholders in every 
 bank, those who furnish capital, and those who 
 furnish business, and the business is as necessary to 
 the capital as the capital is to the business. No bank, 
 to be successful, can have a large capital without a 
 corresponding business, and in obtaining share- 
 holders who supply more business than capital, a 
 foundation is laid for obtaining others who supply 
 more capital than business, and if it suits the con- 
 venience of two parties thus to join together for
 
 37 
 
 their mutual advantage, without injury, if not with 
 great benefit to the public, it would be a trouble- 
 some law, to say the least, that would interfere to 
 prevent it. 
 
 " 10. The law does not provide that the guarantee fund 
 shall be kept apart, and invested in Government or other 
 securities." 
 
 The guarantee fund, as explained in the Report 
 itself, is apart of the profits. The losses to which 
 all bauks are liable, come irregularly. A bank 
 may go on for some years without a bad debt, and 
 then contract one, which, if it be a small bank, 
 will swallow up the whole of its profits for one or 
 more years, though it be prudently managed ; and 
 if the whole of the profits were annually divided, 
 not only would there be no profit to divide, at such 
 periods, but the shareholders would have to pay up 
 a loss. This would be very inconvenient to the 
 directors, as it would render the shareholders 
 rather too critical on the subject of management 
 from year to year. They consequently find it bet- 
 ter to pay them only a portion of the profits in 
 good years, in order that they may be enabled to 
 continue the same dividend in bad. The share- 
 holders by this are kept reasonable when losses 
 occur, as they do not immediately feel them. But 
 this is a mere matter of arrangement between the 
 shareholders and the directors, in which the public 
 are not interested. The Committee appear to think 
 it desirable, the shareholders of those banks should 
 look sharply after the directors, and call upon them
 
 38 
 
 in their Report to do so. But if a guarantee fund 
 were forbidden, this object would be much more 
 effectually secured. Presuming, however, that 
 there be such a fund, there can be no more reason 
 why the balance of that fund should be kept sepa- 
 rate than the balance of any other account. 
 
 "11. The law does not limit the number of branches, or 
 the distance of such branches from the central bank." 
 
 The number of branches which a bank ought to 
 possess would be a very puzzling, were it even a de- 
 sirable, question for the law to decide. It is a point 
 upon which the experience of no two banks would 
 exactly accord, nor the opinions of any two bankers 
 exactly agree. Mr. Paul Moon James, for instance, 
 the Manager of the Birmingham Banking Company, 
 which established a branch at Wolverhampton, and 
 withdrew it because it did not succeed, has a de- 
 cided opinion against branches, and would not ob- 
 ject to the interference of the Legislature, to pre- 
 vent other banks from arriving at the same con- 
 clusion, by the same process. On the other hand, 
 General Austin, the Managing Director of the 
 North of England Bank, which has suffered great 
 loss at the parent establishment, but none at its 
 branches, is not so decidedly against them, but 
 thinks they ought to be within the distance of a 
 convenient ride, for the managing director, which 
 is the case with the principal branches of his bank. 
 Mr. Stuckey, again, whose banks are confined to 
 Somersetshire, though not in all cases keeping on 
 the right side of the border, thinks the law should
 
 39 
 
 confine banks and their brandies to one, or at 
 most, to two counties, and of course should keep 
 out all strangers and interlopers. Agreeing partly 
 in opinion with the Committee, that one Board of 
 Directors cannot manage more than a limited num- 
 ber of branches, I some time since proposed the 
 formation of a bank in England, upon the principle 
 afterwards successfully acted upon in Ireland by 
 Mr. O'Connell's bank, namely, — That each branch 
 should be a separate Bank, and have a local body 
 of shareholders, who should have an equal interest 
 in it with the parent establishment, and that it 
 should be managed by a board of directors, chosen 
 by the local shareholders, subject to the supervision 
 of the directors of the parent Bank. But some 
 gentlemen of great respectability in the direction, 
 who were likewise directors of a London establish- 
 ment, formed also by myself, having branches 
 all over Ireland, successfully conducted upon 
 the principle to which the Committee appears to 
 be opposed, were so wedded from practical expe- 
 rience to this plan, that they upset the new system 
 proposed by me for England, impressed with the 
 belief that almost any number of branches that 
 could be formed might be safely managed. The 
 same parties have likewise established a Bank, the 
 principal seat of management of which is in Lon- 
 don, with its branches at the other end of the 
 world, that is, in Van Diemen's Land and New 
 South Wales, for which they have obtained a 
 charter from Government.
 
 40 
 
 Thus every variety of opinion is entertained on 
 the subject by men of experience, from no branches, 
 to an indefinite number, and from the distance of 
 a ride, to the diameter of the globe, between them 
 and the parent establishment. And how is the 
 Legislature to determine which is right ? The pro- 
 bability indeed is, that they are all right ; that 
 each speaks with reference to the internal system 
 of management established in his own concern, and 
 that what is a rule for one Bank, is no rule for 
 another; so that the Legislature could adopt no 
 regulation that would not be inconvenient. 
 
 The proposed limitation of the number of 
 branches, however, would not only be inconvenient 
 but hurtful. It would be in opposition both to 
 reason and experience, and tend to defeat the ob- 
 jects which the Committee wish by the amendment 
 of the law to attain. 
 
 In the first place they desire Banks with large 
 capitals, and they cannot have such Banks in small 
 places except as branches. Neither can they have 
 large capitals without a large business ; and there 
 are very few places in which a large business can 
 be obtained without branches. They are likewise 
 desirous that these branches should be well ma- 
 naged. Good management, however, very much 
 resolves itself into a matter of pounds, shillings, 
 and pence. It may always be had if it can be paid 
 for. One or two able and experienced men in a 
 Bank, however extensive, will keep the whole ma- 
 chine in order; and such men are neither to be
 
 41 
 
 obtained nor retained without such a compensation 
 as a small Bank, can seldom afford. But when a 
 Bank is sufficiently large to employ such men, and 
 inspection and control are reduced to a system, 
 good management on the average will be the cer- 
 tain result. It is obvious likewise that two checks 
 are better than one. If the Northern Bank of 
 England, which has lost £100,000, and the Norwich 
 Bank had been branches of a larger establishment, 
 they would neither of them have been such ex- 
 tensive sufferers ; moreover the risk of banking is 
 diminished by being spread over a wider surface. 
 In reason, therefore, and with a view to obtaining 
 the objects 5f the Committee, the branch system is 
 preferable. 
 
 It is the system of Scotland. The only losses 
 in modern times, which have resulted to indi- 
 viduals, from Joint Stock Banking in Scotland, 
 have occurred with small Banks. But the chief 
 business of that country is conducted by branches 
 from the great Edinburgh Banks, who carry the 
 system to the utmost extent the country will 
 admit of, establishing them in the most remote, 
 the most barren, and, to all appearances, the most 
 unlikely situations ; and this they have done with 
 safety and profit to themselves, as well as great 
 benefit to the country. 
 
 It has also for some time been the system of Ire- 
 land. The Irish, as a nation, are not esteemed the 
 safest people to deal with, their talents and inge- 
 nuity being frequently much more conspicuous
 
 42 
 
 than their discretion. Their merchants are likewise 
 chiefly in the corn and provision, the most specu- 
 lative of all trades, and that by which the English 
 Banks have lost more money than any other ; 
 yet, notwithstanding this, the Provincial Bank of 
 Ireland, which has its head office and seat of ma- 
 nagement in London, and branches spread all over 
 Ireland, has never contracted any very serious 
 bad debts, though from time to time it has suffered 
 losses, which would have been very injurious to a 
 small local Bank. If it had been divided into twenty 
 or thirty small Banks, it may be assumed as certain, 
 that one-half of them would have been given up with 
 loss to the shareholders, proving a curse instead 
 of a blessing to Ireland, which the Provincial 
 Bank is universally acknowledged to have been. 
 
 It is likewise becoming the system of England. 
 Public favour seems to have extended in a remark- 
 able manner towards district banks, or banks with 
 a number of branches and agencies. A remarkable 
 instance of the growth of such a bank appears on 
 the evidence in the case of the Northern and Cen- 
 tral Bank of England. It had only been in ope- 
 ration two years, when it had obtained 1200 part- 
 ners, a capital of £700,000., and had established 
 forty branches and agencies, while the good-will of 
 its business was valued by the public at £350,000. : 
 its shares being at 50 per cent, premium. From 
 the sudden rise of this bank and others of a similar 
 description, it would seem that they are adapted to 
 the wants and wishes of the community. Nor is
 
 43 
 
 the high price of their shares to be undervalued as 
 ail evidence in their favour. Shares are in general 
 held by parties intimately acquainted with each 
 particular bank and its mode of operation, and the 
 confidence which induces them to hold them at a 
 high price, evidences their opinion in favour of the 
 working of the system. That some of these banks 
 may be led to establish more branches than they 
 can profitably conduct is very probable. The 
 Northern and Central Bank of England appears to 
 have established a branch in Bristol, and to have 
 given it up by transferring it over to another com- 
 pany. Nor is there any other mode but experience 
 by which any bank can determine with propriety its 
 own proper limits. It may be assumed as certain 
 that they will not continue their branches unless 
 profitable ; but if they should even do so, and carry 
 on a branch without profit to themselves for the 
 benefit of the community, the community have no 
 right to complain. The tendency, therefore, of the 
 proposed law to limit the number and distance of 
 branches from the central bank, would be to con- 
 fine the trade to banks with small capitals, a limited 
 business, and an inferior management, which is the 
 very reverse of what the Committee desire to at- 
 tain, and would not only be opposed to the expe- 
 rience of both Scotland and Ireland, but to the 
 wants, wishes, and interests of the community in 
 England, besides being perfectly uncalled for, as the 
 banks, in attending to their own interest, will regu- 
 late the number of branches they ought to pos-
 
 44 
 
 sess much better than the Legislature can do it for 
 them. 
 
 " 12. Tlie law is not sufficiently stringent to insure to the 
 public that the names registered at the Stamp Office are the 
 names of persons bona fide proprietors, who have signed the 
 deed of settlement, and who are responsible to the public." 
 
 An erroneous return, neither makes any one a 
 partner who is not, nor relieves him from any re- 
 sponsibility if he be one. There can be no motive 
 for making such a return, and I cannot imagine a 
 single false return was ever intentionally made, 
 though the mode of registration may no doubt be 
 improved. 
 
 " 13. The provisions of the law appear inadequate, or at 
 least are disregarded, so far as they impose upon banks the 
 obligation of making their notes payable at the places of 
 issue." 
 
 It appears that the Joint Stock Banks always 
 make their notes payable at their branches, where 
 they have a regular establishment, and the means 
 of keeping cash with safety to pay them with, but 
 not at their agencies, where they have no such 
 establishment, though they seldom have any ob- 
 jection to pay them there when required, which 
 is all that is requisite for any useful purpose. 
 The spirit of the law appears to be very fully com- 
 plied with. If it were carried further, and all 
 banks were compelled to pay their notes at agen- 
 cies as well as branches, their agencies would, in 
 a majority of cases, have to be withdrawn, to the 
 great loss and inconvenience of the public in those 
 places where they are established.
 
 45 
 
 These different suggestions are concluded by the 
 following paragraph, the substance of which we 
 have already quoted : — 
 
 ** All these separate questions appear to your Committee 
 deserving of the most serious consideration, with a view to 
 the future stability of the banks throughout the United King- 
 dom, the maintenance of commercial credit, and the preser- 
 vation of the currency in a sound state." 
 
 In the foregoing observations it is not intended 
 to imply that all the Joint Stock Banks are without 
 objection, more especially on the subject of ma- 
 nagement. All persons entering into new trades, 
 have, more or less, to purchase their experience. 
 It is out of the question to suppose that all the 
 Joint Stock Banks that have been or may be esta- 
 blished will be successful, or that any legislative 
 enactment can render them so. So long as these 
 establishments succeed, new banks will continue to 
 be formed, until there is no room for more, not 
 only from the number of the old banks, but from 
 their managing the business so well, that new ones 
 cannot take it from them; and this will be dis- 
 covered, not by any foresight, but by the last esta- 
 blishments not proving successful. They will either 
 get bad business or none, and be obliged to continue 
 without profit or give up with loss ; and speculation 
 in them will thus be stopped. This takes place 
 in all trades as well as banking, and the last under- 
 taking protects the interest of the public by its 
 attempts to gain business from its more established
 
 46 
 
 rivals, they being obliged to do business on the most 
 moderate terms in order to frustrate the efforts of 
 the new interloper, who is generally considered 
 any thing but respectable. Nor can any regula- 
 tions about shares, which occupy so much of the 
 attention of the Committee, alter this universal 
 law, unless it have the practical effect of interfering 
 with the freedom of trade, and securing a mono- 
 poly to the existing banks, which does not appear 
 to be the object, and if proposed would never be 
 sanctioned. 
 
 Having thus reviewed the suggested alterations 
 or additions to the existing law, we can hardly fail 
 to conclude that it is a much better one than many 
 have supposed. It undoubtedly possesses the two 
 great requisites of a good law upon the subject. 
 It effectually protects the public, while it leaves a 
 free scope to ability and enterprise in the construc- 
 tion of Banks, upon whatever principle may be 
 found most advantageous to the community. It is 
 upon this great principle of free trade that much of 
 our commercial superiority over other nations de- 
 pends. The perpetual interference of Government 
 in the manao-ement of the affairs of individuals, 
 by other governments of Europe, is found to deaden 
 all enterprise, and check all improvement. 
 
 It is possible that the law may be improved with- 
 out infringing this principle ; but it is clear that 
 the suggestions of the Committee would not se- 
 cure this improvement, but would go far to defeat
 
 47 
 
 the very objects which they themselves appear to 
 have in view. First — They obviously think it de- 
 sirable that Joint Stock Banks should have con- 
 siderable paid up capitals ; yet would legislate 
 against their having large businesses, as if it 
 were practicable to induce people to pay up large 
 capitals, without the means of realizing a corre- 
 sponding amount of profits. Second — That they 
 should have a respectable class of shareholders, who 
 are not speculators ; yet they would curtail or take 
 from the Banks the power of selecting such parties 
 after they are formed, and when there is less of 
 speculation in joining them. Third — That they 
 should have able management; and yet they would 
 restrict their dimensions and business, and thus 
 take from them the power of paying for it. Fourth 
 — That Banking by branches should be curtailed ; 
 although the system has been long established with 
 great benefit both in Scotland and Ireland, and is 
 growing into repute in England : And, lastl}^, the}^ 
 would limit the power and discretion of the Banks 
 in taking securities for the monies they lend to 
 their customers ; while they are severe on those 
 who have lost money for not taking security 
 enough. 
 
 It is obvious that the proposed law would be 
 very injurious to Joint Stock Companies, without 
 any benefit to tlie public. The private Bankers are, 
 however, the parties who would the most deeply 
 suffer from it. The Report adverts to the fact, that 
 many of them have converted their establishments
 
 48 
 
 into Joint Stock Companies. This, in a majority 
 of cases, tliey have been induced to do, in conse- 
 quence of the threatened competition of the Joint 
 Stock Companies, and some have lost considerably 
 by the conversion. But the subject is beginning to 
 be better understood by them ; and many Bankers, 
 who, from dread of the Joint Stock Companies 
 alone, would not be induced to take this step, al- 
 ready perceive that it may be to their advantage 
 to do so. The shares in well established Joint 
 Stock Banks sell in the market to parties who 
 purchase for investment at from twenty to thirty 
 years purchase upon the dividend paid ; and there 
 is little doubt that by conversion into Joint Stock 
 Companies, respectable private Bankers could ob- 
 tain from ten to fifteen years purchase for their 
 business. This is a sufficient inducement for the 
 great majority of them to dispose of their businesses. 
 But the proposed enactments would in different 
 ways interrupt, if not totally prevent, the process 
 by which the private Bankers would realise these 
 advantages. It can only be done by their making 
 the transfer gradually, and disposing of their 
 interest in their respective concerns by degrees ; 
 and though a private Bank may not convert 
 itself in one day into the beau ideal of a Joint 
 Stock Company, every step it takes in that direc- 
 tion adds to the security of the public. Mr. 
 Stuckey, for instance, commenced with eleven, 
 and has now thirty-five partners in his Bank, and 
 will eventually no doubt possess an extensive pro-
 
 49 
 
 prietary with a large paid up capital. But had he 
 been tied down at the outset with the trammels of 
 the proposed law, the probability is that he would 
 have been a private Banker still. The same may 
 be said of other private Banks that have been con- 
 verted into companies. In short, it would induce 
 the greater number of the private Bankers of the 
 country to remain as they are, until their business 
 was so far reduced, by the competition of the Joint 
 Stock Banks, as not to be worth pursuing ; when 
 they would throw the remainder away by turning- 
 it over to some Joint Stock Company, or to the 
 public, for a comparatively trifling consideration. 
 
 Hence theeffect of the proposed amendments would 
 be to perpetuate private banking for an indefinite 
 period, and so far defeat the great purpose for which 
 the existing law was originally proposed, besides 
 inflicting a needless injury upon the private bankers. 
 
 Publicity of accounts is the least exceptionable 
 proposition of any importance we have examined. 
 But banking, as has been already observed, is an 
 irrational business. Every banker enters into obli- 
 gations which on the face of them are altogether 
 absurd, and the rules of prudence in banking are 
 derived not from reason, but experience. We are 
 now in the progress of a gradual change from a 
 system of perfect secrecy, which is the parent of 
 ignorance and prejudice, to one of greater publicity, 
 and the question is, would it be prudent to tear the 
 veil from the mysteries of banking too suddenly ? 
 Would it not be better to allow the new system, in 
 
 E
 
 50 
 
 which a certain degree of publicity is necessarily 
 involved, to take deeper root before the principle 
 of publicity be pushed to so great an extreme as 
 appears to be contemplated? for private bankers 
 must make up their minds that it cannot for 
 any length of time, be applied to Joint Stock 
 Banks and be withheld from them. If the prin- 
 ciple be once admitted, and the example be set 
 of an interference with the private affairs of a 
 safe system to make it safer, it will soon follow that 
 a similar interference must take place with an 
 unsafe system to make it safe. Besides, the prin- 
 ciple upon which such interference takes place, 
 applies more strongly to private banks than to 
 joint stock companies. The public are entitled to 
 interfere with the private affairs of individuals only 
 when they interfere with the public, and as Joint 
 Stock Banks, not being subject to failures and panics, 
 interfere less with the public, the public, in strictness 
 of principle have less right to interfere with them. 
 There can therefore be little doubt that the private 
 Banks are just as deeply interested in any system 
 of Legislation proposed for Joint Stock Banks, as 
 the Joint Stock Banks themselves, for what is ap- 
 plied to the one must eventually be also applied 
 to the other. It would be any thing but prudent for 
 the private bankers to deceive themselves on such a 
 point. Admitting, therefore, the principle of pub- 
 licity of accounts judiciously applied to be a desir- 
 able one, and one which will no doubt eventually be 
 adopted, the question to be considered is, whether 
 it might not be premature at the present moment ?
 
 51 
 
 Having examined that part of the Report which 
 refers to the constitution of the Joint Stock Banks, 
 we now come to the observations of the Committee 
 on the circulation or money of the country issued 
 through their instrumentality. They are as follow : 
 
 " The most important facts which have come under the con- 
 sideration of your Committee are connected with the operation 
 of the Joint Stock Banks on credit and circulation. It ap- 
 pears that a great extension has been given to both, and that 
 if the operations of all Banks, whether private, or formed on 
 joint stock principles, are not conducted with prudence and 
 with caution, measures adopted by the Bank of England with 
 a view to the state of the foreign exchanges, and of the conse- 
 quent demand for bullion, may be contracted by the advances 
 and increased issues of country Banks. The following table 
 will exhibit the progress of the circulation for some time past, 
 and it is to he inferred from the increased issues of Joint Stock 
 Banks at periods mken the Bank of England was endeavour- 
 ing to limit the amount of 'paper in circulation, that a due 
 attention was not given by them to the returns published in the 
 Gazette under the Act of the 3f? and 4th Will. 4. c. 98. 
 
 An ACCOUNT of the aggregate amount of Notes circulated in England 
 and Wales by Private Banks and Joint Stock Banks and their Branches ; 
 distinguishing Private from Joint Stock Banks. — (From Returns directed 
 by 3 and 4 Will. 4. c. 83.) 
 
 
 Private Banks. 
 
 Joint Stock 
 Banks. 
 
 Total. 
 
 
 Quarter ending 
 
 
 
 
 28 December, 1833 
 
 8,836,803 
 
 1,315,301 
 
 10,152,104 
 
 29 March, 1834 
 
 8,733,400 
 
 1,458,427 
 
 10,191,827 
 
 28 June, — 
 
 8,875,795 
 
 1,642,887 
 
 10,518,682 
 
 27 September, — 
 
 8,370,423 
 
 1,783,689 
 
 10,154,112 
 
 28 December, — 
 
 8,537,655 
 
 2,122,173 
 
 10,659,828 
 
 28 March, 1835 
 
 8,231,206 
 
 2,188,954 
 
 10,420,160 
 
 27 June, — 
 
 8,455,114 
 
 2,484,687 
 
 10,939,801 
 
 26 September, — 
 
 7,912,587 
 
 2,508,036 
 
 10,420,623 
 
 26 December, — 
 
 8,334,863 
 
 2,799,551 
 
 11,134,414 
 
 26 March, 1836 
 
 8,353,894 
 
 3,094,025 
 
 11,447,919 
 
 25 June, — 
 
 8,614,132 
 
 3,588,064 
 
 12,202,196 
 
 Stamps and Taxes, August 2, 1836. 
 
 JOHN WOOD. 
 
 E 'J
 
 BANK OF ENGLAND. 
 
 28 December, 
 
 29 March, 
 28 June, 
 
 27 September, 
 
 28 December, 
 28 March, 
 
 27 June, 
 26 September, 
 26 December, 
 26 March, 
 25 June, 
 
 1833 
 1834 
 
 1835 
 
 1836 
 
 Circulation. 
 
 17,469,000 
 18,544,000 
 18,089,000 
 18,437,000 
 17,070,000 
 18,152,000 
 17,637,000 
 17,320,000 
 16,564,000 
 17,669,000 
 17,184,000 
 
 Deposits. 
 
 15,160,000 
 13,750,000 
 15,373,000 
 12,790,000 
 13,019,000 
 9,972,000 
 11,753,000 
 13,866,000 
 20,370,000 
 12,875,000 
 15,730,000 
 
 Bullion. 
 
 10,200,000 
 8,753,000 
 8,885,000 
 6,917,000 
 6,978,000 
 6,295,000 
 6,613,000 
 6,284,000 
 7,718,000 
 8,014,000 
 6,868,000 
 
 Sei'urities. 
 
 24,576,000 
 25,787,000 
 27,471,000 
 26,915,000 
 25,551,000 
 24,533,000 
 25,221,000 
 27,724,000 
 31,764,000 
 25,521,000 
 28,847,000 
 
 " Your Committee cannot too strongly recommend to all 
 parties engaged in banking the utmost caution and prudence 
 in these respects, both at the present and in their future opera- 
 tions. 
 
 " It was under the consideration of your Committee whe- 
 ther the law, and the practice which they have described, did 
 not require the interposition of the Legislature even during 
 the present session. They have been led to decline pursuing 
 this course because their inquiries are incomplete, and because 
 they feared that more inconvenience might have resulted from 
 an imperfect measure than from allowing the evils of the pre- 
 sent system to continue without legislative remedy till the 
 next session of Parliament. If one had been introduced, 
 prospective only in its enactments, an inference might have 
 been raised contrary to that which is the decided opinion of 
 your Committee — namely, that the existing Banks are subject 
 to any revision of the law which Parliament may enact. The 
 right of the Legislature to interfere, not only in respect of 
 Banks to be established hereafter, but in respect to existing 
 establishments also, is a principle which your Committee are 
 prepared to assert in the strongest manner. They have now 
 before them the accounts of the existing Joint Stock Banks, 
 exhibiting in very minute detail their mode of conducting 
 their business. If, as your Committee strongly recommend, 
 it should be the pleasure of tiie House to renew this inquiry at
 
 53 
 
 the opening of the next Session, a continuation of these ac- 
 counts would necessarily be called for. It is the earnest hope 
 of your Committee that the comparison of these two series of 
 accounts may prove that the banking operations during the 
 recess may have been conducted with prudence and caution, 
 and more particularly that those who assume the responsibility 
 of issuing notes payable on demand have felt it to be their 
 pressing duty to examine accurately the state of the exchanges, 
 the proceedings of the Bank of England in reference to its 
 issues, and may thus guard against the dangerous error of an 
 imprudent extension either of credit or of circulation when an 
 opposite course was rendered necessary. 
 
 " Your Committee, in conclusion, feel it their duty not only 
 to recommend caution to the directors and managers, but 
 vigilance and attention to the proprietors of Joint Stock Banks 
 also. By several of the deeds of settlement, imperfect as 
 many of those deeds are, it has been already shown that the 
 proprietors are entitled to an inspection of the balance-sheet, 
 and in some instances to the examination of that account. 
 When it is considered how great is the responsibility which 
 the law imposes on these shareholders, your Committee cannot 
 but hope that these functions will be strictly exercised by the 
 proprietors. On this check much will depend during the in- 
 terval which must elapse before Parliament is called upon to 
 interfere further. — August 20, 1836." 
 
 It is here stated that " it is to be inferred from 
 the increased issues of Joint Stock Banks, at the 
 period when the Bank of England was endeavouring 
 to limit the amount of paper in circulation, that a due 
 attention was not given by them to the returns pub- 
 lished in the Gazette, and that it was under consider- 
 ation of the Committee whether this did not require 
 the interposition of the Legislature even during the 
 then existing session.'' 
 
 From this it would seem that the Committee
 
 54 
 
 consider the increase of circulation by the Country 
 Banks to be a great evil ; a proposition about which 
 there is much difference of opinion, both in and 
 out of Parliament. 
 
 Assuming it, however, for the sake of argument, 
 to be an evil, the views of the Committee involve 
 two material errors : first, that any Banks are to 
 blame for it ; and next, that if any Banks are 
 blameable it is the Joint Stock Banks. 
 
 The currency has been a subject of warm dis- 
 cussion for twenty years, and yet the simple fact, 
 which is perfectly well known to several hundreds 
 of intelligent men connected with country banking, 
 has not yet been ascertained, that the country 
 banker exercises about as much influence over his 
 circulation as an astronomer does over the move- 
 ments of the planets, and that whatever effect the 
 exchanges or the proceedings of the Bank of Eng- 
 land may have upon it, is produced independently 
 of him. 
 
 Mr. Stuckey is the only banker who has ever 
 stated, that he regulates his issue by the exchanges. 
 But the presumption is that he means one thing, 
 and the Committee another. He speaks of his 
 advances to his customers, while they speak of 
 notes in circulation. He is a deposit banker, and 
 employs a good deal of his money in London, and 
 may be induced to contract his advances to his cus- 
 tomers on any pressure arising in the money mar- 
 ket ; but it does not at all follow that his circulation 
 should not be extended at the same time. The
 
 55 
 
 amount of a banker's circulation does not depend 
 upon the sum of notes he pays over his counter, but 
 upon their remaining out after they are issued. 
 The banks that pay the smallest amount of notes 
 over the counter, have not unfrequently the largest 
 amount in circulation. In short, every banker's 
 circulation enlarges and contracts independently 
 of him, or indeed of any recognised principles in 
 political economy, by which it is conceived the 
 circulation of a country ought to be regulated, and 
 the Joint Stock Banks are consequently blamed for 
 not doing that which they have not the power to do. 
 But if they could so regulate their issues still they 
 are not the parties to blame for the enlargement 
 which has taken place. It appears by the Table 
 given in the Report, that the circulation of the 
 Private Banks and Joint Stock Companies was on 
 the 28th of Dec. 1833, and 25th of June, 1836, as 
 follows : — 
 
 Private Bunks. Joint Stock Banks. Total. 
 
 Dec. 28, 1833, 8,836,803 
 June 25, 1836, 8,614,132 
 
 Increase 
 
 1,315,301 
 
 3,588,064 
 
 2,272,763 
 
 10,152,104 
 12,202,196 
 
 2,050,092 
 
 Decrease - 222,671 
 
 Now, if we go no further than this statement, it 
 is very obvious that the Private Banks have dimi- 
 nished their issues, while the Joint Stock Banks 
 have been the sole cause of the enlargement which 
 has occurred. But it is mentioned in the Report 
 that many Private Banks have been converted into
 
 56 
 
 Joint Stock Companies, and it likewise appears in 
 evidence that much of the business, and consequent 
 circulation, of the Joint Stock Banks has been de- 
 rived from the Private Banks ; and so far as their 
 increase of circulation has proceeded from these 
 causes it is a mere transfer from one column to 
 another. It is understood that not less than forty- 
 Private Banks, exclusive of agencies or branch es- 
 tablishments, had, in the above-mentioned period, 
 either disposed of their business to, or converted 
 themselves into, Joint Stock Companies, and if we 
 assume their circulation at £30,000 each, it will 
 make £1,200,000, which ought to be restored to 
 the Private Bank column, and if to this we add 
 ten per cent, for the amount of business which the 
 private bankers on the average have lost, say 
 £880,000, it makes the sum of £2,080,000, nearly 
 the whole amount of the increase complained of, 
 which must be deducted from the Joint Stock 
 Banks circulation, and added to that of the Private 
 Banks, in order to come at a correct conclusion. 
 From this it is obvious that if any Banks are blame- 
 able for the increase in question, it is the Private 
 Banks and not the Joint Stock Companies. If 
 therefore the Legislature had interposed, it would 
 have committed a double error ; first, in supposing 
 that the Banks were to blame at all, and next, in as- 
 suming that the increase of issues had been confined 
 exclusively to the Joint Stock Banks. 
 
 Although the circulation of the country banks is 
 not governed by the bankers themselves, nor yet
 
 57 
 
 b}- the Bank of England, as it frequently enlarges 
 at the very time the circulation of the Bank of Eng- 
 land is contracting, yet it cannot be supposed that 
 it enlarges and contracts without some cause, and 
 to ascertain upon what principle it does enlarge 
 and contract, is a very proper subject for Parlia- 
 mentary inquiry : for much good can hardly be 
 anticipated from Parliamentary interference with- 
 out more correct knowledge upon these subjects. 
 The result, however, of any well-directed inquiry 
 will, I am persuaded, lead to the conclusion, that 
 the only effectual remedy is to be found in a pro- 
 position which originated with myself some years 
 ago ; and as it has since met with the approbation 
 of persons whose attention has been particularly 
 drawn to the subject, a short account of it may 
 not be unacceptable. 
 
 From 1819 to 1822 agricultural produce fell 
 nearly one-half in price. Wheat, which in 1818 
 averaged 835. per quarter, in 1822 onlyaveraged 43. 
 The farmers and landowners were in great distress, 
 and public attention was directed to the ascertain- 
 ing of the cause of the fall of price which had oc- 
 curred. Most persons seemed to entertain one of 
 two view^s, which were rather warmly contended 
 for at the time : one, that it was produced by over- 
 production and a glut of the market ; the other, by 
 a contraction of the currency, produced by Mr. 
 Peel's bill : each party appearing to admit, that if 
 it was not produced by one cause it must by the 
 other. It appeared to me, however, that it pro-
 
 58 
 
 ceeded from neither of these causes, but from an 
 involuntary contraction of the circulation of the 
 Country Banks, against which, and the opposite 
 extreme of an undue enlargement of it, the only 
 effectual remedy was a National Currency, con- 
 sisting of paper, but modelled upon the prin- 
 ciple of a metallic circulation, and payable in gold 
 at the present standard. This would have reme- 
 died the evil, and have met the views of both 
 parties. At that time foreign wheat was not per- 
 mitted to be introduced, when the price was below 
 the average of 80 shillings per quarter ; and it 
 may now be demonstrated, that with such a system 
 of currency, it would not then have fallen below 
 that level ; though I do not mean to say that any 
 such price could now be maintained, or that the 
 alteration in the value of the currency and fall in 
 the prices of agricultural produce which has taken 
 place, may not be an advantage. 
 
 In 1822 I was led to give my attention to the 
 subject, and in 1823 I published my views on 
 it, in a somewhat crude and imperfect work, 
 and proposed the plan, which, however, is simple 
 and intelligible, of a National Bank. I submitted 
 it to Mr. Ricardo, who did not admit its necessity 
 as a remedy for the existing evils, which he con- 
 sidered to result from over-production, and ob- 
 jected to some of its details, but generally ap- 
 proved of the proposition, and said he would bring 
 it forward in Parliament. After his death in 1824, 
 his friends published a little pamphlet, which it
 
 59 
 
 seems he had prepared upon the subject, and 
 which contains the principle of my plan, with his 
 alterations. These chiefly went to recommend that 
 the machinery by which it was worked should con- 
 sist of Government agents rather than Joint Stock 
 Banks, and that a discretionary power should be 
 given to the directors, which did not appear to me 
 to be necessary, but which might for a time be 
 desirable, besides proposing further a mode of taking 
 possession of the circulation, which could never be 
 adopted. The rise in agricultural produce in 1823, 
 diverted public attention from the subject of the 
 currency. But I wrote a series of letters in the 
 Courier, at that time the official organ of Govern- 
 ment, recommending the plan, and these I repub- 
 lished in 1825, when the pressure in the money 
 market and the panic of that year had recalled 
 public attention in some degree to the subject. In 
 the following session the attention of Government 
 was directed to it ; and I was given to understand 
 from some of the Ministry that they concurred in 
 my views ; and I have since understood that the 
 question was mooted in the Cabinet whether they 
 should, or should not, propose a National Bank. 
 They, however, introduced the withdrawal of the 
 one pound notes in its stead ; stating that they 
 ■would go further when they could. I still perse- 
 vered in recommending the plan to public atten- 
 tion, and published a pamphlet in the latter end 
 of 1826, entitled, "Views on the subject of Corn 
 and Currency," in which this is done. In 1828
 
 60 
 
 I published a work, entitled " Views on Currency 
 Bill, etc.," in which the subject of corn and cur- 
 rency is more extensively discussed, and the ne- 
 cessity for a change of system pointed out ; and in 
 1832 I published a work, entitled " The Analysis 
 and History of the Currency Question," in which 
 the plan is again repeated and the adoption of it 
 more strongly enforced. The general effect of these 
 publications has been to produce, not a popular, 
 but a pretty general conviction ^amongst certain 
 parties, that some such measure would be very 
 desirable. Mr. Huskisson, who was a good autho- 
 rity on such questions, and who treated the plan 
 in the first instance as Utopian, subsequently 
 stated to a gentleman now in Parliament, that 
 he had the greatest confidence in any thing I 
 proposed, which necessarily involved his appro- 
 bation of the most important of the propositions 
 I had made, as well as being in some degree con- 
 firmatory of the fact now understood, that Lord 
 Liverpool's administration had taken the plan 
 into serious consideration. Lord Althorp also 
 was in favour of the measure, and in his speech 
 on proposing a renewal of the Bank Charter, 
 strongly insisted upon the advantage of a national 
 currency; but preferred that it should consist of 
 the notes of the Bank of England, issued under 
 the control of the Directors, and considered they 
 ought to remain independent of the Government, 
 as at present. He proposed in consequence gradu- 
 ally to extend its circulation over the country, by
 
 61 
 
 holding out inducements to certain Joint Stock 
 Banks which were to be formed, to circulate the 
 notes of the Bank of England instead of their own. 
 This plan was plausible. The difficulty of es- 
 tablishing a National Bank, which naturally pre- 
 sents itself to every minister, is the mode of intro- 
 ducing it without producing any derangement ; 
 and this it was no doubt intended to avoid by the 
 means proposed. It was, however, successfully 
 opposed by the private Bankers, but would have 
 proved an abortion had this not been the case ; 
 and even had it been realized to the utmost of 
 Lord Althorp's expectations, it would still have 
 only been a tedious and expensive mode of doing 
 that which might be done in a much more safe and 
 satisfactory manner, to the country and to all parties 
 concerned. The alteration I have no hesitation in 
 saying, may be made perfectly acceptable to the 
 present issuers of the currency, without any change, 
 except that which would be seen and felt in the 
 future evils it would prevent, and the continued 
 prosperity it would ensure. But the difficulty which 
 every Minister has to contend with in a subject 
 that demands so much consideration, is the multi- 
 plicity of objects which divide his attention, and 
 prevent him from attaining any comprehensive 
 views on the subject, even though he possess that 
 aptitude for it which it appears to require, in order 
 to its being successfully dealt with. And in the 
 case of Lord Althorp, the assistance he received
 
 62 
 
 was obviously from parties wlio were in the same 
 predicament with liimself. 
 
 But to return. Besides the principles upon which 
 the country bank circulation fluctuates, there is 
 another question which equally demands investi- 
 gation. It is contrary to every sound principle 
 of political economy, that the exchanges should 
 produce the effect they have upon the money 
 market of London ; making capital plentiful when 
 they are in favour of the country, and scarce when 
 against it. This arises from a defect in our system 
 of currency, for which a National circulation would 
 likewise be a remedy. But in the meantime there 
 is sufficient reason to believe that the Directors of 
 the Bank of England are not aware of any such 
 defect, and that the principles consequently by 
 which they govern their issues are incorrect; pro- 
 ducing, though unintentionally on their part, those 
 pressures and embarrassments in the money mar- 
 ket to which it is subject, and which might in a 
 great degree be avoided. The panic of 1825 was 
 produced solely by the Bank acting upon their 
 present principles, and deeming that the circum- 
 stances connected with both the cause and cure of 
 that event demanded investigation, which I was 
 entitled from peculiar circumstances to call for, I 
 published last year, for the use of the Members of 
 the Legislature, the following brief history of it, which 
 being intimately connected with the subject of these 
 pages, and rendered interesting by present circum- 
 stances, will probably be found worthy attention.
 
 63 
 
 CASE FOR PARLIAMENTARY INQUIRY, 
 
 INTO THE 
 
 CIRCUMSTANCES OF THE PANIC. 
 
 The great Panic of 1825 was caused by the Bank 
 of England contracting its issues to the extent of 
 three millions and a half, in the short space of six 
 months, and was suddenly arrested by its re-extend- 
 ing them to twice that amount, in as many days. 
 This latter was one of the boldest and most success- 
 ful measures of a financial character ever adopted, 
 and was the theme of grateful and universal praise, 
 voluntarily tendered to the Bank, but also claimed 
 by the Government of that day for itself. 
 
 In the following pages, however, evidence is af- 
 forded that it neither originated with the Bank nor 
 the Government, but with the writer. They were 
 written two or three years ago, upon notice of a 
 motion by Mr. Gisborne, for a committee to inves- 
 tigate the subject ; but the motion has for different 
 reasons been hitherto postponed. It however is 
 presumed that the time has now arrived, or is very 
 fast approaching, when the subject, which is one 
 of great importance, in reference to the future 
 management of the Bank, is more likely to be 
 attended to.
 
 C4 
 
 It is well known that the influx of gold, when the 
 exchanges are much in our favour, causes an in- 
 convenient redundancy of capital in the money 
 market of London, and a reflux the reverse ; that 
 is, when gold is imported into London to any con- 
 siderable extent, capital becomes plentiful amongst 
 bankers and others, and they have more than a 
 usual amount to lend. This reduces the rate of 
 interest, raises the prices of public and other secu- 
 rities, and enables the bankers, bill-brokers, and 
 others to accommodate the commercial classes with 
 loans of money for longer periods, and on more 
 favourable terms than usual. On the other hand, 
 when gold comes to be exported to any extent, 
 money becomes scarce, bankers and others have 
 not so much to lend as before, the rate of interest 
 rises, the prices of public securities fall, and the 
 accommodation previously afforded to the commer- 
 cial classes is suddenly withdrawn, by which great 
 distress and inconvenience are generally occasioned. 
 Neither of these effects are natural. When gold 
 is imported, it is received in payment for our ma- 
 nufactures exported, and adds nothing to the capital 
 of the manufacturer in payment for whose goods it 
 is received. If he receives one hundred pounds in 
 money for one hundred pounds' worth of goods, he 
 is not a richer man than before, with the exception 
 of the profit made upon his goods ; and in the 
 aggregate, the chief part of this profit goes to his 
 support. Ninety-nine times out of a hundred also,
 
 65 
 
 the money thus received is required for tiie pur- 
 poses of his trade. He does not send it up to 
 London from Yorkshire or Manchester or wherever 
 he may reside, to employ it in the funds, or to lend 
 it to the merchants of London. He requires it at 
 home, to replace the goods he has sold, by manu- 
 facturing more. On the other hand, when gold is 
 exported, it consists of money paid for foreign pro- 
 duce by the English consumers of it ; and if the 
 wine annually consumed by a family in Cheshire, 
 be this year paid for in gold to the foreign pro- 
 ducers of it, the money for this purpose is neither 
 obtained from the London banker nor the funds, 
 but from their annual income ; and there ought to 
 be no reason whatever, that the money thus taken 
 out of circulation in Cheshire, and sent to Portugal 
 or France, should have any effect in producing a 
 scarcity of capital in London. Such, however, is 
 the case, and it arises from a defect in our system 
 of currency, which renders the administration of 
 the London circulation, by the Directors of the 
 Bank of England, one of peculiar difficulty and 
 embarrassment. But I shall not enter into the 
 inquiry, how this strange and mischievous anomaly 
 is produced. It is sufficient for the present pur- 
 pose to state the fact, which, though generally in- 
 comprehensijble, is yet perfectly familiar. 
 
 An enormous influx of gold took place from 1819 
 to 1824, with the usual consequences, a great super- 
 abimdance of money, and a very low rate of interest. 
 
 F
 
 66 
 
 This gave rise to numerous speculations of a new 
 and adventurous character, as well as a general 
 enlargement of legitimate trade to a great extent on 
 borrowed capital. The Bunk might have antici- 
 pated that such an overwhelming influx would 
 eventually be followed by a re-action, and that of a 
 very fatal character; for however inconvenient a 
 superabundance of capital may frequently prove to 
 those who have it to lend, an unexpected scarcity 
 and withdrawal of it from the commercial commu- 
 nity, by whom it has been borrowed, is a matter of 
 much more dangerous consequence. Now the 
 Bank entertained an opinion, which was likewise 
 general, that they had the power of almost imme- 
 diately checking the reflux of gold by a contraction 
 of their issues; but as this produces, to a greater or 
 less extent, an immediate suspension of commercial 
 and manufacturing operations, as well as a fall in 
 prices, whenever they use this power, except in a 
 very gradual manner, the result is most mischievous. 
 It ought therefore to be exercised with great fore- 
 sight, delicac}'-, and judgment. When, however, 
 the Bank had found, in November, 1824, that a 
 reflux had set in, they did not commence the usual 
 steps they adopt to counteract it. It was not until 
 the latter end of April 1825, when six millions and 
 a half of their treasure had left them, that they 
 began to contract their issues. They then did it 
 with an unsparing hand, and effected in six months, 
 what ought not to have been done, if done at all,
 
 67 
 
 in less than two years. A pressure, proportionately 
 severe, was the consequence ; which was aggra- 
 vated by the violent absorption of the circulation, 
 peculiar at such periods to our currency, and 
 threatened the most serious consequences. 
 
 From November 1824 to September 1825, they 
 had lost more than ten millions of their treasure, 
 and had little more than three millions left; and as 
 the only means of preventing their ultimately 
 stopping payment themselves, they conceived they 
 must effect a still sharper contraction. As might 
 be expected, therefore, the commercial world 
 presented every appearance of drifting speedily to 
 inevitable destruction. 
 
 By the middle of November, the shadow of the 
 approaching storm was upon us. It was yet to 
 burst — but the gloom was palpable. The coming 
 confusion, as usual, was first visible in the leaves of 
 the public press ; and on the 23rd, the Times, one 
 of its most influential organs, took the earliest 
 public cognizance of it. The following extract 
 from that able journal, conveys, more forcibly than 
 I can, the embarrassment of the period, and the 
 popular views concerning it. 
 
 " It is said that a degree of difficulty exists in 
 obtaining commercial discounts, which has not 
 been equalled for several years past. That the 
 immediate cause is the extreme caution of the Bank 
 of England, who, seeing a decline in the exchanges, 
 are apprehensive of a fresh exportation of gold, 
 
 F 2
 
 68 
 
 and therefore contract the issues of their bank notes 
 with more timidity than, perhaps, the urgency of 
 the case demands, &c. That the distress thereby 
 occasioned, would exceed the belief of persons not 
 familiar with the subject : and there is reason for 
 suspecting the attention of Ministers to be, at the 
 present moment, seriously occupied with the afore- 
 said scarcity of money ; its causes, and, perhaps, 
 its remedies ; and that, finally, as the result of the 
 discussion between Ministers and the Rank, the 
 Government must reduce its debt to the Bank ; or 
 that the latter establishment will not be able to fulfil 
 the important functions of a discount Bank, so as 
 to carry the trade of the country through the 
 approaching crisis. Such is the substance of our 
 City Bulletin of yesterday, representing, we believe, 
 with much fidelity, the opinions, but with still more 
 exactness conveying, indirectly, the wishes of com- 
 mercial men, that, by some means or other, the 
 Bank should be, at once, enabled and induced to 
 extend its accommodation, in the shape of discount 
 to the public. 
 
 " To begin with the latter part of the subject; 
 our own most hearty and earnest prayer to the 
 Bank Directors would be, that no consideration 
 should induce them to extend their discounts ; if 
 the condition of the commercial world be truly 
 described in the statements we have just now 
 given." 
 
 On the following day the Times intimated the
 
 tact that the Governor and Deputy Governor of 
 the Bank, had, at their own request, held a confe- 
 rence with the Chancellor of the Exchequer ; and 
 that the principal object of it was, to require of the 
 Ministers, as early as possible, a repayment of part 
 of the advances which they had made on deposits 
 of Exchequer Bills. 
 
 The conference with the Chancellor of the Ex- 
 chequer led to nothing conclusive. The business, 
 the Times informs u.->, was deferred until the arrival 
 of Lord Liverpool in town on the succeeding Mon- 
 day ; but not the slightest hope was held out that 
 the application of the Bank would be entertained. 
 It was stated to be the opinion of the Chancellor of 
 the Exchequer — and the statement was sanctioned 
 and confirmed by the conduct pursued after Lord 
 Liverpool did arrive — that the evil would work its 
 own cure; and that, in any case, he was not aware 
 that assistance could be given to the Bank by the 
 Government. 
 
 In short, all the assistance afforded by the 
 Government to the Bank at this critical period may 
 be said to have been compressed into a figure of 
 speech — they thought that " the evil w^ould work 
 its own cure." That it would be best to let the fire 
 burn itself out ! 
 
 The Bank, as subsequently appeared, should 
 have retraced the steps which had led to the evil. 
 They should have re-extended their issues, until 
 the excessive pressure at least was removed ; for it
 
 70 
 
 was not only the magnitude, but the sudden- 
 ness and character of their operations, which had 
 produced it. But so far from doing this, we find 
 that ten days after, their circulation had actually 
 been contracted from £17,594,301 to £17,497,299. 
 The immediate cause of these difficulties was not 
 then, if it be at present, generally understood. They 
 were commonly attributed to over-trading and wild 
 speculations ; the scarcity of money which existed 
 was imputed to vast amounts supposed to be sunk 
 in visionary undertakings ; and the discredit and 
 want of confidence it was presumed would merely 
 extend to those houses who were implicated in them. 
 Hence it was the opinion, that while those who had 
 speculated so rashly would suflPer, the sound and 
 sober part of the commercial community would re- 
 main uninjured — an opinion so plausible, that we 
 cannot wonder at its being entertained. But what 
 said Mr. Baring afterwards ? "A panic had seized 
 the Public. Men would not part with their money 
 on any terms, nor for any security. Persons of 
 undoubted wealth and real capital were seen walk- 
 ing about the streets of London, notknowingwhether 
 they should be able to meet their engagements the 
 next day." Nor can we be surprised that a panic 
 seized the public, when the Bank had set the ex- 
 ample, by refusing the accommodation necessary to 
 save the country, for the purpose, a justifiable one 
 no doubt, of saving themselves. Can we be sur- 
 prised that men woidd not part with their money,
 
 71 
 
 when tlie Bank dared not ? When the king's ship 
 consults its own safety, is it not to be expected that 
 a convoy of merchantmen will do the same ? The 
 panic began in the Bank parlour ; and when the 
 garrison shut themselves up in the citadel, it was 
 only natural that the citizens should abandon all 
 idea of mutual assistance in the struggle for indi- 
 vidual preservation. 
 
 Every day, however, the crisis grew more immi- 
 nent. On the 29th of November, it was announced 
 in London, that Sir William Elford's bank at Ply- 
 mouth had been brought to a stop, and that addi- 
 tional embarrassment had been created in the cit^^, 
 from the alarming demand for money which this 
 failure had occasioned. The Country Bankers, of 
 course, began to prepare against a similar fate, and 
 to call upon the money market of London for sup- 
 plies. Still not only were the Government and the 
 Directors decidedly opposed to any fresh creation 
 of circulating medium by the Bank, but the Press 
 deprecated it in the strongest terms, and the public 
 themselves coincided with the policy which they 
 espoused. " Tlie main good of the nation,'" said the 
 Times, " requires that the experiment should work. 
 * * * As for relief from the King's Government, the 
 Ministers know very v/ell the causes of the evil, and 
 the extent of it, and its natural and appropriate re- 
 medies ; and we venture to forewarn the men of 
 paper, that no such help as they are seeking will be 
 contributed by the State. An inundation of bank
 
 72 
 
 notes has aimed at overflowing the real capital of 
 the kingdom. Lord Liverpool, therefore, will think 
 a long time before he does any thing to countenance 
 that onginal mischief under the pretence of curing it.'* 
 The same sentiments were enforced by another 
 influential organ of public opinion. " That the 
 Bank, at present," said the Morning Chronicle on 
 the 28th, " has only the alternative of limiting its 
 discounts, or becoming insolvent, we can believe ;" 
 and on the day following, " the Country Banks caij 
 only weather the storm, in any quarter, by the 
 greatest exertions ; and frequent must be the appli- 
 cations for relief, directly and through indirect 
 channels, to the Bank. But the Bank has to choose 
 between its own insolvency, and the insolvency of 
 these imprudent speculations, and as it is quite im- 
 possible, in the present state of things, for the Bank, 
 with any regard for its own safety, to stretch out a 
 friendly hand to them, the consequences may easily 
 be foreseen." 
 
 The mischiefs apprehended from an increase of 
 issues were these — first, that it might drive the 
 exchanges still further against the country, and, by 
 thus continuing the drain upon the Bank for gold, 
 finally compel it to stop payment ; and secondly, 
 that when any issues that might be made were again 
 withdrawn, as eventually they must be, we should 
 revert to the same situation of difficulty as before. 
 It would be postponing the evil day, not averting it, 
 and create the onginal miscliief, as tlie Times ob-
 
 73 
 
 served, under the pretence of curing it. With these 
 views it is difficult to conceive how the Directors, 
 in the conscientious discharge of their trust, could 
 act otherwise than they did. Personally, as mer- 
 chants, they were deeply interested in adopting any 
 course by which the pressure could have been re- 
 moved ; and when the press arrayed itself on the 
 side of principle — for the press only advocated a 
 line of conduct, as before observed, acknowledged 
 on all hands to be right — it might not be without 
 some misgivings as to the firmness of the Directors 
 in doing their duty under the peculiar circumstances 
 in which they were individually placed. In ques- 
 tioning the policy therefore which the Bank adopted, 
 it is but justice to give the Directors full credit for 
 the integrity by which their conduct was animated. 
 But to resume our narrative. 
 
 One Country Bank went after another ; the panic 
 reached the London Banks ; two or three of the 
 weakest fell at once : and thus matters daily grew 
 worse and worse until Monday morning, the 12tli 
 of December, when it was announced that Pole, 
 Thornton, and Co., one of the oldest and largest 
 Banking firms in the metropolis, had stopped pay- 
 ment. 
 
 That this would be the case was communicated 
 to the Bankers in Lombard-Street on Saturday 
 night : and some of them called upon the Governor 
 of the Bank, as also upon Ministers, on Sunday, to 
 impress upon them, that if, at that moment, such
 
 74 
 
 a House, which was drawn upon by no less than 
 forty-seven Country Banks, were allowed to stop, 
 a run would take place upon every Bank in London, 
 as well as upon every Bank in the country, and 
 a panic would inevitably take place, the conse- 
 quences of which it would be impossible to foresee. 
 The house, however, was allowed to stop, and a 
 dreadful run immediately took place ; a panic seized 
 upon the public, such as had never been witnessed 
 before; everybody was begging for money — money 
 — money — but money was hardly on any condition 
 to be had. " It was not the character of the secu- 
 rity," observes the Times, " that was considered ; 
 but the impossibility of procuring money at all." 
 The next day (Tuesday) was still worse. It was 
 ushered in by the announcement that Williams, 
 Burgess, and Co., another equally large Banking 
 house, as also two or three more, had been brought 
 to a stand ; and the panic became universal, and 
 threatened to be irresistible. 
 
 It was idle to dream of satisfying the clamorous 
 and voracious demands of the public with any 
 thing but money. Nothing but a plentiful supply 
 of Bank Notes could meet the exigency ; and this 
 could hardly now be afforded by the ordinary means 
 of discounting bills. All bills were more or less 
 in discredit ; and, moreover, the amount of money 
 required was such, that the time which would 
 have been occupied in advancing it upon such secu- 
 rities, might even have rendered the relief by dis-
 
 75 
 
 counting, too turdy for the emergency which had 
 arisen. And this again was supposing that the 
 parties in want of the relief had such securities 
 to offer ; whereas it was only the City Merchants 
 and Bankers who held such bills as the Bank pro- 
 fesses to discount, and money w^as wanting now by 
 Bankers in every part of the Metropolis, and would 
 quickly be by Bankers in every part of the country. 
 The proper way for the Bank at this conjuncture 
 to give relief, was by bills or loans on government 
 securities. These were the securities, in which the 
 Bankers, generally speaking, held the funds, with 
 which they were provided to encounter such an 
 emergency ; and, as they had become unsaleable, 
 their onl}'^ resource was to procure advances upon 
 them. A hundred thousand pounds, moreover, 
 could be as easily valued in them, and handed over, 
 as a hundred pound bill. In order, therefore, to 
 afford the assistance required, and with the promp- 
 titude that was called for, the Bank must not only 
 have enlarged its issues, against the judgment of 
 the Government, against the opinion of the public, 
 and against their own conviction ; but they must 
 have done so upon a species of securities, inconsistent 
 with the principles upon which their business had 
 always been conducted. 
 
 We cannot, therefore, be surprised that the Bank, 
 notwithstanding the events of the IVJonday, and the 
 growing embarrassment of the Tuesday, resolutely 
 persevered in holding back. On the latter day,
 
 76 
 
 many attempts were made to induce them to lend 
 on stock, but without avail. We appeared, therefore, 
 on the eve of an unavoidale convulsion. Another 
 day lost in passive suffering, and the ruin seemed 
 sure and irretrievable. The panic, which had 
 hitherto been confined to London, but of which the 
 elements had already been spread in the country, 
 by the next post, would roll back upon the metro- 
 polis, like a torrent swollen from a thousand sources. 
 " The question," says a Bank Director, " had 
 become, not who would fall, but who could stand?" 
 when the Bank suddenly stepped forth, and saved 
 the kingdom from impending desolation, by one of 
 those unexpected movements, by which the fate of a 
 nation is sometimes determined in the chances of 
 war, but seldom in the incidents of its civil con- 
 dition. 
 
 After having doggedly refused the accommodation 
 required, up to the moment of closing their doors 
 on Tuesday afternoon, they opened the next day with 
 a liberality that knew no bounds, and disdained all 
 risks. In the course of Wednesday they began, 
 sudden as a new thought, not only to increase their 
 discounts, but to purchase Exchequer bills, and 
 make advances upon stock. The day following, 
 they did the same, lending without reserve on any 
 good security, and even, in many instances, taking 
 the security, without wasting much time in examin- 
 ing its validity. All restrictions upon their issues 
 was now out of the question. The only considera-
 
 77 
 
 tion was, how tliey could issue fast enougli. The 
 sovereigns they gave out by weight, to save the 
 interruption of counting, and handed over their 
 notes as fast as they could be told ; until, in four 
 days, they had neither a sovereign nor a note to go 
 on with. On Saturday night they could not give any 
 kind of chano'e for fifteen of their own thousand 
 
 o 
 
 pound notes. 
 
 The rapidity with which they enlarged their 
 issues when they once set about it, has no parallel 
 in their history. From November the 19th, to 
 December the 3rd, their issues remained nearly at 
 a stand ; from December the 3rd, to December the 
 10th, they only varied from 17,477,290/. to 
 18,037,960/. ; but on Saturday, December the 17th, 
 they amounted to 23,942,8 it)/., and on the 24th of 
 that month, were swelled to 25,61 1,800/. Including 
 their issues in gold, they must have distributed 
 nearly ten additional millions of currency in the 
 short space of eleven days, seven of which would be 
 issued in the first four. The following is a weekly 
 account of their issues of paper, from the first Satur- 
 day in September to the last in December : — 
 
 £. 
 1825.— Saturday, September 3 - - 19,028,060 
 Ditto October 1 - - 18,536,550 
 Ditto November 5 - - 18,497,400 
 Ditto 12 - - 18,031,860 
 
 Ditto 19 - - 17,594,280 
 
 Ditto 26 - - 17,464,880
 
 78 
 
 £. 
 Saturday, December 3 - - 17,477,290 
 Ditto" 10 - - 18,037,900 
 
 Ditto 17 - - 23,942,810 
 
 Ditto 24 - - 25,611,800 
 
 Ditto 31 - - 25,709,410 
 
 A measure so sudden and unexpected, so opposed 
 to the general practice of tlie Bank, and carried to 
 such an extreme in the teeth of their own prejudices, 
 and of public opinion, it is not probable that they 
 would have undertaken on their own single respon- 
 sibility. The Times, on the subsequent Friday (the 
 16th), adverted to a rumour of the Government 
 having recommended the Bank to purchase a few 
 Exchequer bills ; and seemed to think such an act 
 of interference too curious to be true. But it was true; 
 and the only curious part of the story is, that up to 
 the Tuesday afternoon, their recommendation went 
 no further. There was much assertion and contra- 
 diction at the time, as to whether and when the Go- 
 vernment interposed its advice. Mr. Huskisson de- 
 clared, that the Bank had acted throughout with 
 the countenance and concurrence of the Govern- 
 ment, which decides the fact that the Government 
 sanctioned the sudden change which the Bank 
 adopted on the Wednesday. At the same time it is 
 demonstrable from subsequent disclosures, that 
 this change was not meditated, either by the Go- 
 vernment or the Bank, until after the hours of busi- 
 ness on the Tuesday. In the Appendix to the Report
 
 79 
 
 of the Bank Charier Committee, we find the follow- 
 mg conclusive minute. 
 
 " At a Court of the Directors at the Bank, Tues- 
 day^ December 13M, 1825, the Governor laid before 
 the Court the following note from the First Lord of 
 the Treasury and the Chancellor of the Exchequer, 
 
 VIZ. 
 
 " In order to relieve the present distress in the 
 money market, the First Lord of the Treasury and 
 the Chancellor of the Exchequer, are prepared to 
 give immediate directions for the purchase of 
 300,000/. Exchequer Bills, in addition to the 
 200,000/. which they understand the Bank directed 
 to be purchased yesterday. 
 
 " If it should be thought, however, more advis- 
 able that the w^hole 500,000/. should be purchased 
 by the Bank on their own account, the First Lord 
 of the Treasury and the Chancellor of the Exche- 
 quer, will be prepared, if the Bank should require 
 it, immediately to redeem the same, 
 i Liverpool, 
 =' ' ( Frederick John Robinson. 
 Treasury Chambers, Dec. \3th, 1825." 
 
 " Resolved, 
 " That the Governor be authorised to order the 
 purchase of Exchequer Bills to the amount of 
 500,000/. upon the conditions specified therein." 
 
 Without explanation, which the transaction does 
 not bear upon the face of it, it is difficult to con-
 
 so 
 
 ceive how the purchase of 500,000/. worth of Ex- 
 chequer Bills by the Government, could afford re- 
 lief to the money market, even to that limited ex- 
 tent; for the question naturally arises, where did 
 the Government get the money? They do not keep 
 bank notes in the Exchequer. The place of de- 
 posit for the money of Government is the Bank of 
 England. This purchase of exchequer bills by the 
 Government must therefore have been made by a 
 cheque upon the Bank, the providing for the pay- 
 ment of which must have limited the advances of 
 the Bank to the public in some other way, to an 
 equal extent; so that nothing would be gained. 
 Assuming it, however, to have afforded the amount 
 of relief proposed : 
 
 It is clear from this document, that a purchase 
 of £500,000 of exchequer bills was on Tuesday the 
 utmost relief contemplated, from which it is evident 
 that the measures pursued on Wednesday had not 
 then entered into the views of the Government or 
 the Bank. Nor were the public at all prepared 
 for the change. To the last moment it was depre- 
 cated by the press ; though, no sooner was the 
 experiment adopted, than they gave it their ap- 
 probation and support. The question now is, what 
 produced it ? — That it neither originated with the 
 Bank, nor with the Government, I think is obvious ; 
 for even after adopting it, they were not aware of 
 the amazing effect it was calculated to work. At 
 the very moment they were venturing upon it (on
 
 81 
 
 the Wednesday')^ the Bank applied to the Govern- 
 ment for a restriction ; the Government on the 
 other hand, advised the Bank to stop on its own 
 responsibility, and to give notice of resuming pay- 
 ment in February ; and " the Bank," says the 
 Deputy-Governor in his evidence, *' not being clear 
 that it could do so," refused to implicate itself in 
 any such pledge. When people pursue measures 
 of their own, they know what they are about, and 
 have made a calculation at least of the result to be 
 expected. On the contrary, when they adopt the 
 system of another, the operation and tendency of 
 which they do not clearly comprehend, they can 
 never wait coolly and confidently for the result. 
 The Bank and the Government were manifestly in 
 this latter situation. Where, then, are we to look 
 for the source of the successful policy which they 
 followed ? It must either have been an inspiration 
 from above, or a suggestion of earthly origin ; and 
 as there is no necessity to suppose a miracle, where 
 a natural cause, adequate to the effect, is at hand, 
 I venture to presume that it may be accounted for 
 as follows : — 
 
 The Directors, as I have before remarked, appre- 
 hended that an increase of their issues would turn 
 the exchanges against us, and lead to a demand 
 for gold, wliich might ultimately bring the Bank 
 to a stoppage. The same opinion was entertained 
 by the public generally. It was not perceived that 
 a demand for money in ordinary times, and a demand 
 
 G
 
 82 
 
 for it in periods of panic, are diametiically different. 
 The one demand is for money to be put into circu- 
 lation ; the other, for money to be taken out of it. 
 A person, who wishes to have the command of a 
 hundred pounds, places it with his banker. When 
 the banker falls into discredit, he takes it from 
 him, not to spend, but to keep in idle security at 
 home, until he sees whether the banker will stand. 
 Money, thus required, is not required for circula- 
 tion, but to be hoarded ; and the moment that 
 confidence is restored, it will be returned to the 
 banker again. This distinction did not strike the 
 Government, the Bank, or the public ; and there- 
 fore it was not observed, that a demand for money, 
 arising from panic, might be supplied with safety ; 
 that the money advanced would not enter into con- 
 sumptive circulation, so as to effect the exchanges, 
 by elevating prices, but would spontaneously re- 
 turn on the recovery of credit. 
 
 Simple as this view of the matter may appear 
 now, it struck, as before remarked, no one else at 
 the time. And convinced that it was in my power, 
 if I could command attention, to redeem the country 
 from a capital and mischievous error, I sent the 
 following to the Courier (the official organ of the 
 Government), on the Tuesday morning, and the 
 editor made it his leading article for that day. 
 
 "Tuesday Evening, December 13M. 
 
 " There never was, perhaps, less real cause for 
 commercial embarrassment than at the present mo-
 
 83 
 
 ment ; and no doubt can possibly be entertained 
 that the actual distress in the money market arises 
 in part from obstructed circulation, produced by 
 want of confidence, and in part from the great 
 supplies of sovereigns and Bank of England notes, 
 which have been sent down to the Country Banks, 
 in all parts of the kingdom, amounting, probably, 
 in the aggregate, to many millions. There are 
 between five and six hundred country bankers in 
 England, exclusively of Scotland ; and there is 
 little doubt that every one of them has thought it 
 necessary to increase his stock of gold and Bank 
 of England notes to a greater or less extent, and 
 the whole of this supply has been taken out of the 
 money market of London. 
 
 " The best possible proof that the present diffi- 
 culties are the mere result of want of confidence, is 
 the fact, that there are no such difficulties where 
 this want of confidence does not exist. By our ac- 
 counts from Scotland, we find that there, all is tran- 
 quil. Money has been more in demand of late, 
 but this appears to be rather a beneficial result than 
 otherwise. People are making more money in 
 their respective trades, and are willing to give a 
 better interest for it. Bankers, consequently, are 
 not only enabled to charge a higher interest for the 
 money they lend, but also to give a higher interest 
 for money deposited with them, which they have 
 lately commenced doing. The same is taking place 
 not only in Ireland, but in those parts of England 
 
 G 2
 
 84 
 
 where there is no want of confidence. As soon, 
 therefore, as confidence is restored, the distress will 
 be at an end. This, however, in the mean time, 
 may be very much relieved by the Bank of Eng- 
 land, who, with perfect safety, might issue notes to 
 the extent of those either withdrawn from circula- 
 tion by individuals, or sent into the country. In 
 so doing, they would not add to the circulation, 
 but only supply a vacuum in it ; and the moment 
 confidence returns, they may withdraw the whole 
 amount of notes thus issued to meet the present 
 emergency. 
 
 " In the state of the money market, the Directors 
 have a very easy test by which to regulate their 
 issues. So long as the pressure is unnatural (of 
 which they will be able to form a tolerable judg- 
 ment) the demand must be unnatural, and may be 
 supplied without any increase to the quantity of 
 money, which would otherwise have been in actual 
 circulation. On the other hand, when confidence 
 is restored, the Directors will perceive, by the de- 
 preciated value of money in the market, the period 
 when the money hoarded and supplied to the 
 Country Bankers is beginning to find its way back 
 into the circulation of London, and this, of course, 
 will be the proper time for withdrawing their sur- 
 plus issues. 
 
 " We have reason to believe that this policy is 
 actually pursued by the Bank to a considerable 
 extent. They are, no doubt, increasing their is-
 
 85 
 
 sues.* But considering the pressure in the money 
 market, we consider they might go considerably 
 further with perfect safety. The Bank, indeed, is 
 in a great measure bound to administer the relief 
 necessary upon such occasions. It is certainly a 
 defect in our present system of currency, that it is 
 liable to be contracted by a touch, or frightened, as 
 it were, out of circulation by the breath of opinion. 
 But this, perhaps, is in some measure caused by the 
 charter of the Bank itself; and it is bound to sup- 
 ply the deficiencies caused by such alarms, when 
 they occur. 
 
 "We believe also, the Bank need not fear that 
 any issue of their notes could turn the exchanges 
 against the country, until long after confidence was 
 restored, even if those issues were carried to a com- 
 parative excess. Adam Smith has somewhere 
 likened an excess of circulation to too much water 
 put in a vessel, which, consequently, runs over; 
 and we perceive that many of our contemporaries 
 imagine that the Bank have the power of turning 
 the exchanges in our favour or against us, by 
 merely putting their notes into circulation, and 
 taking them out again. The issues of the Bank, 
 however, could only affect the exchanges, through 
 the medium of an elevation or depression of prices 
 increasing or diminishing the amount of our ex- 
 
 * They had enlarged their discounts by increased issues of gold, 
 but the probability is, that they had not increased their issues of 
 paper.
 
 86 
 
 ports or imports, which must be an operation of 
 many months ; and we feel some degree of confi- 
 dence, therefore, that the Bank, for a temporary 
 purpose, might increase its issues with less reserve 
 than has been sometimes supposed necessary." 
 
 The next (Wednesday) morning, the Bank in- 
 stantly and vigorously adopted the policy recom- 
 mended and explained in that article ; and having 
 once induced them to commence a bold but judicious 
 operation, the great matter was, to inspire them with 
 courage to proceed with it. The finessing between 
 the Bank and the Government on the Wednesday — 
 their higgling for a suspension, but diplomatising 
 to throw the blame upon each other — shews that 
 they wanted no little fortifying in the resolution 
 they had taken ; and I therefore continued to address 
 myself daily to the same subject in the same man- 
 ner, until every danger and doubt had subsided. 
 It is only, however, to the two following articles 
 that I shall more particularly call your attention, 
 for the sake of illustrating the principles to be in- 
 vestigated. The first was intended more effectually 
 to dissipate the apprehension of the Bank, that the 
 exchanges would be affected by the expansion of 
 their issues; and the next to enforce the prudence 
 of a prompt and sufficient supply, by proving the 
 facility with which the surplus issues would be 
 withdrawn when the crisis was over.
 
 87 
 
 The Exchanges ivouldnot he affected by an enlargement 
 of Issues. 
 
 "Wednesday Evening, December I4th. 
 
 "The resolution of the Bank to increase their 
 rate of interest to five per cent, is perfectly justifi- 
 able at the present moment ; but whether the real 
 value of money will justify the change, after confi- 
 dence is restored, they will discover by experience. 
 No objection, however, can possibly be made to the 
 change, under existing circumstances, if the Bank 
 will but supply the dreadful vacuum, w^hich want 
 of confidence has caused, and continues to cause, 
 in the circulation. 
 
 " That the Directors have every disposition to do 
 this, we are well assured; and the question, we 
 believe, with them is, how far they can do it with 
 safety. The danger they naturally apprehend is, 
 that, by an excess of issues, they may turn the ex- 
 changes against the country, and create a demand 
 for gold which they cannot supply. 
 
 " If the present demand for money were a natural 
 one, we have no doubt that, in the course of twelve 
 months, an increase of issues might have that 
 eftect. The money issued would be employed in 
 increasing the stocks of the merchant, and the em- 
 ployment of the manufacturer ; by which means 
 the general consumption would be increased, and 
 a corresponding elevation of prices would follow. 
 This would increase the foreign demand for our
 
 88 
 
 manufactures, and of course diminish our exports, 
 on the one hand ; while on the other, an additional 
 consumption would take place in foreign com- 
 modities, as well as in our own, and increase our 
 imports. Thus our exports being diminished, and 
 our imports being increased, gold would be de- 
 manded of the Bank, with which to pay the dif- 
 ference. It is quite idle to suppose that the issues 
 of the Bank can affect the changes, or the expor- 
 tation and importation of gold, except by a process 
 similar to this. Money comes into the country, 
 or goes out of it, in actual payment for commodities 
 which have been previously exported or imported ; 
 and before the exchanges can be affected, an 
 alteration in our exports or imports must take 
 place, 
 
 " The simple question, therefore, for the Bank 
 Directors to ask themselves, is this : Does the pre- 
 sent excessive scarcity of money arise from a de- 
 mand for capital, to be immediately employed in 
 commercial, manufacturing, or other speculations, 
 by which consumption will be generated and in- 
 creased? If it do not arise from this cause, the 
 demand may be supplied by an increase of issues, 
 on the part of the Bank, with perfect security ; and 
 we may safely say, never was the commercial and 
 manufacturing world more innocent of any inten- 
 tion to increase their operations than at this 
 moment. 
 
 " The present scarcity of money is the mere re-
 
 89 
 
 suit of alarm and want of confidence ; and as the 
 demand has been a sudden one, so ought the supply 
 to be. A judicious and adequate relief afforded by 
 the Bank, at the present moment, would, we are 
 persuaded, restore confidence in a few weeks. 
 
 " We do not, by any means, wish to be under- 
 stood as proposing that the Bank should make 
 advances to bankers, without adequate security. 
 But if a banking house be pressed, or has a run 
 upon it, and wishes for assistance, we do think, 
 provided the security offered be sufiicient, that the 
 description of such security ought not to be con- 
 sidered too scrupulously. By meeting the present 
 diflftculties in a manner at once judicious and de- 
 cisive, we are persuaded, that it is in the power of 
 the Bank to end them with perfect safety to itself ; 
 and we trust that the Directors will not, from a 
 misplaced caution, which, in point of fact, would, 
 at this moment, be the greatest rashness, allow the 
 present temporary but alarming pressure for money, 
 and want of confidence to be increased." 
 
 Prompt Supply of Notes required, ivhich Supply may 
 he afterwards withdrawn without danger. 
 
 "Thursday Evening, December 15. 
 " A Meeting took place at the Mansion-House 
 yesterday, to consider the present alarming state of 
 public credit. Of the proceedings at this Meeting 
 we gave some account in a second and third edition 
 of our paper of yesterday ; and for more detailed
 
 90 
 
 particulars, we refer our readers to our columns of 
 this day, At this meeting it was stated that Sir 
 P. Pole and Co. have a surplus of one hundred and 
 seventy thousand pounds, after the payment of all 
 claims upon them, besides the large landed pro- 
 perty of Sir Peter Pole, and about one hundred 
 thousand pounds the private property of the other 
 partners of the House ; and that Williams and 
 Burgess have property sufficient to pay forty shil- 
 lings in the pound. We have little doubt, also, 
 that the other Houses that have since stopped pay- 
 ment, are equally competent to pay all claims upon 
 them. 
 
 " When we thus perceive the perfect solvency of 
 the two Houses above-mentioned, we cannot but 
 consider it a most unfortunate circumstance, that 
 they were allowed to come to a stand, at such a 
 time, for want of proper assistance. It might, with 
 certainty, have been anticipated, that the stoppage 
 of two such houses would produce all the conse- 
 quences that have ensued. There are times when 
 rules and precedents cannot be broken ; others, 
 when they cannot be adhered to with safety ; and 
 it is extremely probable, that if the Bank had done 
 on Saturday, what they have done both yesterday 
 and to-day (Wednesday and Thursday), namely, 
 advanced upon other securities than bills, these 
 houses would not have stopped payment, and con- 
 fidence by this time, instead of being almost de- 
 stroyed, would have been nearly restored.
 
 91 
 
 *' Neither the amount of the advances which the 
 Bank may have made, nor the securities they may 
 have accepted, will now, we understand, meet the 
 exigency, and further extension must take place in 
 both these respects. It is a mere waste of time and 
 words to talk of restoring confidence at the present 
 moment with any thing but money. The case is 
 not one to be met by palliatives. If a sufiicient 
 supply of money be not afforded by the Bank, the 
 only source whence it can be supplied, we should 
 fear to trace what, in our opinion, must be the con- 
 sequences. 
 
 " When we press this upon the consideration of 
 the Directors, we do it, with a perfect conviction, 
 that they may afford the relief required with safety. 
 So soon as confidence is restored, we are persuaded 
 that nearly the whole of the extra advances made 
 by the Bank will be returned upon it without any 
 effort of its own. 
 
 "The individuals who now draw their money 
 from their bankers and keep it at home, will replace 
 it again in their hands, and the Country Bankers 
 will reduce their stocks of Bank of England notes 
 and gold to their original amount, by returning to 
 their agents, in London, the extra supplies which 
 they have lately received. By this means the 
 London Bankers will be overstocked with money ; 
 be enabled to pay oflP any debts they may have 
 contracted with the Bank of England ; and, instead 
 of applying to the Bank for discounts, they will on
 
 92 
 
 the contrary discount freely themselves. When 
 this is the case, the Bank Directors are well aware 
 that their issues will contract without any effort on 
 their part. 
 
 "We do not mean, however, to say that the 
 Bank need trust to their surplus issues — put forth 
 to meet the present exigency, being thus returned 
 upon them; though, we are of opinion, if they con- 
 tinue to charge five per cent, interest, that this will 
 be the case. We merely advert to this, to shew 
 the ease with which they may, at any rate, be 
 withdrawn at the proper period. 
 
 " If the Bank recal their additional issues when 
 the alarm is over, and before matters have been so 
 long settled as to give time for their being applied 
 in commercial, manufacturing, or other specula- 
 tions, they may be increased without any incon- 
 venience. It is a perfectly sound operation to make 
 a temporary addition to the circulation, equal to 
 the emergency, at such a period as the present, to 
 be withdrawn again, without hesitation, when the 
 crisis is over. Every reflecting person will agree 
 with us on this point ; but even those who do not, 
 and who contend that such a temporary advance is 
 an evil, must admit, that it is a much less evil than 
 that which it would remedy. It, however, would 
 not be an evil. When want of confidence prevails, 
 twice the amount of currency becomes necessary to 
 conduct the same operations, at the same scale of 
 prices as before, and nothing can be more legiti-
 
 93 
 
 mate, than to supply such extra demand for cur- 
 rency while it lasts." 
 
 As before stated, other articles were written to 
 the same effect, but it is unnecessary to quote them. 
 Now, considering all the circumstances of the case 
 — considering what the Bank did, and how, and 
 when they did it — considering that up to the close 
 of business on the Tuesday, up to the very moment 
 of the publication of the first of these articles, the 
 Bank and the Government had no idea of any 
 further relief than the purchase of half a million of 
 Exchequer Bills — that their first and immediate 
 step after its publication, was to follow implicitly 
 the course it suggested, though opposed to the 
 policy to which they were in some degree pledged 
 by so long persisting in it, though contrary to all 
 the ordinary rules of their business, and repugnant 
 to the hitherto expressed opinions of the Ministers, 
 of their own body, and of the public ; considering, 
 moreover, that their doubts and fears did not sub- 
 side, even after they had committed themselves to 
 the experiment ; until the second article, which 
 was calculated to allay their apprehensions from 
 the exchanges, had made its appearance on Wed- 
 nesday : — considering these remarkable coincidences 
 and consequences, and that, amidst the confusion 
 of all parties urging the Bank on to the gulph of 
 universal bankruptcy, mine w^as the only voice (if
 
 94 
 
 I may use the expression) to call upon it to retrace 
 its steps ; it is perhaps not unreasonable to conclude 
 that there is something more than presumptive 
 evidence, for attributing to these articles the adop- 
 tion and prosecution of the measure, by which the 
 country was saved from commercial, and perhaps 
 from civil desolation. 
 
 There are some people so peculiarly fortunate, as 
 to achieve success by means which would be the 
 ruin of others. In this case the Bank, the cause of 
 the mischief, reaped nothing but praise for what 
 they had done. Ministers took the Directors by 
 the hand in mutual congratulation ; Parliament 
 applauded them ; and the country was grateful 
 beyond expression. No event in the history of the 
 Bank, ever won for its Directors so large a meed of 
 public favour, or raised their reputation so high in 
 public estimation as managers of the currency. 
 
 I could not then publicly avow myself the author 
 of those articles. In sending articles to newspapers 
 — which has always on my part been done gratui- 
 tously — secresy as regards the public, is one of the 
 conditions implied. In the present instance this was 
 more especially necessary, as the articles were sup- 
 posed to have been furnished by the Government 
 itself to its usual organ of communication ; an im- 
 pression, which no government paper would wish 
 to be impaired. But from the manner in which 
 the Ministers had behaved to the Bank, it was not 
 unreasonable to imagine that if informed who was
 
 95 
 
 the author of these articles, they would notice in 
 some, though less public way, the service ren- 
 dered : for no one can desire so undefined a body 
 as the public to receive important benefits at his 
 hands without some kind of acknowledgment. I 
 however thought it advisable to feel my way cau- 
 tiously ; and I induced Sir Tliomas Lethbridge, to 
 mention to the Chancellor of the Exchequer, in 
 the first place, that the articles in question were 
 mine, and hear what he had to say upon the sub- 
 ject. In doing this, Sir Thomas perceived, from 
 his expression and manner, that the intelligence 
 was not without interest ; but his acknowledgment 
 extended no further than that he was not before 
 aware who had written them. If there was nothino: 
 to encourage me in this, there was nothing the re- 
 verse ; and I should have taken other steps, had not 
 a fact come to my knowledge which deterred me. 
 On sending Mr. Mudford (the editor of the Cou- 
 rier) a short article for the Monday or Tuesday, 
 after the week of the Panic, I mentioned to him in 
 a note, not intended for publication, and marked 
 private, the fact, that the Bank of England had 
 been so close run on the preceding Saturday night, 
 as to be unable to change, either in paper or gold, 
 fifteen of its own thousand pound notes. The Pa- 
 nic was over in London, but was still raging in the 
 country. The Country Banks were pressing as 
 much as ever upon the Bank of England for sup- 
 plies ; and as the Mint, working day and night,
 
 96 
 
 could not coin more tlian 100,000 sovereigns in 
 twenty-four hours, it was possible that the Bank 
 might not be able to meet all the demands upon it 
 with the promptitude required. Such being the 
 case, it was perhaps not unwise to prepare the 
 people in the country for some tardiness or short 
 stoppage on the part of the Bank, by a notice, given 
 in an unconsequential manner, of its being so 
 closely pressed for time ; and Mr. Mudford ven- 
 tured to insert the fact I had communicated to 
 him. The Panic being over in London, no harm 
 could well arise from this; and, if it did no other 
 good, it might have furnished such of the Country 
 Bankers, who were too closely pressed, with an 
 excuse for not being better supplied with change. 
 Lord Liverpool, however, thought otherwise, and 
 had the fact contradicted. No harm resulted 
 from the statement, and it was well that none 
 resulted from the denial. Nevertheless, he was 
 so displeased with the editor, that he was for 
 having him dismissed. Nor was it a mere ex- 
 pression of displeasure, conveyed to the proprie- 
 tors, which might have been intended as a warn- 
 ing for greater discretion in future ; he actually 
 went so far as to provide another editor for the 
 paper himself; and would have effected his pur- 
 pose, had it not been for the inflexible remon- 
 strances of Mr. Canning. 
 
 Mr. Huskisson, a member of the government, 
 and a great authority in such matters, spoke of the
 
 97 
 
 deliverance which had been effected in the follow- 
 ing terms : " Of this Panic, no man could tell 
 what might have been the consequences, if the 
 Bank had not stepped in, and, by their timely and 
 liberal interference, saved the country from destruc- 
 tion.'" He also remarked, " if the difficulties which 
 existed in the money market a short time since, 
 had continued for only eight and forty hours 
 longer, he believed the effect would have been to 
 put a stop to all dealings between man and man, 
 except by means of barter. It had very truly been 
 observed, that the Bank, by their prompt and effi- 
 cacious assistance, had put an end to the Panic, 
 and averted the ruin which threatened all the 
 Banking Establishments in London, and, through 
 them, the Banking Establishments and monied 
 men all over the country. The conduct of the 
 Bank had been most praiseworthy, and had, in a 
 great degree, saved the community from a general 
 convulsion. He would take upon himself to say, 
 that the Bank, throughout their prompt and effica- 
 cious, and public-spirited conduct, had had the 
 the countenance, advice, and particular recommen- 
 dation of the First Lord of the Treasury, and his 
 Right Honourable Friend the Chancellor of the 
 Exchequer, to assist them."* — Hansard's Debates^ 
 vol. 14, p. 
 
 The service rendered through the medium 
 
 * Lord Liverpool and Mr. Robinson, now Lord Ripon. 
 H
 
 98 
 
 of the Courier in bringing about this great 
 deliverance being considered, — a service which 
 Lord Liverpool had no objection to share the 
 credit of, — his proceeding against the editor ap- 
 peared so extremely harsh, that 1 was led to de- 
 cline taking any further steps respecting myself in 
 the matter. But as the present time is more fa- 
 vourable; as no necessity for secresy with respect 
 to these articles any longer exists, and as I have 
 obtained the requisite evidence, it may not be 
 improper in me to call public attention to the 
 subject. 
 
 With regard to my own share in the transaction, 
 which is an object the least worthy of considera- 
 tion, though useful as affording me a plea for 
 bringing the subject before Parliament, I shall 
 briefly state that, if the suggestion had been merely 
 accidental, the public were equally benefited by it, 
 and ought not to undervalue it on that account. 
 But such views are rarely accidental : for though 
 they may appear simple, and produced without 
 effort, the principles which lead to them are gene- 
 rally the result of much previous labour and reflec- 
 tion. This was my case. I was then publicly 
 engaged^ — both theoretically and practically — in 
 the subject of which this recommendation formed 
 a branch. My advice was altogether professional, 
 and it may be a question whether it would be quite 
 fair to allow it to remain unacknowledged. 
 
 The grand result, however, to be obtained is a
 
 99 
 
 sure and satisfactory knowledge of the principles 
 upon which the Bank, in such situations, should 
 act in regulating their issues — a knowledge w^hich 
 it may be doubted whether the Bank Directors 
 have yet fully attained. This appears to me to 
 have been rendered sufficiently obvious in the evi- 
 dence given by the Directors, before the Bank 
 Charter Committee of 1832. There is much 
 curious and important matter in that evidence, but 
 the Committee made no report ; and seeing that 
 anything but the right conclusions were likely to 
 be drawn from it, I ventured to take the liberty of 
 making a few observations upon it myself,* from 
 which I beg leave, with reference to the point in 
 question, to make an extract or two. 
 
 *' We must observe in the first place, that one of 
 the advantages which may be adduced as a set-off 
 against the many evils of a paper currency such as 
 ours, is the facility with which it may be expanded 
 upon extraordinary occasions when wanted. A 
 striking example of this was exhibited during the 
 great panic of 1825. The usual demand for money 
 then experienced, was not for the purpose of addi- 
 
 * I did this by way of preface or introduction to a digest of the 
 evidence which I took upon me the labour of preparing for Messrs. 
 Ridgway and Sons. I have not, and never had any personal 
 interest in the publication. I may, therefore, perhaps, be allowed 
 to recommend it as a useful book of reference : the materials in the 
 original report though exceedingly valuable, being presented in so 
 confused a mass as to render them nearly useless. 
 
 H 2
 
 100 
 
 tional circulation. It was to supply a vacuum in 
 the circulation, which the fears of the timid for the 
 safety of the Banks had caused. People were led 
 to withdraw their deposits, and to demand payment 
 of the Country Banks in gold, or the notes of the 
 Bank of England, not for circulation, but to lock 
 the money up in their strong boxes at home, until 
 their confidence in the Banks they dealt with had 
 revived. In meeting this demand by an increase 
 of issues, the Bank did not add to the practical 
 circulation, they only supplied the want of it which 
 the panic had caused : and they were enabled to 
 increase their issues to the extent of eight or ten 
 millions on securities, not only with the greatest 
 advantage at the time, but without any subsequent 
 inconvenience being experienced on the withdrawal 
 of this large sum. 
 
 " The value of such events in the hands of those 
 who endeavour to turn the experience of the past 
 to the benefit of the future, is not of course con- 
 fined to the immediate practical good experienced. 
 It could not but be obvious, that what required 
 eight or ten millions in December, might perhaps 
 have been prevented by one or two millions at an 
 earlier period. But at all events it was clear, that 
 a demand for money not wanted for circulation 
 might be supplied over and above the regular 
 amount of issues, and withdrawn at the proper 
 period without any inconvenience, and consequently 
 that such demands in future ought to be met by a
 
 101 
 
 prompt and adequate supply of the amount of 
 additional circulation which might be called for. 
 
 " Now the demand experienced by the Bank, in 
 May 1832, was clearly of this description. During 
 the ministerial interregnum of that month, when 
 the King sent to the Duke of Wellington to form a 
 Tory administration, the public, in order to embar- 
 rass the embryo government, and defeat the attempt 
 to form it, made a run upon the Bank of England 
 for gold to the amount of two millions. This 
 demand was for money to be withdrawn from cir- 
 culation ; and the Directors were aware that the 
 circulation was proportionately contracted. Mr. 
 Ward observes, (Question 22073) — ' There has 
 been a diminution of nearly two millions sterling 
 in consequence, and I do not hesitate to say, the 
 public is suffering very considerable inconvenience 
 from the circumstance ; but I do not know how to 
 alter it.' And they did not alter it. But their 
 experience had, or ought to have taught them, that 
 the proper mode of altering it was to re-issue the 
 notes on securities until the gold returned, and 
 this it was obviously their duty to do. 
 
 " Politically speaking, the course they pursued 
 was in the minds of the parties by whom the gold 
 was demanded, most desirable. It was giving the 
 wished for effect to the objects they had in view, 
 which were evidently to cause embarrassment and 
 alarm. 
 
 " But the Bank have nothing to do with politics.
 
 102 
 
 They have a discretionary power given them, to be 
 exercised not for political objects, but for the pro- 
 tection of the circulation against derangement ; 
 and they ought, in order to discourage such 
 attempts in future, to have taught the public, by 
 re-issuing their notes as fast as they were brought 
 in, that no sinister effect whatever would be 
 produced on the circulation by any such means. 
 If the public were thoroughly satisfied that a politi- 
 cal panic would do no harm to any, but to the 
 Darties who were the cause of it, such measures 
 would never be resorted to for political purposes, 
 and such panics would never be repeated. 
 
 " The Bank, however, took a different view of 
 their duty, and imagined they were acting in strict 
 accordance with it, in contracting their issues; for 
 they seem to take credit to themselves for the line 
 of conduct they adopted. Mr. Ward's explanation 
 of the transaction is curious, and is as follows : — 
 
 *' (22073. ' Do you hold the opinion to be a 
 correct one, that the Bank should conduct itself in 
 its issues, with reference to the state of foreign ex- 
 changes and the bullion market ? — Ans. Certainly : 
 I do not think there is one person in the Bank of 
 England that denies it, or is disposed to act in 
 opposition to it ; but over and over again I have 
 been responsible myself for violating it, when some 
 extraordinary case has arisen, and I think I can 
 hardly state a more extraordinary case than what 
 has arisen at the present moment. Since the
 
 103 
 
 month of March a most enormous amount of gold 
 has found its way into the country, probably as 
 great as ever found its way in a corresponding 
 period of time. My reasoning would be, that the 
 public ought to have the benefit of that, by an 
 increased circulation. That is the effect that would 
 have been produced, if nothing but the king's gold 
 currency existed. At the present moment the Bank 
 of England notes are at a lower point than they 
 have been for some years; they are at 16,600,000/. 
 Then a person would tell me, that in pursuing that 
 course, / violate the very principle I contend for : 
 and the fact is so : but I cannot help it, for the 
 solution of the question comes thus ; — when his 
 Majesty thought proper to send for the Duke of 
 Wellington, portions of the people chose to come 
 to the Bank, and to take coin for their notes. 
 There has been a diminution of nearly 2,000,000/, 
 sterling in consequence of that, and I do not hesi- 
 tate to say the public is suffering very considerable 
 inconvenience from the circumstance ; but I do not 
 know how to alter it. My business was, that the 
 public should have a supply when they demanded 
 it, and they had a right to demand it.' 
 
 " The question, however, is not whether the 
 public should have the gold, but whether the 
 Bank, as conservators of the currency, ought to 
 have allowed it to be deranged by such a cause, 
 more especially as they could have prevented it 
 without any practical inconvenience. But the
 
 104 
 
 curious part of the affair is the admission of Mr. 
 Ward, that they violated their own principles on 
 that occasion. Their stated principles, as we have 
 seen, is, that their issues, and consequently the 
 issues of the whole country, shall be regulated by 
 the foreign exchanges. But their practical rule 
 of business is that the state of exchanges shall be 
 indicated by the actual demand for gold, which 
 they term the action of the public. If a per- 
 son come and demand gold, they infer as a gene- 
 ral rule, and as a general rule the inference is 
 correct, that if he does not want it for small change, 
 he wants it for exportation, and vice versa. 
 
 "But here it was known that the gold called 
 for was not wanted for exportation, and that the 
 currency of the whole country, as well as the 
 money market, would be deranged by the unusual 
 demand. Yet they felt themselves compelled to 
 adhere to their rule, and did so, though they at 
 the same time violated their principles. 
 
 " But, as Mr. Ward says, they have over and 
 over violated their principles in the same way ; 
 and though it is not specifically stated, yet we are 
 left to infer that in 1828, when Mr. O'Connell 
 caused a panic in Ireland, which produced, it 
 seems, a demand upon the Bank for £1,000,000 of 
 gold, he deranged the English circulation as well 
 as the Irish, and produced a certain degree of 
 embarrassment here as well as in Ireland ; and 
 that the Emperor of Russia, when he made war
 
 105 
 
 upon the Turks, and obtained a million of money 
 from this country to assist him in his operations 
 (which he did at a period when our currency was 
 deficient, and the exchanges in our favour, 2134), 
 did, in fact, make every Englishman, as well as the 
 Turks, suffer from the effects of his campaign. 
 
 "This is probable, though not distinctly stated. 
 But if there could be any doubt upon the subject, 
 it is removed by Mr. Palmer. 
 
 "'If the drain,' Mr. Palmer is asked (2416), 
 * of bullion from abroad proceeded, in your opi- 
 nion, decidedly from political discredit there, not 
 indicated by the exchange being below par, and 
 not to be traced to an over-issue of paper in this 
 country, would you contract the circulation under 
 those circumstances ? Answer. The public would 
 contract the circulation, if bullion were required 
 for exportation by I'eturning the notes of the 
 Bank.' 
 
 " That is to say, they would not break their 
 rule, however obvious it might be that the demand 
 for gold was a foreign one, arising out of events 
 abroad which had no connexion with our cur- 
 rency." — Digest of Evidence before the Bank Char- 
 ter Committee. 
 
 It is, in short, clear, not only from the above 
 observations, but generally from their evidence 
 before the Committee, that the Directors have not 
 deduced those principles from the Panic, which its 
 history ouglit to have established, and by which
 
 106 
 
 they ought to govern themselves under similar 
 circumstances ; and that, consequently, unless the 
 subject receive some such investigation as pro- 
 posed, no great reliance can be placed upon their 
 turning the experience it has afforded to the proper 
 account at the proper time. 
 
 But were it otherwise, when we consider the 
 changeable nature of the Bank Direction, and 
 the important trust imposed in it, it is not right 
 that a proceeding of such consequence should be 
 left in that state of mysterious obscurity in which 
 it is now involved. Every new Director, at least, 
 will be in the dark, and no one should be allowed 
 to take upon himself an office of such vital in- 
 terest to the nation, without every opportunity 
 being afforded him of acquiring the general prin- 
 ciples on which its administration should be based. 
 
 in conclusion, the object of this account of the 
 Panic of 1826, is to exhibit the grounds on which 
 the House of Commons ought to grant a Committee, 
 to investigate into the circumstances and history of 
 it, which grounds may be thus recapitulated. 
 
 First. — It is generally admitted that the country 
 was saved from a general prostration of credit, 
 which must have produced the most fatal conse- 
 quences, by a sudden and very unprecedented ope- 
 ration of the Bank of England, attended by the 
 most happy results. The lapse of time has enabled 
 the writer to collect the evidences requisite to esta- 
 blish the fact, that the country is indebted to him
 
 107 
 
 for originating this important measure, and not to 
 the Bank of England, as has been hitherto sup- 
 posed. 
 
 Secondly. — The inquiry may be recommended 
 on economical grounds. Supposing a nobleman 
 had obtained a valuable property by a happy dis- 
 covery, communicated to him through his soli- 
 citors or other agents, whom he continually em- 
 ployed, and whom he paid at a very high rate, 
 which he was desirous to reduce. Now, should it 
 be shewn to him by very conclusive evidence, that 
 this discovery was not made by his agents, but by 
 a labourer on the estate ; would it be wise in 
 him to disregard this man's services, and give 
 to his agents a credit to which they were not en- 
 titled ; licensing them thereby to make charges, 
 which, under the weight of obligation he admitted 
 himself to be under to them, he could not resist ? 
 Yet if the House of Commons do not grant this in- 
 quiry, they will permit the country to remain in 
 a similar predicament, and allow the Bank to en- 
 joy a credit, which is clear from all experience, 
 will, somehow or other, be acknowledged to it fifty- 
 fold. 
 
 Thirdly. — The inquiry is called for on still higher 
 grounds : namely, that of management. Supposing, 
 to illustrate the case by another allegory, a person 
 was ill of a distemper ; that his physician was un- 
 able to prescribe a sufficient remedy until he was
 
 108 
 
 upon the point of death ; and that he was so fortunate 
 at this extremity as suddenly to restore him to per- 
 fect health hy a very novel and successful course of 
 treatment, applied in his case for the first time. It 
 would be natural for him under these circumstances, 
 to be very grateful to his physician ; to think highly 
 of his skill, so happily exerted ; to feel greater con- 
 fidence in him than before ; and to resolve the more 
 implicitly to trust to him in future. But supposing 
 it should be shewn as highly probable that he was 
 altogether mistaken, and that the mismanagement of 
 the physician was the true cause of his illness ; that 
 his cure was adopted at the suggestion of others, 
 little or no credit being due to the physician for it ; 
 he would obviously institute some inquiries to as- 
 certain whether such were the case or not, ere he 
 placed the implicit confidence in him in future, he 
 was disposed to do. Now the nation is precisely in 
 this situation with the Bank of England. It places 
 a most important trust in the hands of the Directors, 
 and it has yet to ascertain whether the history of 
 the panic supplies a proof of their skill, or a proof 
 of their want of it, in the administration of this 
 trust ; and, consequently, whether it furnishes 
 p-rounds for increased confidence in them, or rea- 
 sons for placing some limitation upon the amount 
 hitherto reposed. 
 
 Fourthly. — An inquiry is demanded with refe- 
 rence to the principles, which an examination into
 
 109 
 
 the origin of the panic, is calculated to develope. 
 It was caused, as we have seen, by the Bank con- 
 tracting its issues three millions and a half in six 
 months, which it was induced to do by the state of 
 the exchanges. It may also be shewn, that one or 
 two heavy pressures in the money market which 
 have subsequently occurred, were produced by 
 similar operations. Now there is reason to believe 
 that these pressures are unnatural ; that they are 
 peculiar to our currency ; that they are the result 
 of a defect in it ; and that they would not exist 
 under a more correct system. Hence it becomes 
 vitally important, either with reference to the 
 management of the present defective system, by 
 which the evils of it may be mitigated, or with a 
 view to adopting measures for its improvement, that 
 the history of the panic should be inquired into, 
 that persons be examined capable of throM^ng light 
 upon it, and that the subject be thoroughly inves- 
 tigated. 
 
 Fifthly. — An inquiry is equally demanded with 
 reference to the important principle involved in 
 the measure by which the panic was arrested. We 
 have seen, that while it was caused by a contraction 
 of three millions and a half of paper in six months, 
 it was cured by re-issuing that amount in as many 
 days, without any evil consequences having resulted 
 from its subsequent withdrawal. We have seen 
 also, that under circumstances similar in principle,
 
 110 
 
 though not in their details, the Directors had lost 
 sight of those principles by which they were 
 governed, at the memorable period in question ; 
 and that there is reason to believe that their system 
 of management has not been improved by the ex- 
 perience which the panic afforded. It, conse- 
 quently, is important with reference to the recurrence 
 of such pressures in future, that the principles by 
 which they may be obviated or remedied, should 
 be clearly ascertained by Parliament ; and the 
 more especially, as the Direction of the Bank of 
 England is an ever-changing body, and no depen- 
 dence can, with any safety, be placed upon any 
 system of management by such a body, which is 
 not based on principles well established and gene- 
 rally understood. 
 
 Finally. — Inquiry is thus demanded on the ground 
 of economy, — it is demanded with a view to ascertain 
 whether the History of the Panic ought to create 
 confidence, or distrust in the management of the 
 Bank, — it is demanded with a view to ascertain 
 whether Panics are not the consequence of a defect 
 in our currency, — and it is demanded with a view 
 to the developement of the principle by which 
 Panics ought to be dealt with in future. There is, 
 however, another reason, which would render such 
 an investigation extremely useful. The present 
 low prices of agricultural produce are attributed, 
 and with almost obvious truth, to a restricted cur-
 
 Ill 
 
 reney. One of the remedies proposed for this, and 
 generally conceived to be the most efFectual, is an 
 alteration of the standard ; that is— to coin, three 
 sovereigns, say, into four, or four into five ; and by 
 this means diminish the value of the sovereign, 
 and enlarge the currency, by increasing the num- 
 ber in circulation. Our currency being chiefly 
 paper, is, however not capable of this transformation. 
 If the standard were altered, it would have to be 
 met on the part of the Bankers, by a corresponding 
 increase of issues. Hence, the question arises, might 
 not such an increase be made without such altera- 
 tion ? But so long as we voluntarily shut ourselves 
 out from any thing like an investigation of the 
 principles, upon which our currency dilates and 
 contracts, we shall be perfectly unable to answer 
 this, or any sucli question. Now while the proposed 
 inquiry, would refer only to one period of its con- 
 traction and dilation, and would be limited in its 
 immediate object, to the comparatively unimportant 
 question, of who suggested the measure by which 
 the Panic was arrested ; it could not fail, if well 
 conducted, to throw light upon the system gene- 
 rally, and be the means of opening the way to 
 further information, respecting the difficult sub- 
 ject to which the public attention is so strongly 
 called by the situation of the farmino; interest.* 
 
 * The late extension of issues and increase of prices, has neu- 
 tralized this argument, but has supplied another. It now becomes 
 necessary to enquire into the cause of this extension, to what extent 
 it may proceed, and with what consequences it may be attended.
 
 112 
 
 A petition by me in reference to these particulars, 
 for enquiry into the panic, and the principles upon 
 which the Bank regulates its issues, was presented 
 last Session to the House of Commons, and referred 
 to this Committee for investigation.
 
 MONEY PRESSURE OF 1836. 
 
 Since the panic of 1825 we have had two or three 
 what may be termed money pressures. Whenever 
 the exchanges have turned against us for any time 
 a scarcity of money has been felt in London, aggra- 
 vated no doubt in each case by the bankers through- 
 out the country considering it prudent to increase 
 their amount of Bank of England notes and gold 
 on hand, in order to be prepared for any sudden 
 demand upon them in the event of the failure 
 or stoppage of any neighbouring bank. In none 
 of these cases however did the pressure give rise to 
 panic, though productive of great injury and in- 
 convenience to the commercial world. 
 
 One of these pressures we have recently, if we 
 are not still, experiencing. It is considered to have 
 been a severe one. But the chief brunt of it has been 
 thrown upon those Joint Stock Banks and their 
 customers who are in the practice of resorting to 
 the London market to re-discount their paper. 
 
 Legitimate Bills of Exchange grow out of those 
 practical manufacturing and commercial operations 
 which are necessary to, and an evidence of, the pros- 
 
 I
 
 114 
 
 perityof'tlie country, and generally speaking, money 
 advanced in discounting such bills is employed in 
 encouraging the industry and promoting the wel- 
 fare of the nation at large. 
 
 In resorting to the London market to re-dis- 
 count the bills of their customers the Joint Stock 
 Banks produce a double benefit : — First, They ob- 
 tain funds to encourage the legitimate trade of 
 the country — and next, by employing the money 
 well they prevent its mal-application. Money, for 
 which there is no regular channel of demand, like 
 water, will find its own level, and force its way into 
 circulation, by irregular courses, at one rate of in- 
 terest or another, frequently giving rise to specula- 
 tions not of the most legitimate character, which 
 would otherwise not have been thought of. 
 
 It may also be observed that discounting bills of 
 exchange is with bankers a favourite mode of em- 
 ploying their deposits ; and if we look to Scotland, 
 to Ireland, and to every part of England, with the 
 exception of the manufacturing districts, we shall 
 find that the deposits of the bankers much ex- 
 ceed their means of thus employing them ; and it 
 is the result of experience that, with the exception 
 of those periods, when the state of the exchanges 
 and the operations of the Bank of England produce 
 a sort of monetary derangement, the demand by 
 Bankers for bills of exchange, on the average of the 
 whole kingdom, much exceeds the supply. Hence 
 the demand for money by the Joint Stock Banks on
 
 115 
 
 bills of exchange is convenient to the banking in- 
 terest as well as beneficial to the country. 
 
 The proceedings of the Bank of England how- 
 ever offer great impediments to this convenient 
 and beneficial intercourse. Bills discountable in 
 the London market are divisible into two classes : 
 those which are drawn direct upon London houses, 
 and those which are only payable in London. If 
 a Manchester manufacturer sells £100. worth of 
 goods to Exeter, and draws a bill for it, it is made 
 payable in London, although the- party upon whom 
 it is drawn resides in the country ; if he sends 
 £100. worth of goods to London, and draws for it, 
 the bill is payable in London, because the acceptor 
 resides there. Now the first class of bills, which 
 are more numerous, are quite as legitimate as the 
 last, and with the indorsement of a Joint Stock 
 Bank, will answer the purpose of the country 
 banker just as well, and in ordinary times he will 
 discount it with equal readiness. But the Bank 
 of England will only take bills drawn direct upon 
 London. Whenever, therefore, a pressure oc- 
 curs, and a panic may be apprehended, and every 
 country banker sees before him the possibility of 
 having to re-discount his bills with the Bank of 
 England, he can only take such as the Bank 
 will take from him should he have to apply to 
 them. The consequence is that at such periods one- 
 half of the most legitimate and best bills in Eng- 
 land cease to be negotiable. 
 
 I 2
 
 116 
 
 The rule of the Bank of England may be a very 
 proper one, as regards their own private trade ; but 
 inasmuch as it impedes the intercourse which sub- 
 sists between other Bankers, and is very injurious to 
 the commerce of the country, it ought not to exist 
 with reference to Bankers who find it necessary to 
 apply to them in cases of emergency. They ought 
 to understand most clearly that the Bank will dis- 
 count for them in such event whatever good bills 
 payable in London they may possess. So far, 
 however, from this being the case, the Bank have 
 actually adopted another rule which is far worse — - 
 they have resolved not to discount any bill upon 
 which the indorsement of a Joint Stock Bank not 
 issuing Bank of England notes is to be found, even 
 though it may be in other respects in conformity 
 with their rules and regulations. The consequence 
 is, that the Deposit Banks have been obliged to 
 refuse the paper of the Joint Stock Banks, and the 
 wonder is that the latter have not all stopped pay- 
 ment. Had the rule produced all the effect intended, 
 in preventing these banks obtaining discounts, there 
 is no doubt that such would have been the result. 
 
 Had the Bank of England refused to discount for 
 them itself, perhaps much objection could not have 
 been made ; nor would the Joint Stock Banks have 
 cared for such determination. But to throw a barrier 
 between them and the Deposit Bankers is a pro- 
 ceeding of which they and the country have a right 
 to complain — as it is clear that the power thus pos-
 
 117 
 
 sessed by the Bank is entirely derived from their 
 monopoly. If they had to gain their business by 
 competition with other establishments, such a rule 
 would lose them their connections, for nobodv 
 would deal with a bank that refused to take the 
 best bills of the country. 
 
 Though the effect of this rule was not to stop all 
 Joint Stock Banks who had rendered themselves 
 dependent for discount on the London market, yet 
 it threw the chief part of the pressure on them and 
 their customers, and probably coupled with other 
 circumstances, was the principal cause of bringing 
 one of them into such a state of embarrassment so as 
 to render it necessary to obtain assistance from the 
 Bank of England. During a former pressure a 
 similar bank had occasion to apply to the Bank 
 of England for assistance, which they agreed to 
 afford, and continue permanently, upon condition 
 of its issuing their notes. On the present occasion, 
 however, they have taken a different and more 
 hostile course. 
 
 The Northern and Central Bank of England it 
 appears had established a very extensive business by 
 being (it is presumed) a little more liberal in its 
 advances than its competitors, and consequently 
 by straining its resources, and depending upon 
 the discount market, to a greater extent than 
 financial prudence would altogether justify. With 
 the exception of the personal annoyance and anxiety 
 which all Bankers must feel under such circum-
 
 118 
 
 stances, the Directors had not, it would seem, any 
 apprehension of the Bank itself being placed in any 
 jeopardy, notwithstanding the inconvenience to 
 which the regulations of the Bank of England had 
 put it, when one of the officers lost a bag which he 
 was bringing to London, containing £110,000, in 
 cash and bills. The Company had three London cor- 
 respondeftts, the London and Westminster and two 
 private Banks, and upon the loss becoming generally 
 known, the private Bankers sent for its London 
 Agent, in order to determine whether they should 
 continue to accept for it or not, as the loss of this 
 parcel would cause the Bank to be talked about, 
 which, at such a period, might bring it to a stand ; 
 and, for a few hours the next day, one of the 
 Bankers did refuse accepting for it, desiring the 
 holders of the bills to call again. The bag, which 
 had inadvertently been left in a hackney cabriolet, 
 was however only lost for a day. But in the mean 
 time the position in which the loss had placed the 
 establishment became known to the Bank of 
 England, who, under the circumstances, volunta- 
 rily offered it their assistance. The Northern and 
 Central Bank thereupon applied for the discount 
 of £100,000 of paper. The Bank, however, said, 
 that before giving it any assistance they must re- 
 ceive a letter from the Northern and Central Bank 
 confessing itself in a state of embarrassment, in 
 which case they would not only discount for it 
 £100,000, but give it credit for £400,000 more
 
 119 
 
 should it be required. This tempting offer it was of 
 course glad to accept, and wrote the Bank of Eng- 
 land the letter required, but when the answer to 
 it was received, two most unexpected conditions 
 were attached to the grant. The first was, that 
 it was to give up the chief part of its branches, 
 or about one-half of its business : and the next, 
 that it was not to pay the bills which the London 
 and Westminster Bank had accepted for it, but 
 leave it to pay them itself, which would in- 
 volve that establishment in an unexpected ad- 
 vance of £100,000, the repayment of which it was 
 to wait for until the Bank of England and every 
 other creditor was paid. Had these terms been in- 
 timated to the Northern and Central Bank in the 
 first instance, it would naturally have declined en- 
 tering into the negotiation, and the fact of its 
 having refused the assistance of the Bank would 
 probably have restored the credit it had lost. It 
 was time enough to accept such terms when it 
 could not do better. But having once entered the 
 Bank parlour, which could not be withheld from 
 the public, a run upon it was anticipated, as, with 
 the known hostility of the Bank of England, it 
 would be presumed that it would only be found 
 there in the last extremity. Hence it was obliged 
 to accede to any terms that the Bank of England, 
 at their mercy and discretion, thought proper to 
 dictate. 
 
 The London and Westminster Bank were how-
 
 120 
 
 ever placed in a worse situation by these terras, 
 than if the Northern and Central Bank had stopped 
 payment, and were not equally willing to accede to 
 them ; and supposing that the Directors of the 
 Bank of England might be under some mistake, 
 requested to have an interview with them on the 
 subject, which was declined ; but they were in- 
 duced at last, rather than promote any confusion 
 in the country, to allow themselves to be thus 
 dealt with. 
 
 In the stipulation against the London and West- 
 minster Bank the other London Agents were in- 
 cluded by name, but as they were debtors to the 
 Northern and Central Bank, and not affected by 
 the arrangement, their being included in it was an 
 obvious disguise, and a proof that the Bank of 
 England thought some disguise necessary. Nei- 
 ther can it be perceived what benefit the public are 
 to derive from the Northern and Central Bank 
 being deprived of its branches, at which it con- 
 siders it has established a valuable connection, 
 and is pursuing a profitable trade ; and by which, 
 in the event of being mistaken, none would suffer 
 but itself. 
 
 But it is a general impression, that these grow- 
 ing Joint Stock Banks will eventually push the 
 Bank of England out of its position, if something 
 be not done to prevent their growth ; and as the 
 Bank no doubt anticipates, that during the ensuing 
 Session of Parliament some measure will be pro-
 
 121 
 
 posed for this purpose, it was not of course their 
 interest to help the Northern and Central Bank 
 out of its difficulties, but, on the contrary, to in- 
 volve it more deeply in them, provided the public 
 were not allowed to suffer, in order to supply an 
 argument in favour of any such measure. Nor 
 would it be fair to look at the transaction without 
 keeping this in view. Had the Bank been guided 
 solely by public principle, they would have acted 
 more justly. As assistance was only to be given 
 on such unreasonable terms, the terms should have 
 been stated when the assistance was offered, and 
 before the Northern and Central Bank were in- 
 volved in a negotiation which was certain to ruin 
 its credit, and place it at the mercy of the Bank : 
 for the latter knew much better than the Northern 
 and Central Bank, and subsequently admitted, 
 that the existence of any such negotiation could 
 not be withheld from the public. 
 
 The embarrassment of the Northern and Cen- 
 tral Bank of England does not, however, furnish 
 any argument against Joint Stock Banking. On 
 the contrary, it establishes a very material point 
 in its favour. It proves most clearly, that the 
 Directors of these Companies, who have been 
 charged with recklessness in their management, 
 will make any sacrifice of profit, rather than in- 
 volve the shareholders, who are personally respon- 
 sible, and, consequently the public, in any incon- 
 venience which might result from a stoppage of
 
 122 
 
 payment. In the present instance, the Directors, 
 to obviate such an inconvenience, consented that a 
 flourishing concern should be cut up by the roots; 
 and although, in their financial arrangements, 
 they may have been deficient in banking pru- 
 dence, it is perfectly clear that this must have been 
 chiefly the result of their inexperience of the posi- 
 tion in which they were placed, for no persons 
 would from indifference to the result, have volun- 
 tarily placed themselves in a situation, which they 
 were willing to pay so dearly to get out of. 
 
 THE END. 
 
 WOn.MAN AND SXEEN, PRXNTERS, MAIDEN LANE, COVENT GARDEN,