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 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES
 
 ^ 
 
 Y"-^ 
 
 *<" 
 
 K
 
 HINTS, 
 
 BY WAY OF WARNING, 
 
 ON THE 
 
 LEGAL, PRACTICAL, AND MERCANTILE DIFFICULTIES, ATTENDING 
 THE FOUNDATION AND MANAGEMENT 
 
 O F 
 
 JOINT STOCK BANKS;. 
 
 BY GEORGE FARREN, 
 
 RexidetU Director of tJtc Asylum Foreign and Domestic Life Assurance Compamj^ 
 
 " Never stretch out your arm further than you can conveniently draMir 
 it back aoraiu. " Nicol Jarvie. 
 
 LONDON: 
 PELHAM RICHARDSON, 23, CORNHILL. 
 
 1833. 
 
 PRICE ONE SHILLING.
 
 J. King, Printer, College Hill, Upper Thames Street, London.
 
 
 REMARKS, &c. 
 
 The recent discussions on the renewal of 
 the Bank Charter have called forth opinions 
 from eminent Lawyers favorable to the legal 
 right of an unlimited number of Capitalists 
 to establish partnership deposit Banks, in the 
 cities of London and Westminster. These 
 opinions, (giving to them for the moment, all 
 the weight of judicial decisions), go no fur- 
 ther than to determine that Joint Stock Banks 
 for deposits, may be established without in- 
 fringement of the privileges secured to the 
 Bank of England ; and if the same legal autho- 
 rities were consulted as to the means by which 
 a numerous body of partners in banking^ can, 
 without being incorporated, protect themselves 
 and the public, in the advantages which an 
 honest employment of Capital might seem to 
 promise, the opinions would at once proclaim 
 the utter impracticability of such a scheme.
 
 It may be desirable in the first instance, to 
 direct attention to the coui'se of banking 
 generally ; confining the enquiry to its rise 
 and progress in England, without going back 
 to Joseph, the collector of the precious metals, 
 for the first private banker ; or to the year 
 1200, for the first National Bank, founded in 
 Venice, under the title of the Chamber of 
 Loans. 
 
 Private banking was commenced in England 
 by Mr. Francis Child, in Fleet Street, in 1645. 
 Soon after which, Messrs. Snow & Dean 
 opened another Bank in the Strand. Those 
 Establishments continue on the very spots 
 where they commenced business nearly two- 
 hundred years ago j unshaken monuments of 
 the prudence and integrity of their Conductors: 
 and London and Westminster may justly 
 boast of their two original Banks, still in 
 friendly emulation, within a few yards of each 
 other, and of the bar which separates the 
 precincts of the cities. These are instances 
 enough to show, that private Banks may be 
 formed on the surest foundation, w ith security 
 to the partners, and advantage to the public : 
 nor would fifty cases of failure among bankers, 
 do more than prove the improvidence with 
 which the particular Establishments had been 
 conducted.
 
 It was not until tlie above named houses had 
 flourished for upwards of forty years, that 
 any public bank was known in England. In 
 1694, the Bank of England, originating in a 
 loan to Government, was established by an 
 Act 5th & 6th William & Mary. 
 
 Two years after, further subscriptions were 
 raised, and it was enacted, "that no other 
 Bank, nor any other corporation, fellowship, 
 nor constitution in the nature of a Bank, shall 
 be erected, established, permitted, suffered, 
 countenanced, nor allowed by Act of Par- 
 liament within this kingdom." 
 
 The first years of the Bank of England were 
 not very prosperous. The 6th Anne (A. D. 
 1707), however, did the Company important 
 service, for after reciting that great numbers 
 of persons had, by pretence of Deeds and 
 Covenants, united together, and presumed to 
 borrow great sums of money, and to deal 
 as a Bank, it enacts — " that, from the 29th 
 of September, 1708, and during the continu- 
 ance of the Bank of England, no company 
 united in partnership, exceeding six in num- 
 ber, shall take up on their bills, payable under 
 six months." 
 
 The passing of this last statute, shows con- 
 clusively, that the Act of William & Mary 
 was construed to mean, that no other than the
 
 Bank of Elngland should be established, coun- 
 tenanced, nor allowed hy Act of Parliament^ 
 within the kingdom; but, that if Banks could 
 be carried on without the aid of an Act of Par- 
 liament, Capitalists were permitted, by the 
 common law of the land, to combine for that 
 purpose. The 6th of Anne, however, put the 
 matter beyond doubt, by prohibiting any com- 
 pany exceeding six in number united in part- 
 nership, from taking up on their bil/s, payable 
 vuider six months; thus, clearly drawing a 
 line of distinction between mere deposit Banks 
 .and Banks of issue. 
 
 Smollett tells us, the " scheme of the Bank 
 of England was founded on the notion of a 
 transferable fund, and a circulation, by bills, 
 on the credit of a large capital. Forty mer- 
 chants subscribed to the amount of £500,000 
 as a fund of ready money, to circulate one 
 million at 8 per cent, to be lent to the Govern- 
 ment ; and even this fund of raised money 
 bore the same interest. When it was properly 
 digested in the Cabinet, and a majority of 
 interest secured for its reception, the under- 
 takers for the contract introduced it into the 
 House of Commons, and expatiated upon the 
 national advantages that would arise from such 
 a measure. They said, it would rescue the 
 nation out of the hands of extortioners and
 
 usurers, lower interest, raise the value of land, 
 revive and establish public credit, extend cir- 
 culation, consequently improve commerce, 
 facilitate the annual supplies, and connect the 
 people more closely with Government. The 
 project was violently opposed by a strong^ 
 party, who affirmed, that it would become a 
 monopoly, and endanger the whole money of 
 the Kingdom ; that, in as much as it must 
 infallibly be subservient to Government views, 
 it might be employed to the worst purposes 
 of arbitrary power ; that instead of assisting , 
 it would weaken commerce, by tempting 
 persons to withdraw their money from trade, 
 and employ it in stock-jobbing ; that it would 
 produce a swarm of brokers and jobbers to 
 prey upon their fellow creatures ; encourage 
 fraud and gambling, and further corrupt the 
 morals of the nation." Notwithstanding this, 
 the bill made its way through the two Houses, 
 establishing the funds for the security and 
 advantage of subscribers. 
 
 It may appear tedious to dwell on the events 
 of that period ; but the dissemination, at the 
 present time, of opinions which may be falsely 
 construed to recommend the adoption of Joint 
 Stock Banks, whilst they only mean to declare 
 that such Companies are not absolutely pro- 
 hibited by Statute, renders it necessary to
 
 8 
 
 point public attention to the objections urged 
 upwards of a century ago, against the estab- 
 lishment of a National Bank, having the ad- 
 vantages of being incorporated and encouraged 
 by the Government itself. 
 
 Any Joint Stock Banks of deposit, in Lon- 
 don or its vicinity, will not only be without 
 the powerful aids by which the Bank of 
 England has thriven, but will positively be 
 opposed to the Government Bank. 
 
 The particular object of the present ob- 
 servations is to direct attention to the legal 
 difficulties and various inconveniences attend- 
 ing the formation and working of an unchar- 
 tered Banking Company, consisting of a great 
 number of partners. 
 
 The Attorney and Solicitor Generals of the 
 present day, in their recent opinions to the 
 Chancellor of the Exchequer, state, " we must 
 premise that the common law knows no dis- 
 tinction between Joint S'ock Companies and 
 any other partnerships;" and add, "the cir- 
 cumstance of no Joint Stock Bank of deposit 
 being hitherto established in London, may 
 probably have arisen from the difficulty of 
 carrying on such a concern beneficially, 
 without a power to accept bills of exchange at 
 a shorter date than six months, and, still more, 
 without a power of suing and being sued in
 
 9 
 
 the name of one of its olficers. No otlier 
 corporation than the Bank of England could 
 have acted as a bank of deposit, for there is 
 no other corporation created by charter or 
 Act of Parliament for the purpose of banking-, 
 in any of its branches; and a corporation 
 could not lawfully engage in banking if 
 created for a different purpose." 
 
 If the officers of the Crown had confined 
 their remarks to the law of the case, without 
 speculating on the probable reasons for no 
 Joint Stock Bank of deposit having been 
 hitherto established in London, their opinions 
 would have been the more entitled to respect ; 
 and if they had proceeded to point out the 
 legal impediments by which the carrying on 
 such a concern must necessarily be obstructed, 
 they would have served the public much 
 more essentially. The distinction, between a 
 company having " a power of suing and being 
 sued in the name of one of its officers," and 
 a Corporate body, is certainly glanced at in 
 the opinion, but the points of difference are 
 not explained, so that a casual reader would 
 scarcely think the distinction material. On 
 this point reference may be made to the 
 judgments of the greatest legal authority that 
 ever presided in the English Courts — Lord 
 Chancellor Eldon.
 
 10 
 
 In Davis v. Fisk, bis Lordship, after saying 
 that it had been determined, that a dozen 
 persons may guarantee each other in partner- 
 ship, added, "when once it was established 
 " that twelve might act on such a principle, it 
 " was impossible to put a limit to the number ; 
 *^ and it is said, from the Bar, that sixty 
 *' thousand have combined for that purpose in 
 '^ the present instance. The inconvenience of 
 "administering justice to such amassof people, 
 " all standing in the relation of partners, was 
 " soon discovered, for, as partners, they were 
 *' bound to set forth the names of all their body 
 " when acting against a stranger, and it was 
 " equally incumbent on those who prosecuted 
 ^' claims against them, to bring all before the court 
 '* To obviate this difficulty, it has frequently 
 " happened, that Acts of Parliament have been 
 *^ obtained, by which the Secretary, Treasurer, 
 " or some officer of the Society, is pointed out 
 " as a nominal PI aintiff or Defendant, to sue or 
 '* be sued, for or on account of the Association 
 " at large ; and so far such an Association may 
 *^ be called a quasi corporation, — having the 
 " power, emblems, and, to a given extent, the 
 '•' privileges of a body, without having been 
 " incorporated. I shall be very cautious not to 
 " extend those privileges. The policy of Acts 
 ** of Parliament, in such cases, was to render
 
 Jl 
 
 " facility to justice, by making one person 
 *' to represent a mass, which would of itself 
 *' be immoveable ; but, the difliculties, as I 
 *' foresaw and urged in my place in the House 
 *' of Lords, were not so easily to be overcome ; 
 '' for, although justice might be done in cases in 
 '* which the Association was complaining, by 
 '^ the use of one name instead of sixty thou- 
 '^ sand, the same measure of justice could not 
 " be rendered in the person of one T>efcndani. 
 " The Secretary or Treasurer might not be 
 ^' w^orth the money for which he was sued, 
 " and the funds might be insufficient. But, sup- 
 " posing the officer to be in possession of ample 
 " means, execution would go against him or 
 '' his effects, and, having paid the money, he 
 '•' would have to seek just contribution from 
 '' the Members, which might be practicable 
 " with a manageable number, but, which must 
 ^' be next to impossible with sixty thousand 
 *' persons. The Acts of Parliament do not con- 
 *' template suits amongst the Members them- 
 ** selves, but speak only of actions by & against 
 " them. The present record, therefore, derives 
 ** no assistance from the Act, as it not only pre- 
 " sents Members complaining of each other, 
 " but states that which is false, (I do not use the 
 " w ord ' false- in its offensive sense, but merely 
 " as describing an assertion which is not strictly
 
 1^ 
 
 *' true), for it represents the Bill as filed in be- 
 '' half of all the Members, whereas the Defend- 
 " ants appear to be Members also. In certain 
 " cases of covenant, where it is necessary to 
 " bring all parties before the Court, those who 
 " refuse to be Plaintiffs must be made Defend- 
 " ants, but a man cannot stand as Plaintiff and 
 " Defendant at the same time ; and, for any 
 " thing that appears on this record, there may 
 " be on© half of the Members represented by 
 '' the Plaintiffs, and the other by the Defend- 
 " ants, though all are called Plaintiffs." 
 
 *' The present case is reduced to a mere 
 " matter of partnership ; and (as I threw out in 
 '' the course of the argument) can it be said that 
 " a man does not know his own partners, nor 
 *' the nature of the concern of which he is a 
 " member? I do not say that this record may 
 '' not be so amended as to bring all parties 
 " properly before me, but I feel that it is very 
 *' difficult to do so with 60,000 partners." 
 
 In the Acts of Parliament granted to several 
 of the life offices, and other Joint Stock Com- 
 panies, the Legislature has caused the fol- 
 lowing provisions to be inserted, viz., " that 
 " execution upon any judgment in any such 
 " action obtained against the person acting 
 " as Chairman of the Society or partnership 
 " for the time being, or against the person
 
 13 
 
 " acting as Secretary of the Society or p?irt- 
 *' nersliip for the time being, whether as 
 '* plaintiff or defend ant, may be issued against 
 " any Member or Members for the time being 
 " of the Society or partnership : provided al- 
 " ways that every such Chairman or Secretary 
 *' in whose name any such action or suit shall 
 " be commenced, prosecuted or defended, and 
 " every such Member or Members against 
 ^' whom execution upon any judgment obtained 
 4' in any such action, shall be issued as afore- 
 *' said, shall always be reimbursed and paid, 
 ' out of the funds of the Society or partner- 
 " ship, all such costs and charges as by the 
 " event of any such proceedings, he or they 
 " shall be put unto or become chargeable 
 " with." 
 
 " That a memorial of the names of the 
 " several persons being Members of the So- 
 " ciety or partnership, in the form expressed 
 •' in the Schedule annexed, shall be enrolled 
 ** upon oath in the High Court of Chancery, 
 *' within three monihs after the passing of the 
 '' Act ; and when any transfer of any share or 
 " shares of any Member of the Society or 
 " partnership shall be made, a memorial 
 *' thereof shall in like manner be enrolled as 
 " aforesaid, in the form and to the effect ex- 
 " pressed in the said Schedule."
 
 14 
 
 " That until such memorial as before men- 
 " tioned shall have been enrolled in the 
 ** manner herein directed, no action shall be 
 " brought by the Society or partnership under 
 " the authority of the Act ; and all the Mem- 
 " bers whose names shall be expressed in the 
 " last enrolment, shall continue liable to all 
 '* actions, suits, judgments, and executions, 
 *' until a memorial or memorials of transfer 
 " shall have been enrolled as aforesaid." 
 
 " That nothing in the Act contained shall 
 ^' extend or be deemed, construed, or taken to 
 " extend, to incorporate the Society or part- 
 *' nership, or to relieve or discharge the So- 
 " clety or partnership, or any of the Members 
 *' thereof, or Subscribers thereto, from any 
 " contract, duty, obligation, or responsibihty 
 " whatsoever, which by law they now are, or 
 '' at any time hereafter may be subject or 
 *' liable to, either as between such Society or 
 " partnership and others, or among themselves 
 " or in any manner whatsoever." (Vide stat, 
 54, Geo. III. cap 79, sec. 2, 3, 4, and 7.) 
 
 These clauses involve considerations of 
 vast and serious importance to all who might 
 desire to hold shares in a Joint Stock Bank. 
 
 The Shareholder, at the time he pays his 
 deposits on the formation of the Company, 
 and enters his name for the number of shares
 
 15 
 
 for which he subscribes, is in most instances 
 absolutely assured, by the Deed of Settlement 
 or Foundation, Ihat his responsibility is to 
 be limited to the amount of those shares. 
 But, by the operation of the Act of Par- 
 liament, he suddenly finds himself made 
 responsible for the full amount of the engage- 
 ments of the Institution. It would be useless 
 for him to urge to the holders of writs of 
 execution, that, the Deed to vhich he sub- 
 scribed expressly declared a limit to his 
 responsibility. The answer would be (if the 
 holder should deign to give an answer at all), 
 " The Act of Parliament, Sir, declares you 
 liable : the bargain between you and your 
 Co«Shareholders cannot affect tfje rights of 
 other persons. This is declared to be a public 
 Act, and every man (strictly speaking) is 
 bound to take notice of its provisions ; but 
 your name is actually enrolled, on oath, as 
 one of the persons against whom execution 
 is to issue on judgments recovered. You, 
 therefore, are not, or ought not to be ignorant 
 of the consequences." 
 
 The inconvenience and disquietude, which 
 a man would labour under, if he were aware 
 of such responsibility attaching to him, cannot 
 be adequately described ; and it would be 
 difficult to fix a limit to resulting consequences.
 
 16 
 
 Engaged in liis ordinary pursuits, and having 
 invested a sum under promises of superior 
 advantage, he would not look to that invest- 
 ment as a source from which danger might 
 spring. — Not being permitted to have a voice 
 in the management of the Institution, he 
 might learn for the first time, from a news- 
 paper report of a trial at law, that the Bank 
 of which he is a Shareholder had been in lit- 
 igation. Little could he fancy at the moment, 
 that, if satisfaction of the judgment should be 
 delayed, either by the want of funds, or by 
 the contumacy of those who control them, the 
 very bed on which he slept might be seized 
 on for the amount; nay, that the knocker 
 at his hall-door might shortly announce the 
 arrival of the holder of a writ of execution, by 
 which his person must be imprisoned if the 
 money should not be paid. 
 
 Once aware of the existence of this danger, 
 a man's first wish might be to avoid it, by 
 disposing of his shares, but, if he had been 
 informed of his situation by means which 
 were open to all, he might find it very difficult 
 to meet with a person who would take his bar- 
 gain even as a gift : and the Act of Parliament 
 is imperative, that all the Members, whose 
 names shall be expressed in the last enrol-
 
 17 
 
 ment, shall continue liable until a memorial 
 of transfer shall have been enrolled. 
 
 These observations proceed on a supposition 
 that the Deposit Bank had obtained an Act 
 granting, "a power of suing and being sued> 
 in the name of one of its officers :" without 
 such power, simple contract transactions, with 
 a numerous proprietory, could scarcely be con- 
 ducted at all. It is perfectly clear, that in the 
 present day, no such company would obtain 
 a charter, or be incorporated. 
 
 To illustrate legal impediments by familiar 
 examples, — suppose a proprietor, holding 
 shares, by which he is constituted a partner? 
 also paying in money to the Bank as a Cus- 
 tomer. How could he withdraw his deposit? 
 Or rather, how could he enforce its payment 
 if with-held from him ? He could not sue his 
 partners at law^ and the difficulties of bringing 
 the proper parties before a Court of Equity^ 
 have already been represented in the judg- 
 ment of Lord Eldon, in Davis v. Fisk. 
 "The Acts of Parliament," said his Lordship 
 " do not contemplate suits among the Members 
 themselves, but, speak only of actions by and 
 against them." 
 
 Suppose the case of an ordinary Customer 
 of the Deposit Bank, not being a partner, how 
 could he proceed if his deposits were witheld ? 
 
 c
 
 18 
 
 He might sue the oflRcer named in the Act, as 
 the nominal Defendant! But, would that 
 officer have the funds of the Company, in his 
 actual possession, or under his single controul, 
 so as to be able to pay all the Company's en- 
 gagements ? It is to be hoped not — or else the 
 whole property of the bank would be in the 
 power of a single individual, who might walk 
 off with, or misapply the funds at his own 
 pleasure : of what use then would a judgment 
 against a nominal defendant be to a Customer 
 if the funds were adversely witheld? Why 
 he might take out execution against any 
 member cr members for the time being, of 
 the Society or Partnership. This remedy in 
 a few instances, might be effectual, but would 
 it be so to the extent of the whole engagements 
 of the Bank ? Is it certain that the private 
 property of the proprietors, would be sufficient 
 to meet all public claims on the partnership ? 
 It is perfectly certain, that the private pro- 
 perty of every proprietor would be liable to 
 the last farthing, but that property might not 
 be equal to the claims of the customers, who 
 would have no means of getting at the Com- 
 pany's Fund, except through the intervention 
 of a Court of Equity ; as it must be remem- 
 bered, that the subscribed fund and other 
 accumulations would be invested in the names 
 of Trustees.
 
 19 
 
 So far consideration has been confined to 
 the cases of Customers : turning now to the 
 rights and remedies of the Partners among 
 themselves, how would they be affected ? — One 
 man whose private property may have been 
 seized in execution, must seek as Claimant 
 pro rata contribution from several thousand 
 partners, with the probability of being himself 
 made a debtor the next hour, at the suit of 
 some other proprietor, who may also have 
 been levied on for a judgment against the 
 officer, sued under the Act. If the whole 
 of the trading capital should not have been 
 paid up, how would further instalments be 
 enforced, or how would the partner who did 
 pay up, obtain just contribution from those 
 who did not ? 
 
 It would be tedious to adduce further instances 
 in proof of the utter impracticability of se- 
 curing to the pubhc and the proprietors, legal 
 and proper remedies against wrong doing, 
 under such a state of things. It is difficult to 
 suppose that any parties would knowingly or 
 wilfully involve themselves in such a labyrinth 
 of legal difficulties, and those who became 
 partners or customers, without previous know- 
 ledge of their responsibility might possibly 
 soon be reduced to a state bordering on 
 distraction, from the dispondency consequent 
 on the disappointment of their hopes. 
 
 ■<i^
 
 20 
 
 The legal difficulties of the subject having 
 been treated of, it may be well to offer a few 
 suggestions on the practical inconveniences 
 inseparable from the working of such estab- 
 lishments. 
 
 Mr. Watt, " Manager and Secretary of the 
 Huddersfield Banking Company, and formerly 
 of the Perth and Arbroath Banks," in his 
 recent publication on banking in Scotland 
 and England, says — 
 
 " As some Banks are now attempted to be 
 established on a rather different foundation, 
 I would venture to observe, that, Banking 
 Companies are not formed upon a correct 
 principle, are not safe as regards the public, 
 and are not sound as being the furnishers of a 
 paper circulation in notes and bills, if they 
 carry on the banking business with a small 
 paid up capital, with the view mei-ely of 
 realizing a high per centage as a dividend. 
 A Bank ought to possess money of its own, 
 or it is not entitled to the name of a bank, 
 even, although many respectable Merchants 
 may be Shareholders ; because, when a time 
 of pressure comes on a bank, it comes at the 
 same time on the mercantile part of the 
 community, and to a call on the Shareholders, 
 to pay up additional capital at such a time, 
 the answer would be *'that it was not a con- 
 venient season."
 
 21 
 
 " The Legislature had in view, by the Act 
 «f 7th George IV. to establish in England, 
 a secure and sound system of banking ; but, 
 if the principle is admitted, and allowed to 
 operate throughout the country, that banking 
 companies can be established on credit^ with 
 small paid up capitals, or with no paid up 
 capital at all, for the purpose of realizing a 
 high per centage as a dividend, and, thus 
 encouraging speculation in shares, then banks 
 of this description will spring up in every 
 district in England, (which they are partly 
 doing at present), and in their consequences, 
 will be productive of far greater evil than 
 ever attended private banks. They will be 
 set a going by speculators; a great per cent- 
 age as a dividend will be announced, partly 
 arising from profits in business, and partly 
 from premiums on Shares ; and when the 
 concern is thus puffed up, the framers of it 
 will sell out at a large profit. One individual 
 sold out of a Banking Company, not four 
 years in existence, with the direction of which 
 he was concerned, and cleared ten thousand 
 pounds ; and soon after he sold out, the Bank 
 found itself in possession of bad debts to as 
 great an amount as its paid up capital ! " 
 
 "The principal evil to the trade of the Coun- 
 try will be in the system of competition. Of
 
 22 
 
 over trading and all its injurious consequences 
 which will inevitably be engendered by credit 
 Banks being established, and carrying on 
 business with small paid up capitals, and re- 
 discounting their bills." 
 
 *' It has been already stated that a large 
 and sufficient paid up capital should be made 
 a sine qua non in the formation of Banking 
 Companies in England. The prodigious extent 
 of business done, and the great variety which 
 obtains in the doing of that business, would 
 establish the importance of that principle • 
 but it would appear to be necessary even in 
 Scotland, where the business is much more 
 limited, and where the mode of doing that 
 business is very uniform. V\ ithin these few 
 years, three Banking Companies have been 
 wound up in Scotland, with great loss to the 
 Shareholders ; and it is remarkable they all 
 had small paid up capitals, — two of them so 
 small that it appears a sort of humbug to have 
 given them the name of Banks ; and had the 
 amount of their capitals been published, they 
 never could have obtained the credit in that 
 country which they did. 
 
 " The East Lothian Banking 
 Company, at Dunbar, consisting of 
 400 shares of £200 each, with a paid 
 upcapital of £40,000
 
 23 
 
 " The Montrose Banking Com- 
 pany, consisting of 150 shares of £100 
 each, with a paid up capital of £15,000 
 
 '* The Fife Banking Company, 
 consisting of 60 shares of £500 each, 
 with a paid up capital of £15,000 
 
 "The paid up capitals on each were lost ; and 
 the Shareholders of the Dunbar Bank had to 
 pay £475 on each share, to meet engage- 
 ments and bad debts. The Shareholders of 
 the Montrose Bank had to pay £150 on each 
 share, and £50 more will be required to pay 
 off all obligations ; and, the Shareholders of 
 the Fife Banking Company had to pay £2,500 
 on each share, to pay off all the obligations 
 and bad debts of the bank. Dishonesty and, 
 mis-management were partly the causes of 
 the losses made by the Dunbar and Fife 
 Banks ; and the losses of the Montrose Bank 
 were principally caused by bad debts made 
 at its branches. In fact the Company was 
 ruined by its branch banks." 
 
 " Now, in the working of the Joint Stock 
 Bank System, the evil which experience has 
 shown ought to be guarded against, is, the 
 allowing parties to subscribe for ten, twenty, 
 or even fifty times more than they are ever 
 able to pay for." 
 
 "The Shares in banking Companies, are 
 called, £100 Shares, but the framers of some of
 
 them say io parties subscribing, that not more 
 than £5 on each Share will ever be called for, 
 and persons subscribe for their 50, 100, or 
 IjOQO Shares, pledging themselves in a Deed 
 of Settlement, to pay up £100 on each Share, 
 when demanded ; whereas, it is notorious 
 that they could as soon pay off the National 
 Debt, as pay the sums to which they have 
 subscribed their names." 
 
 " There is, therefore, a complete deception 
 practised on the subject, but it answers the 
 purpose of the framers of these Companies, 
 by enabling them to announce in the news- 
 papers, &c. "Capital half a million, or one 
 million sterling !" &c. ; whereas, the bona fide 
 Capital is perhaps £15,000 or £20,000 only." 
 
 " It is altogether a delusion to consider any 
 sum as the capital of a bank, but what has 
 actually been paid up by the Shareholders." 
 
 " This paid vp capital ought to be published, 
 and all publications of merely *' subscribed 
 capital "prohibited, so as not to deceive the 
 public." 
 
 *' By such delusions some Banking Compa- 
 nies obtain a great circulation, both of notes 
 and bills, and make the public believe that 
 they are based upon a vast capital, when, in 
 reality, no capital as a ground of security 
 exists at all. ^'
 
 25 
 
 *'It may be thought that prudential consi* ^ 
 derations would operate against Shareholders 
 continuing such a system, but it has been 
 found that the cupidity of individuals is suffi- 
 cient to outweigh all other considerations. Irij 
 several of the publications on banking and 
 currency, it has been strongly recommended 
 as a correction of the evils of the system 
 that a publication of the accounts, &c. of 
 Banks, should be ordered by the Legislature, 
 I do not think that any publication of the 
 accounts of the Country Banks, would be of 
 the least use in preventing the abuses com- 
 plained of" 
 
 These are the opinions of a practical man, 
 perfectly conversant with the working of such 
 institutions, both in Scotland and England. 
 
 That a Deposit Bank, founded on only a 
 small money subscription aided by the signa- 
 tures of respectable persons to deeds of cove- 
 nant, would not be successful, will scarcely be 
 doubted when it is borne in mind, that the 
 most wealthy banking concerns, — nay, that 
 the Bank of England itself, make but slender 
 profits from the employment of their very 
 extensive means as pure Bankers. 
 
 The Bank of England — a National Estab- 
 lishment of upwards of 100 years standing- 
 having the management of the Government 
 
 D
 
 2(S 
 
 concerns, and incorporated with reserved and 
 peculiar privileges, divides but 2 per cent, per 
 annum, as the result of its profits as private 
 Bankers. This fact is shown by deducting 
 from the dividends declared, the amount of 
 interest, according to the rate of the funds 
 which the capital actually accumulated would 
 produce, increased by the amount which the 
 arrangement with Government annually 
 gives to the Company. 
 
 Whilst usury laws exist banking must be 
 less profitable than the lowest business in the 
 catalogue of trades. This assertion may at 
 first startle the reader, but if he reflect for a 
 while he will admit its truth. Suppose a 
 meeting of the Creditors of an insolvent 
 Debtor to consist of six persons, five of whom 
 are men in trade and the sixth a banker, each 
 a Creditor for £100, — how is the debt of 
 each made up ? Why, in five of the instances 
 the Creditor has expended £85 in goods sold 
 to the Insolvent for £100, whereas the Banker, 
 by permitting an over draft, has advanced the 
 whole of the £100 in cash. Now, if the In- 
 solvent's estate should realize SQ per cent, of 
 his debts, the five traders would make a profit 
 of £l each J whilst the banker would sustain a 
 loss of £14 by his transaction. The truth is, 
 that in a calculation of interest of money, re-
 
 27 
 
 gulated as it is, the principal is never 
 supposed to be in jeopardy ; whereas, in 
 merchandize, profit or loss on goods purchased 
 and sold are fairly matters of speculation. It 
 may serve as a plausible inducement to those 
 who have a super-abundance of money which 
 cannot be invested at a greater interest than 
 the funds will yield, that many Joint Stock 
 Banks are now in prosperous existence, in 
 places remote from the Metropolis. But let 
 the covetous man remember that the duration 
 of those banks has not been sufficiently long 
 to prove their stability, because no period of 
 panic has occurred since their foundation; 
 and let him also enquire whether the supposed 
 profits have not sprung from transactions as 
 Agent (commissions on advices, &c. &c.) rather 
 than in character of pure Banker. 
 
 It is not in this respect only that Deposit 
 Banks in London would differ from the 
 Banks of issue in the Country. If the 
 former should be established as Joint Stock 
 Companies, will the Proprietory be content to 
 leave their contributed thousands to the man- 
 agement of any Board of Directors, without 
 the useful check of quarterly or annual inves- 
 tigation by Auditors ? And if there be Auditors, 
 must they not report to the Proprietory at 
 large, consisting probably (as in Davis v. Fisk),
 
 28 
 
 of 60j000 persons? Will any Customer of re- 
 spectability condescend to have his banking 
 account, which is very often the index to, of 
 measure of, his mercantile transactions over- 
 hauled, discussed, and proclaimed by so vast 
 a number of persons? Nay, further, will he, 
 if he be a Proprietor as well as a Customer, 
 incur the risk of those transactions, (originating 
 in sources from which he derives his mer^ 
 cantile existence), being dragged into the 
 office of a Master in chancery, in case of dis- 
 agreement or litigation between partners and 
 customers, or amongst partners themselves ? 
 Will he, if he be a person of known wealth, 
 record his name in the Court of Chancery as 
 the first object to be aimed at for satisfaction 
 of judgments which may be recovered against 
 the Bank ? These are not merely imaginary 
 difficulties, they have actually occurred over 
 and over again. 
 
 One instance of gross malversation, to say 
 nothing of the many of mis-management, 
 has already been recorded by Mr. Watt, 
 in his publication before quoted ; and he is 
 the manager and secretary of a Joint Stock 
 Bank. To this case, another, still more in 
 point, might be added ; but, let it merely be 
 supposed that the Directors had lent money 
 to one of their own Board ; how can the law
 
 29 
 
 be applied to make him refund? Could they 
 sue him at law ? No. Could they proceed 
 m equity? No,— for Lord Eldon has declared 
 that ALL the partners must be made either 
 Plaintiffs or Defendants, so that all must be 
 consulted : and even though the consent of all 
 existing proprietors should be obtained, still 
 the death almost daily of some one or other 
 of so numerous a body, would inevitably create 
 the necessity of frequent abatements or amend- 
 ments of the suit, so as to render a continuous 
 course of legal proceeding utterly impossible. 
 By way of contrasting the facilities now 
 granted by private bankers to their Customers, 
 with the course which might be adopted by a 
 Joint Stock Banker, — suppose a respectable 
 Merchant now wanting £5000 for a particular 
 operation ; he goes to his banker, where he 
 meets one or more of six partners, all having 
 the same views and interest. To them he 
 explains his object, and gets the money. The 
 communication of his intentions is confidentiah 
 the banker judges for himself of the plau- 
 sibility of the statement, and has no possible 
 inducement to betray his Customer, or to pre- 
 judice the transaction which he is called on 
 to promote by an advance of money. Would 
 the Customer feel equally certain as to his 
 reception by one or more of the Directors of
 
 30 
 
 a joint Stock Bank ? Might not some of the 
 Directors be Merchants themselves? Nay, 
 Merchants in the very trade in which the 
 sanguine Customer hoped by promptness to 
 reap the advantages of a well conceived spec- 
 ulation ! Would he feel equally sure that his 
 confidence would be held sacred by twelve 
 or twenty-four gentlemen, each having distinct 
 views and interests of paramount consideration 
 to the emoluments he might reap from his 
 Office of Director of a Joint Stock Bank? 
 Might not the Customer feel that the mere 
 communication of his intentions to men who 
 were themselves in trade would be dangerous 
 to his speculation, and form an inducement 
 to his being refused rather than being granted 
 the aid he sought ? Even if he should succeed 
 in obtaining the money and not be anticipated 
 in his mercantile operation, would he like to 
 have his transactions and borrowings published 
 to all the world, througli the statements ren- 
 dered to the numerous Proprietors of the Bank. 
 Even at the Bank of England, where loans 
 without a certain sort of security cannot be 
 obtained, and where mercantile speculations 
 could not be listened to, even there, are not 
 applications for advances (out of the usual 
 course of discount), pretty generally published 
 within a short time of their being made? Is
 
 31 
 
 it not said abroad, " a certain house has ap- 
 phed to the bank for assistance ! " And did 
 any house ever sustain such report uninjured ? 
 The very main spring of banking is confi- 
 dence and secrecy, v. hich cannot be calculated 
 on in transactions with a Joint Stock Bank. 
 
 These are considerations which ought to 
 operate strongly on the minds of mercantile 
 men and capitalists; but there is another of 
 vast importance which has not yet been treated 
 of. Would the Bank of England and the 
 private Banks, quietly submit to rivalry from 
 Joint Stock Bankers in London? Is it not noto- 
 rious that the Bank of England could by sale 
 of exchequer bills, or otherwise, withdraw 
 nearly altogether their notes from circulation 
 in London? Is it not equally clear, that they, 
 as a Bank of issue, could grant facilities far 
 beyond the power of a mere unincorporated 
 Bank of Deposit ? AVould they, ought they, 
 in justice to their proprietory and to the 
 Government, to permit repeated acts of ag- 
 gression against them, without severe reta- 
 liation? And will men of ordinary prudence 
 enter into so frightful a competition, knowing 
 that their powerful rival can, not only create 
 money for itself, but might in case of need, 
 repeat to Government the language used to 
 Mr, Pittj in 1797. "How far may the Bank
 
 32 
 
 go, on paying their notes in cas/i, and when 
 will it be necessary for Government to inter- 
 fere, before their cash shall be so reduced as 
 to be detrimental to the immediate service of 
 the state ?" The result of such a representation 
 after the Bank of England had been assailed 
 by a variety of Joint Stock Banks, cannot at 
 this moment be speculated on. Nor should it 
 be forgotten, that in the lately renewed 
 Charter, Bank of England notes are made a 
 legal tender. 
 
 What then might be the results springing 
 from the establishment of Joint Stock Banks 
 in London? 
 
 To THE Proprietors — loss, and endless 
 squabbles among themselves. 
 
 To THE Customers — uncertainty, want of 
 facility, apprehensions of abused confidence. 
 
 To THE Bank of England — ultima le/i/ 
 great gain from a variety of sources, amongst 
 others, probably a large increase of private 
 accounts; for if any iveallhy men withdrew 
 their balances from private bankers to carry 
 them to the Joint Stock Bank, on a disap- 
 pointment in the concerns of the latter, the
 
 35 
 
 pride of the Customer would not permit him 
 to return to Lombard Street, and he would go 
 to the Bank of England, The needy man> 
 who had withdrawn his account, might go 
 where he could, for the Bank of England 
 would grant him no facilities, and the private 
 banker would not again be troubled with him 
 after his unsuccessful experiment at the Joint 
 Stock Bank. 
 
 To THE MERCANTILE WORLD GENERALLY--^ 
 
 agitation J speculation, litigation ! any thing 
 but reparation or consolation. 
 
 IM N ? So
 
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