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 BANKING REFORM 
 
 AN ESSAY 
 
 ON PROMINENT BANKING DANGERS AND THE 
 
 REMEDIES THEY DEMAND 
 
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 ALEXANDER JOHNSTONE WILSON, 
 
 AL'THOR OF 'THE KESOL'KCES OF MODEKN COL'NTKIES. ' 
 
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 LONDON: 
 
 LONGMANS, GREEN, & CO. 
 
 1879
 
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 BANKING REFORM 
 
 AN ESSAY 
 
 ON PROMINENT BANKING DANGERS AND THE 
 REMEDIES THEY DEMAND 
 
 BY 
 
 ALEXANDER JOHNSTONE WILSON, 
 
 AL'THOR OF 'THE KESOL'KCES OF MODERN COL'NTKIES.' 
 
 LONDON: 
 
 LONGMANS, GREEN, & CO. 
 
 1879
 
 COLSTON AND SON, PRINTERS, EDINBURGH. 
 
 - • • 
 
 .* V • : 
 
 • • • • 
 
 • > • • * I 
 
 r • • 
 
 •• > •••
 
 
 PREFACE. 
 
 Ci:i 
 
 The following pages deal with some of the 
 
 practical questions at issue in modern English 
 
 ""Banking, and with these alone. They are of 
 
 the highest importance at the present time, 
 
 and yet signs are not wanting that the 
 
 rtlessons which recent events mi^ht have been 
 
 expected to teach are being to some extent 
 
 A^ forgotten. Bank directors have fixed their 
 
 ^attention upon points which, however import- 
 
 w ant to shareholders, do not touch the heart of 
 
 "^the difficulty. All our banks, joint-stock and 
 
 ^private, require to be reduced to order, to be 
 
 protected against themselves. 
 
 Within less than a generation the modern 
 deposit system has reached its present gigantic 
 developments. Until the gold discoveries of 
 California and Australia took place, we may 
 indeed say that there was no gigantic bank 
 in the country. But since 1858 the liabilities 
 of many joint-stock banks, and of some private 
 banks also, have more than doubled. And in 
 all directions banks have extended their opera- 
 
 389189
 
 IV PREFACE. 
 
 tions and altered their habits since the date 
 of the misdirected legislation of Sir Robert 
 Peel. The time has now come, therefore* 
 when the Legislature ought to be prepared to 
 brinof the confused and even chaotic elements 
 thus devoloped into something like order. 
 
 It is the aim of this essay to indicate briefly 
 the main lines on which the necessary reforms 
 ought to run ; and I may say that the views 
 it contains are not put forward as altogether 
 the expression of outside opinion. They have 
 been much discussed with bankers in the 
 City, and are to a considerable extent what 
 the most enlightened among them feel to 
 be necessary. 
 
 An essay written by me about a year ago, 
 and printed in the Fo7'tnightly Review for 
 August last, has been reprinted as the first 
 chapter of the volume, for the purpose of re- 
 calling the minds of readers to the most 
 wide-spread banking dangers of the time. 
 The crash in Glasgow eclipsed many of these 
 dangers which exist still, and can in no way be 
 removed while losses in trade continue to 
 accumulate. In short, we are not yet clear 
 of danger ; and I fear, it must be added, 
 not free from the dead weight of past losses, 
 still hidden and unacknowledged to an extent 
 that presses down enterprise and helps to
 
 PREFACE. V 
 
 prevent a real trade revival. The fact that 
 so much rottenness overlays our credit and 
 clogs our trade, is one additional reason for 
 urging that all the banks of the country, 
 joint - stock and private, should speedily be 
 brought to book. If we leave them much 
 longer, it may be too late for them and for 
 the nation. But the dangers visible on all 
 sides also offer powerful reasons against hasty 
 legislation or anything like imperfect patching. 
 To deal with the questions of limited and 
 unlimited liability, or even to try to assimilate 
 the law of Scotland in the matter of trustees 
 holding stock to the provisions of the English 
 'Joint-Stock Companies Act of 1862,' might 
 prove highly dangerous just at the moment. 
 The very urgency of the reform demands that 
 it should be carefully and deliberately brought 
 about, and therefore the best course to be 
 pursued, is probably one that would give the 
 banks time to prepare themselves for great 
 chancres in the law. Were the Government 
 to appoint a small carefully chosen Commis- 
 sion to inquire into the present state of banking 
 with a view to legislation, it might be the wisest 
 thing which in the circumstances it could do. 
 The researches of such a body would do much 
 preliminary good ; would furnish the basis of 
 thorough lecrislation ; and would, at the same
 
 VI PREFACE. 
 
 time, give the banks opportunity for putting 
 their affairs in order against the day of com- 
 pulsion. A step of this kind would not be 
 seriously resisted by the bankers. Some 
 among them might, perhaps, hope that an 
 investigation of the kind would procure an 
 indefinite respite from interference ; and there 
 would be danger of that result were public 
 opinion to go to sleep upon the subject. 
 There is, however, less probability of that 
 being the case than some might suppose ; 
 for while the present trade stagnation con- 
 tinues, banks will continue to fail from time 
 to time, and their collapse will keep public 
 feeling alive. All that we shall require, 
 therefore, is that this public feeling should 
 be utilised for a sound practical purpose ; 
 and if the following observations contribute 
 in any degree to that result, my object in 
 writing will be fully attained. 
 
 London, 25//^ February 1879.
 
 CONTENTS. 
 
 — L^j^ioo— 
 
 CHAPTER I. 
 The Position of English Joint-Stock Banks, . i 
 
 |'A(;e 
 
 CHAPTER IL 
 The late Bank Failures, and what they Reveal, 44 
 
 CHAPTER III. 
 Bank Audit and Bank Balance-Sheets, . . 66 
 
 CHAPTER IV. 
 
 The Defects of the Bank of England Weekly 
 
 Return, . . . . .100 
 
 CHAPTER V. 
 
 Deposit Banking, and the Position of Directors, 120 
 
 CHAPTER VI. 
 Bank Acceptances and Losses in the Asian Trade, 136 
 
 CHAPTER VII. 
 
 The Confused State OF THE Paper Currency, . 174 
 
 APPENDIX, . . . . . . 191
 
 BANKING REFOR M. 
 
 CHAPTER I. 
 
 THE POSITION OF ENGLISH JOINT-STOCK BANKS 
 
 * 
 
 Few things are at present more striking than 
 the apparent extreme prosperity of the joint- 
 stock banks of this country. The complaints 
 as to dulness of trade have been universal 
 now for at least three years. You can hardly 
 pick up a trade circular or chairman's speech 
 at some half-yearly company meeting without 
 finding in it allusions to the depressed con- 
 ditions of our national industries and the 
 unsatisfactory character of the profits. In the 
 iron and coal trades particularly, things have 
 gone from bad to worse. Some of the largest 
 smelting works in the country have ceased 
 to produce, and hundreds of smaller concerns 
 either work alone in Qrreat distress or dis- 
 appear altogether, leaving little but debts to in- 
 dicate that they ever existed. Prices in almost 
 
 * Reprinted from the Fortnightly Review for August 1878. 
 
 A
 
 2 THE POSITION OF 
 
 all departments of business have been falling 
 continuously for many months, and therefore, 
 although the bulk of the trade done may 
 have been in some cases nearly as large as 
 ever, it has often been trade conducted at a 
 loss. There is, in short, undeniable evidence 
 of strain everywhere, and business has in 
 consequence been contracted wherever possible 
 within the narrowest limits. We can hardly 
 put our finger upon an industry of any im- 
 portance the country through, and say, — this 
 branch of trade at least is good ; unless we 
 consider the manufacture of instruments of 
 destruction worthy of being taken into account. 
 Sheffield languishes for lack of demands for 
 its cutlery ; Bradford is oppressed with an 
 excess of manufacturing power for the ' stuffs ' 
 which have at present no free market ; Man- 
 chester warehouses are groaning beneath the 
 weight of unsold and at present unsaleable 
 cotton goods ; the sugar industry has almost 
 departed from Bristol ; and at nearly all centres 
 of our silk manufacture stocks accumulate and 
 prices sink. In the Black country the stag- 
 nation is nearly universal ; and even Birming- 
 ham hardware is not bought so freely as in 
 former years. Everywhere almost there are 
 at home signs of languishing, of the same 
 reaction from over-production, and these are
 
 ENGLISH JOINT-STOCK BANKS. 3 
 
 frequently aggravated by indications of in- 
 creased foreign competition. 
 
 Such a state of things, one would naturally 
 expect, must tell with instant force upon the 
 position of our joint-stock banks. In their 
 hands, for the most part, the trade of the 
 country finds the means by which purchase 
 and sale become possible. They have gathered 
 the larger share of the surplus money pos- 
 sessed by the community into their hands, 
 and have so developed the facilities for lending, 
 for making and receiving payments, that the 
 bulk of our trade hinges on them. We should, 
 therefore, naturally suppose that if trade is 
 languishing they would languish, and that only 
 when it was active and yielding good profits 
 would they prosper. 
 
 The case is, to all appearance, as near as 
 may be just the reverse. If we except the 
 London Joint-Stock Banks, to whose position 
 further reference shall be made presently, 
 the situation seems most prosperous. There 
 is no diminution in dividends paid ; on the 
 contrary, they are higher in some instances 
 than they were before 1873 — the year when 
 our trade prosperity may be said to have 
 culminated. Reserves increase, and deposits 
 appear to flow in until one wonders what can 
 be meant by complaints about bad trade,
 
 4 THE POSITION OF 
 
 declining profits, and industrial distress. So 
 steady is the apparent growth of prosperity 
 on the part of the country joint-stock banks in 
 particular, that they frequently find it necessary 
 to call up more capital in order to meet the 
 demands of an extended business, and large 
 dividends are paid on this capital with no 
 difficulty whatever. Thus we learn from the 
 Banker s Magazine for February last, that in 
 the two years, 1876 and 1877, the net increase 
 in the capital of the joint-stock banks of the 
 country was over ^4,000,000, including the 
 premiums, in some cases very high, charged 
 on the new issues of shares and placed to 
 reserve funds, and the undivided profits also 
 placed to reserve. This, to be sure, appears 
 to include the Scotch and Irish banks, with 
 which we are not now dealing ; but the 
 additions to capital made by them are small, 
 and the bulk of the increased capital is to 
 be credited to the joint-stock banks in Eng- 
 land, mostly to those in the provinces. Of 
 course all this increase does not represent 
 money on which dividend is nominally paid, 
 the premium being added to the reserve, on 
 which there is no obligation to pay. But it 
 may be considered that a full half of it does ; 
 and yet, as I have said, dividends do not fall 
 off, except in a few isolated instances. It is a
 
 ENGLISH JOINT-STOCK BANKS. 5 
 
 common enough event to find 20 and 22 per 
 cent, per annum distributed on the paid-up 
 capital, and anything under 10 per cent, is 
 considered a very indifferent return. 
 
 I shall give a few averages for the last two 
 years only in order to make this point evident, 
 dividing the banks into (i) London banks 
 proper ; (2) London banks with provincial 
 branches ; (3) banks in provincial cities ; and 
 (4) banks having an important part of their 
 business in agricultural districts. There are 
 in the first category eight banks* in all, exclud- 
 ing the * Metropolitan,' which does not pay 
 a dividend on the whole of its capital, and is, 
 in other respects, difficult to classify, and the 
 average dividend paid to the shareholders of 
 these eight banks during the last two years 
 has been loj per cent, per annum. This is 
 a lower average than was customary just 
 before the Collie frauds of 1875, the same 
 eight banks having distributed in the years 
 .1873 and 1874 an average dividend of fully 
 13:^ per cent, per annum, but it is none the 
 less a remarkable yield. 
 
 In the second category we have five banks, 
 excluding the Amalgamated Hampshire and 
 North Wilts Bank, which has only recently 
 
 * The names of these eight banks will be found at the head 
 of an abstract of their accounts further on.
 
 6 THE POSITION OF 
 
 come to London, and the Scotch and Irish 
 banks with city offices. These five banks — 
 the ConsoHdated, whose chief business is in 
 Manchester, the London and County, the 
 National Provincial, the London and Provincial, 
 and the London and South-Western — paid an 
 average dividend of almost 13-^ per cent, per 
 annum in the two years 1875 and 1876, which 
 is much higher than the average of the London 
 banks proper for the same period, and shows 
 but little diminution upon the yield of the two 
 years 1873 and 1874, which was only 14 per 
 cent, per annum, 
 
 The third class of banks is a large one, and 
 in some cases difficult to separate from the more 
 distinctly rural banks. I have, however, taken 
 thirty-one banks whose centres of business are 
 in Birmingham, Liverpool, Manchester, Leeds, 
 Sheffield, Bradford, Halifax, and such like 
 trading and manufacturing districts, and, avoid- 
 ing those which have a considerable number of 
 rural branches, have endeavoured to strike an 
 average which shall tolerably closely represent 
 the earnings of provincial city banks in the 
 past two years. This average I find to be 
 about 14 per cent, per annum; the dividends 
 ranging from a mere 5 per cent., as in the case 
 of the Nottingham Joint-Stock Bank, to the 30 
 per cent, paid by the Lancaster Bank. Con-
 
 ENGLISH JOINT-STOCK BANKS. 7 
 
 sidering the variety of conditions under which 
 these banks carry on business, this average is 
 remarkable, apart ahogether from the question 
 whether trade is dull or active. It shows that 
 these banks, like the London banks with pro- 
 vincial branches, have large sources of re- 
 venue, and the condition of banking in pro- 
 vincial towns would appear at first sight to be 
 much more favourable than in the city of 
 London itself. No doubt the high dividend 
 is in many instances paid on a relatively smaller 
 paid-up capital than some of the London banks 
 possess ; but the country banks are in numer- 
 ous instances facing increased disadvantages in 
 this respect compared w^ith those of London, 
 inasmuch as they are the banks which we find 
 continually augmenting their paid-up capital. 
 They are doing this, it would seem, with 
 impunity in the meantime, and in only a few 
 instances are the dividends paid for the last two 
 years lower than those paid for the previous 
 two years. Where this does occur, too, it is in 
 the case of banks which have not added to 
 their capital. Here also we have, therefore, 
 an appearance of prosperity which is remark- 
 able, explain it how we may. 
 
 But this prosperity is, if possible, more striking 
 still in the case of the banks I have selected as 
 rural banks, that is, which do a large business in
 
 8 THE POSITION OF 
 
 purely agricultural districts. Of these I have ■ 
 picked out twenty-nine, taking them, as in the 
 previous list, alphabetically from the list given 
 in the Investors Monthly Manual, and omitting 
 only one or two very small banks, about whose 
 rural connection I am doubtful. These twenty- 
 nine banks have yielded an average dividend, 
 for the last two years, whose figures have been 
 published, of about i6 per cent, per annum. 
 Some of them have not, up to the time of this 
 writing, announced their dividend for the past 
 year, so that the average does not compare 
 strictly on all fours with the others. But here 
 also the indications of falling dividends are few, 
 and almost counterbalanced by instances in 
 which the payment has been higher than in 
 previous years. Such banks as the Yorkshire, 
 the Wilts and Dorset, the Hampshire and 
 North Wilts, the North and South Wales, and 
 the Bury banks, pay steady dividends of from f 7 
 to 25 per cent, with the greatest regularity and 
 ease in the world ; and, as a result, we have a 
 general average for banks which we may con- 
 sider at least partially rural, higher than for either 
 banks in manufacturing districts or in London. 
 These figures are altogether startling, unless 
 we. could prove that the banks have taken 
 advantage of the uncertainties of the trading 
 community to exact higher terms for the money
 
 ENGLISH JOINT-STOCK BANKS. 9 
 
 they lend. The superficial facts appear, how- 
 ever, to prove just the contrary, for the nominal 
 value of money or the price of credit has seldom 
 been so low as it has been in this country, and 
 on every great money market in the world, 
 since 1875. When bill brokers are thankful to 
 discount good paper at the rate of f per cent. 
 per annum, as they have more than once been 
 within the past three years, we can hardly say 
 off-hand that banking profits have been made 
 out of dearer credit. What makes the dividend 
 averages we have given stiJl more remarkable, 
 is the curious increased ratio which they bear 
 to the degree of prosperity enjoyed by the 
 regions within scope of their operations. Thus, 
 while the London banks pay a comparatively 
 low average dividend, in spite of the greater 
 scope for business which they enjoy even in dull 
 times, the banks with agriculture connections 
 pay the highest rate of all. Now agriculture 
 has been an unprofitable occupation for years 
 past in this country. We have had at least two 
 bad harvests in succession ; rents are nearly 
 everywhere so unreasonably high, that in many 
 instances landowners have been driven to 
 relieve their tenants by making large re- 
 ductions, and have frequently had farms left on 
 their hands, because in times so bad no tenant 
 would face the rent responsibility. Foreign
 
 lO THE POSITION OF 
 
 competition in the supply of food of all kinds 
 has at the same time been on the increase, and 
 the farmers' old compensation for a bad year 
 — high prices — can no longer be secured. He 
 has thus nothing to relieve him from the full 
 pressure of landlord monopoly and bad times. 
 Yet, in spite of all this, the rural banks pay 
 most flourishing dividends. How is all this to 
 be accounted for ? 
 
 To answer this question thoroughly, I should 
 have to institute an examination of some length 
 into the principles now supposed to govern 
 English banking. In my view, few subjects 
 are at present of more vital interest to the 
 community, but I do not propose to enter at 
 any length into such a discussion now. My 
 object is rather to lay bare the immediate and 
 visible causes of the apparent prosperity of 
 our joint-stock banks than to examine the 
 principles of banking in the abstract, and I 
 shall therefore rest content with a reference 
 to one or two general considerations which 
 serve to show that, within certain limits, dull 
 trade is, fairly enough, not without its compen- 
 sations to the banker. This I shall do chiefly 
 with a view to bring into greater relief the 
 dangerous practices with which banks have 
 so often eked out those compensations in times 
 like the present.
 
 ENGLISH JOINT-STOCK BANKS. I I 
 
 And first of all it must be remembered that, 
 apart from the fact that nearly all banks earn 
 interest on more money than the amount of 
 their paid-up capital, dear or cheap money 
 makes very little difference to the amount of 
 profits they can get on a certain more or less 
 important portion of their balances. Those 
 banks whose 'deposits' are large, can count 
 on merely a margin between what they pay 
 for the use of these deposits and what they 
 can earn by them, whether the value of money 
 be high or low. When money is dear, the 
 depositors ask a larger interest on their 
 balances, and ' when it is cheap they must 
 perforce accept a lower. The banks get 
 merely the difference. Hence, if they can 
 employ the money at all, their profits may be 
 almost as much on this class of balance when 
 the Bank of England value of money is low 
 as when it is high. Of course the floating 
 balances on which no interest is paid will 
 not yield so much, and in that respect the 
 banks of large current account resources will 
 stand at a disadvantage, a fact which no doubt 
 helps to explain the lower earning power of the 
 London banks in recent years. These also 
 suffer severely from another and more per- 
 manent cause, inasmuch as they are subjected 
 to much greater competition now than in
 
 12 THE POSITION OF 
 
 former years by the large number of colonial, 
 foreign, and Scotch banks whose offices in 
 the City draw away from the City banks 
 proper much business and money. 
 
 Another general consideration, which relates 
 rather more to country banks than to metro- 
 politan, is this : the ruling monetary rate quoted 
 in the bill market or by the Bank of England, 
 is to a considerable extent a fiction, because 
 it is, for one thing, based upon a false standard 
 of value. Custom has sanctified the usage 
 which compels all banks to follow the Bank 
 of England in its movement of the ' rate for 
 money.' There is no real ground for this 
 custom, and it does frequently as much harm 
 as good, because the Bank of England is often 
 moved by causes peculiar to itself, whether in 
 raising or lowering this rate. The market 
 rate is thus sometimes above and often below 
 that of the Bank of England, and that bank is 
 frequently compelled to place itself ' out of the 
 market' by a high rate, merely that it may 
 protect the national store or reserve of bullion. 
 But be this practice wise or the reverse, we 
 should never forget that it is a practice which 
 roughly determines the value of money for 
 first-class merchants' or bankers' bills alone. 
 It does not establish, and only in a remote 
 degree influences, the rate charged throughout
 
 ENGLISH JOINT-STOCK BANKS. 1 3 
 
 the provinces for second-class bills or for 
 advances with or without security. Even in 
 London there is an enormous mass of small 
 bill discounting done at 5 or 6 per cent, when 
 the nominal Bank of England rate may be 
 only 2 per cent., and the open market rate 
 for the best paper barely half as much. This 
 is not usurious discounting either, but the 
 ordinary fate of fair trade bills, drawn probably 
 by City merchants on the small retailers. In 
 this class of business a time of so-called ' cheap 
 money ' is consequently a time of high profits, 
 for the banker is paying little for his deposits 
 and getting much for their use, at the same 
 time that the presence of dull trade is perhaps 
 driving more of this kind of bills into the 
 market. Throughout the provinces, where the 
 bills circulating are on the average smaller 
 than in London, this fixity of discount rate 
 is of course much more customary, and the 
 natural inference would be that in a time of 
 dull trade banks could make a very good 
 profit, provided always that they found steady 
 employment for all their money. It is true, 
 no doubt, that joint-stock banks in the country 
 do not reap the full advantage of the difterence 
 between what they earn on money in times 
 like these and what they pay for it, because 
 they have probably always to pay rather more
 
 14 THE POSITION OF 
 
 for their deposits than London bankers now 
 do. The Bank of England rate is more a 
 fiction with them at all times than it is in 
 London, and their standard for interest pay- 
 ment on deposits is rather the yield on consols 
 than ' bank ' rate. If they cannot allow some 
 3 per cent, on the money entrusted to them, 
 their customers place it in the funds, so they 
 are probably compelled in the dullest of times 
 to pay about so much for the use of money. 
 This is, however, only a partial drawback, as 
 they are, on the other hand, able to command 
 a higher price for their credits and discount- 
 ings, and as these may tend to increase in bad 
 times, their earnings are to a certain extent 
 also legitimately higher. ■ 
 
 These general observations might be as- 
 sumed to have almost settled the point, did 
 we not know that banking nowadays means 
 much more than a mere discounting of bills. 
 This is indeed but a small branch of the 
 business of many banks, and in order to obtain 
 some just conception of the position into which 
 a period of dull business has brought them, I 
 must now ask the reader's indulgence while 
 I plunge into one or two statements of prin- 
 ciples and figures. I shall try not to overload 
 my pages with the latter, but a few are abso- 
 lutely necessary.
 
 ENGLISH JOINT-STOCK BANKS. 1 5 
 
 Bankers nowadays are subjected to enormous 
 temptations to travel beyond the line of their 
 safe legitimate business, which may be briefly 
 described as the business of borrowing for 
 short periods on the security of their capital, 
 in order to lend again for short periods upon 
 mercantile securities at a profit. Their chief 
 resources should thus be always floating. A 
 banker has no business, for example, to lend 
 money on the mortgage of a house which may 
 not be realisable should necessity arise for 
 calling in his money, and though less question- 
 able, perhaps, the habit of lending on stocks 
 and shares may also turn out to be an ex- 
 tremely dangerous one. But stocks and shares 
 and house property of all descriptions have 
 multiplied so fast in recent years that the 
 temptation to the banker to take these as 
 ' security ' for loans made with his customers' 
 money has proved irresistible. He lends 
 heavily on such in brisk times, helps to ' float ' 
 loans, backs adventures in railways, mining, 
 house - building, and navigation on all hands, 
 and in innumerable ways steps aside from his 
 true position as mere go-between and auxiliary 
 in ordinary commercial transactions, while in 
 times of bad trade the temptation to make 
 profit by such business is not to be resisted. 
 
 It may be justly said that a bank which
 
 1 6 THE POSITION OF 
 
 allows itself to be drawn largely into specula- 
 tions of any kind, involving great difficulty in 
 the sudden realisation of its money, is a bank 
 which, if it does not ultimately fail altogether, 
 mast suffer grievous loss. It is wise to invest 
 guarantee funds in approved home securities, 
 and it may be at times prudent to place a 
 portion of the paid-up capital in the same 
 position, but it is never safe for a bank to 
 put any money belonging to customers into 
 any security which is not continually, as it were, 
 realising itself, a security where the risks of 
 loss are small, and, comparatively speaking, 
 immediate. This I believe to be the one 
 cardinal principle of sound banking ; and now 
 let us examine the present position of English 
 joint-stock banks in relation thereto. 
 
 The task is less easy than it might seem, 
 owing to the careless or indifferent fashion in 
 which all joint-stock banks draw up their 
 balance-sheets. I have found the greatest 
 difficulty in collecting the facts indicated in the 
 statements of the various categories of banks 
 whose figures I have examined, simply because 
 these figures are often for practical purposes 
 of no use at all. What shall be said, for 
 example, of the practice which heaps all the 
 items of a bank balance-sheet — cash, securi- 
 ties, advances, bills, property, and overdrawn
 
 ENGLISH JOINT-STOCK BANKS. I 7 
 
 accounts, Into a lump sum ! Nobody can tell 
 in the least how such an institution stands, yet 
 this is the common practice with many pro- 
 vincial joint-stock banks. And where some 
 details are given, they are rarely or ever 
 minute enough to enable one to tell even 
 approximately what the true position of an 
 institution may be. ' Cash in hand ' and 
 'cash lent at call or notice' are, for example, 
 habitually lumped together, although the latter 
 involves a risk of loss while the former does 
 not ; bills, advances, and over-drafts are also 
 continually to be found swelling the sum total ; 
 and country banks, never, so far as I can dis- 
 cover, indicate that portion of their liabilities 
 vv^hich represents the mere contra of unsecured 
 advances on current accounts ; nor is there 
 a bank within the United Kingdom which 
 separates its liability on deposits bearing 
 interest from the mere credit balances on 
 current accounts, although the former is a 
 liability of a kind quite distinct from the latter. 
 A great reform is needed in this respect, but 
 we shall probably have to wait for it till after 
 the next collapse of banking credit in this 
 country. Then with our usual zealous endea- 
 vour to redress wrongs and retrieve blunders, 
 we will set vigorously to work to devise a 
 perfect credit-checking machine when it is 
 
 B
 
 1 8 THE POSITION OF 
 
 too late. The Government now looks after 
 insurance companies, and compels them to 
 publish returns, which have at least the advan- 
 tage of indicating whether an ofhce is extra- 
 vagant or the reverse. Why should it not 
 compel all joint-stock banks to publish balance- 
 sheets which should at least enable the public 
 to follow the changes which are continually 
 taking place in the position of their accounts, 
 and to see the character of their risks ? 
 
 I shall leave that question to answer itself, 
 and proceed to make the best of such figures 
 as I have been able to procure, dealing first 
 with those of the London banks. What strikes 
 one most forcibly at first sight about these is 
 the large decrease which has taken place in 
 both their assets and liabilities between the 
 end of 1873 and the end of 1877, the period 
 which I have throughout chosen for compari- 
 son, I subjoin a table which will make this 
 clear. 
 
 Lo7idon Banks Proper — Alliance, Central, City, Imperial, 
 Joint - Stock, Westminster, Merchants\ Metropolitan, 
 and Union — Increases or Decreases in their Working 
 Resources and Liabilities. 
 
 Assets, 
 
 {Smaller banks, except 
 City and Westminster, 
 show increase. 
 
 ^. , J J , „„, ,,, -NT .. r Smaller banks as^ain 
 
 Discountsandadvances,-io,395,3i4Net| showincrease. 
 
 Securities, . . - 186,123 
 
 ^11,202,276 Net decrease in the assets.
 
 ENGLISH JOINT-STOCK BANKS. 1 9 
 
 Capital and Reserves. 
 
 Capital, + ;{^5,oo2 In Metropolitan alone. 
 
 (Heavy decrease in London and 
 Reserves, + 16,754 ^ Westminster, small in Union, the 
 
 ( rest all increases. 
 
 Liabilities to the Public. 
 
 Deposits, -^^9,029,944 Again increase in the smaller bank?-. 
 
 (Only Alliance and Metropolitan show 
 increase ; Joint-Stock and Central 
 do not give their acceptances 
 separately, but it is fair to as- 
 sume that there has been a con- 
 siderable falling off. 
 
 \ 
 
 'a 
 
 £1 1 ,493,629 Total decrease in the liabilities. 
 
 These banks, it will be seen, have lost no 
 less than ^9,000,000 of their deposit in four 
 years, and there has been a falling off after- 
 wards of ;^ 1 0,000,000 in their discounts and 
 advances. This, at first sight, seems a reduc- 
 tion out of proportion to the falling off in the 
 dividends, inasmuch as it is equal to about a 
 tenth of their total resources in deposits and 
 acceptances ; but to some extent, no doubt, the 
 loss of deposits was a relief. The banks are to 
 that extent delivered from the burden of money 
 which they could not profitably use, and for 
 much of which they had to pay interest. Their 
 own action has, indeed, to some degree caused 
 this reduction in their balance-sheet totals ; 
 for since they ceased to give interest on cur- 
 rent account balances, the tendency of these 
 balances has been to grow narrower. This, 
 however, is not the chief cause of the change,
 
 20 - THE POSITION OF 
 
 much being due to the withdrawal of money 
 by country banks. 
 
 And what of the actual diminution in the 
 business done, as indicated by the decrease of 
 ^10,000,000 in their discounts and advances? 
 The figures do not give details enough to 
 enable us to trace what this reduction consists 
 in, but there is strong reason for believing that 
 a paucity of trade bills and the keen competition 
 already mentioned are the main causes. It is 
 noticeable that the item ' acceptance ' is less 
 by about two millions and a half, and that re- 
 duction should represent a decrease in pure 
 mercantile business. Naturally, moreover, the 
 more provident banks would curtail their ad- 
 vances on stocks, dock warrants, and other 
 securities, in proportion as they lost their 
 deposits, whether by their own free will, by 
 the competition of other banks, or by the 
 steady withdrawal of resources by the provin- 
 cial banks, for whom the London banks act 
 as agents. This last cause of reduction in the 
 working resources of the London banks has 
 been a most constant and powerful one, as 
 we shall see when we come to examine the 
 position of provincial banks. 
 
 On the whole, it may be safely concluded 
 that the reduction in the available resources 
 of the London banks, where they have not
 
 ENGLISH JOINT-STOCK BANKS. 2 1 
 
 been caused by losses pure and simple, like 
 the losses of the London and Westminster 
 Bank in the Collie and other frauds, has not 
 been an unmixed evil so far as their profits 
 are concerned. Their stability ought certainly 
 to be greater now than it was before. Unwieldy 
 masses of capital are most dangerous possessions 
 in times of mercantile depression. Could we 
 then be sure that these banks have no hidden 
 troubles, no safes full of bad or doubtful securi- 
 ties, no dangerously-extended credits, or deep 
 involvements with mercantile firms whose trade 
 is but a more or less frantic endeavour to 
 retrieve the losses of the past, we should say 
 their position is fairly sound and good. But 
 these are just the points upon which no man 
 can be sure until it has been seen how the 
 banks pass through the first ordeal of very dear 
 credit which shall succeed the depression of the 
 past few years. 
 
 I must now ask the reader to look at the 
 following table, giving an analysis of four 
 London banks with provincial branches, 
 similar to that given of the London banks 
 alone. The figures of the National Provincial, 
 now probably the largest bank in the kingdom, 
 were, when this was written, only available up 
 to the 31st December 1877; I shall therefore 
 deal with them separately : —
 
 2 2 THE POSITION OF 
 
 Comparative Statistics of Lojidoii Batiks with Provincial 
 Branches {four banks, Consolidated, Loftdon afid County, 
 Lo7idon and Provincial, London and South- Western). 
 
 Assets. 
 
 Cash, . 4-^1,071,068 All show increases. 
 
 Advances, + 603,874 London and County alone decrease. 
 
 Securities, + 1,552,256 All increases. 
 
 ^3,227,198 Net increase in assets. 
 
 Capital and Reserve. 
 Capital, . 4- ^386,920 Consolidated no change. 
 
 T^^ . ^ ''88 CI /"'^^^ increases, chiefly premiums on 
 
 ' * ^ jV- "1^ j^g^ shares. 
 
 ^^675,841 
 
 Liabilities to the Public. 
 
 Deposits, +^6,531,953 All increases. 
 
 . . , ^/-o „ , . { The London and Provincial does 
 
 Acceptances,— 1,968,744-^ 
 
 I not state acceptances separately. 
 ^4,563,209 Net increase in liabilities. 
 
 These figures are remarkably in contrast to 
 those of the London banks proper. The 
 resources of these banks are greater instead of 
 less, and they would seem to have considerable 
 difficulty in finding use for the money entrusted 
 to them. Their cash on hand and lent at call 
 has increased by over ^1,000,000 in the four 
 years, and it is clear that they find great diffi- 
 culty in employing their money in discount, for 
 the principal increase in their assets is under the 
 heading ' securities,' and their acceptances are 
 very much reduced. Amongst them, these four 
 banks now hold no less than ^3,800,000 worth 
 of stock, independently of the amounts pawned
 
 ENGLISH JOINT-STOCK BANKS. 23 
 
 to them by customers as security for advances, 
 and of which no indication is given. The 
 London and County is driven most extensively 
 to find this kind of employment for its money, 
 and has at the present time some ^800,000, 
 more than its capital and reserve together, 
 locked up in investments. But the figures of 
 the National Provincial Bank of England are 
 the most striking of all. This bank has now 
 deposits amounting to upwards of ^26,000,000, 
 and its money invested in stocks probably 
 exceeds ^8,000,000 at the present date by a 
 good round sum. At the date of the 1877 
 balance-sheet the total investments was nearly 
 ^7,500,000, and this is how that balance-sheet 
 compares with 1873, or three years before. 
 
 The National Provincial Bank of England. 
 
 Co7nparaHve Figures of the Balance-Sheet^ 1873- 1876. 
 
 Assets. 
 
 Cash, . . . . + ;^553.i4i 
 
 Discount and advance, + 2,841,982 
 
 Securities, . . . + 2,204,290 
 
 Total increase, ; ^5. 599413 
 
 Capital and Reserve. 
 Capital, . . . + i;255,o47 
 Rest, . . . . + 300,000 
 
 Total increase, / 52 5,047 
 
 Liabilities to the Public. 
 Deposits, . . . +^5,026,101 
 Acceptances, . . + I53)036 
 
 Total increase, /5.i79)i37
 
 24 THE POSITION OF 
 
 Here again we see that the increase in the 
 resources of this bank has driven it more and 
 more to seek a profitable use for its money in 
 investments in stocks. Nearly half the in- 
 crease in its deposits has gone in that direction, 
 and thus, were we able to say what proportion 
 of the ^17,000,000 odd credited by it to 
 ' discounts and advances,' was mercantile bills, 
 what advances on various kinds of securities 
 and pawned stocks, we should probably see 
 still more clearly how the great volume of 
 business which this bank does is sustained and 
 profitable. Although the acceptances of the 
 bank are rather more, the increase by no means 
 leads to the inference that mere mercantile 
 business is flourishing in the provinces though 
 stagnant in London. At the best we can only 
 infer that this bank has succeeded in drawing 
 to itself a better share of such good banking 
 business as is to be had. 
 
 If the reader will bear the infliction of a few 
 more figures relating to the provincial banks 
 alone, we shall see evidence in plenty that 
 mercantile bills of all kinds are not on the 
 increase. In this case the balance-sheets pub- 
 lished vary from a mere statement of profits 
 to details regarding cash, discounts, advances, 
 etc., such as London banks do not give. The 
 diversity compels me therefore to dispense
 
 ENGLISH JOINT-STOCK BANKS. 25 
 
 with tables of figures, for I am unable to get a 
 broad enough basis for comparison. There 
 will be no difficulty, however, in arriving at 
 some fair estimate of the position of the country 
 banks by a strict analysis of the figures of the 
 isolated balance-sheets taken from various parts 
 of the country. I have worked out the results 
 of some thirty of these, and find them to be so 
 striking as to require almost no elucidation. 
 
 Four things, for instance, stand out pro- 
 minently in the comparisons of the balance- 
 sheets of the years 1873 and 1877 : (i) an un- 
 precedented increase in the ' advances ' to 
 customers, upon security or on mere current 
 account ; (2) a heavy decrease in the amounts 
 of trade bills held by the banks ; (3) a decrease 
 in the available cash ; and (4) an increase in 
 the capital and reserve. A fifth feature might 
 be added in the shape of an increase in the 
 stocks held, but that is almost a necessary offset 
 to the falling off in the trade bills and the 
 increase in the deposits, as also, perhaps, to 
 the extension in the advances. 
 
 The augmentation in the advances of cus- 
 tomers is often very startling. For example, 
 Lloyd's Banking Company and the Birming- 
 ham Joint-Stock Bank have increased this item 
 in their balance-sheets by no less than 
 ;^ 1,900,000 since 1873, and at the same time
 
 26 THE POSITION OF 
 
 their discounts have fallen away ^697,000. 
 The position of Bradford, Manchester, and 
 Liverpool banks appears to be the same, so 
 far as I am able to trace their figures. And 
 this, at all events, is certain, that wherever 
 ' advances ' are stated separately, they show 
 unprecedented increases. It is the same too 
 with banks that may be considered partly as 
 agricultural. Thus I find that the Leicester- 
 shire Bank has increased its advances ;^459,ooo, 
 its discounts being lower by ^99,000, while 
 Parr's Banking Company, in the same way, has 
 extended its credits by ^1,122,000, while its 
 bills have fallen off ;^ 13 7,000. The York- 
 shire and the Manchester City and County 
 yield indications of the same kind, and it is 
 only reasonable to conclude that in other in- 
 stances, where the figures are too confused to 
 enable me to draw a sharply defined conclusion, 
 the larger totals are due to this identical 
 process. 
 
 Now, while this expansion of credit has been 
 going on for the past four years, the cash of 
 these banks has been diminishing, and some 
 of them have at the same time been making 
 repeated and extensive calls upon their share- 
 holders for more capital. Taking capital and 
 reserves together, I find that eighteen provin- 
 cial banks, out of some twenty whose balance-
 
 ENGLISH JOINT-STOCK BANKS. 2 7 
 
 sheets I have compared for the purpose, have 
 increased their resources in this way by up- 
 wards of ^2,500,000 in the four years. Of 
 this total only a million is due to augmented 
 reserves, a full half of which may safely be 
 placed to the credit of premiums on share 
 issues, so that we may say ;^2,ooo,ooo has been 
 added within the past four years to the paid- 
 up capital of some eighteen banks alone out of 
 the one hundred and twenty joint-stock banks 
 altogether in England and Wales. It is hardly 
 fair, perhaps, to take this as a sample of the 
 average increase, seeing that there are a 
 number of banks which have not resorted to 
 this practice ; but granted that only pushing 
 banks in large business centres have thus acted, 
 the necessity for calling up such large sums of 
 money is surely very significant. They have 
 found a use for the money, without doubt, be- 
 cause it is all employed, and they are now, it 
 would seem, in need of more, but none the 
 less is the circumstance peculiar and worthy 
 of remark. 
 
 What, then, is the meaning of all these 
 changes in the accounts of the banks ? The 
 key to it is very simple on the whole, and will 
 be found, I believe, for the most part in an ex- 
 planation of the apparent growth in the total 
 liabilities of the banks on current and deposit
 
 2 8 THE POSITION OF 
 
 accounts, for these also have swollen with few 
 exceptions. At first sight the figures of this 
 increase seem very satisfactory. This bank 
 and that has increased its liability on deposits, 
 etc., i.e., has to all appearance obtained money 
 from its customers to the amount of a million, 
 half million, or a few hundred thousands, more 
 than it had four years ago. What could be 
 more prosperous or more remarkable as a sign 
 of the inherent soundness of the wealth of the 
 country ? The country banks, in short, appear 
 to be in many instances overburdened with an 
 excess of money. 
 
 Unhappily the reverse of this pleasing 
 picture gives the true facts. The banks are 
 not bursting with deposits, they are very poor, 
 and their customers are very poor. So poor 
 are the latter that they have had to come to 
 the banks again and again for advances of cash, 
 in order to carry on their trade — too often a 
 losinor trade — and it is these advances which 
 swell the totals on the debit side of ' deposit 
 and current accounts.' These seeming large 
 increases in the deposits are, in other words, 
 merely cross entries. A customer of a bank 
 gets, say, a loan of ^10,000 on 'current 
 account,' i.e. is allowed to overdraw to that 
 amount with or without security, and the bank 
 immediately credits his account with the over-
 
 ENGLISH JOINT-STOCK BANKS. 29 
 
 draft, which then appears in the balance-sheet 
 of the bank as a ' Habllity on current and 
 deposit account' No practice could be more 
 misleading than that which wraps up these 
 advances in this fashion ; but it is the fashion, 
 nevertheless, and hence we see the curious 
 phenomena of paucity of cash, increased capi- 
 tal and smaller discounts accompanying an 
 apparent swelling of the deposits and avail- 
 able resources of these banks.'" 
 
 * Up to the time of the City of Glasgow Bank failure the 
 writer was subjected to much criticism in banking circles over 
 this paragraph. It was asserted that a bank could not possibly 
 make its balance-sheet up in the manner therein suggested. 
 Since the revelations in Glasgow, this kind of criticism has 
 died out, but I am nevertheless willing to admit that, without 
 * cooking' other parts of the balance-sheet, the plan of swelling 
 the figures here suggested could not be easily carried out. 
 That it can be done is, however, now beyond a doubt. 
 
 There is, however, another and fully as objectionable method 
 of swelling the totals of a bank balance-sheet, to which I may 
 as well advert here, as the rest of this volume deals, for the 
 most part, with other phases of this large banking question. I 
 allude to the practice, not uncommon among country bankers, 
 of rediscounting their bills in London, and putting the money 
 obtained from such rediscounts or ' pawning ' amongst their 
 deposits. By this means the figures of the balance-sheet may be 
 swollen considerably, and the bank be made to appear wonder- 
 fully prosperous when it really is not so. For example, take a 
 bank which is actually due to its depositors and customers, say 
 ;^3,ooo,ooo, and which uses say _;^2,ooo,ooo of this in discounting 
 bills. In the ordinary course its balance-sheet would show on one 
 side liabilities on current and deposit accounts, _;^3, 000,000 ; and 
 on the other bills discounted, ;/^2, 000,000, the rest of the money 
 being either in hand or lent at call or on stocks. But the bank re- 
 discounts ^1,500,000 of its bills, and immediately invests the 
 money so obtained in fresh bills. It may do this once or many 
 times. If the bank does it only once, its balance-sheet would,
 
 :) 
 
 O THE POSITION OF 
 
 Of course, for a time, this practice seems 
 very profitable. In all probability the banks 
 lending in this way do not charge less than 5 
 per cent, interest, and i per cent, commission 
 on the amount of the overdrawn accounts. 
 They may often charge more, and each half- 
 year the profits thus shown are added up and 
 distributed as a big dividend to the share- 
 holders. A further call on capital account is 
 then made at a large premium, in order to 
 provide further means for supporting these 
 credits, and all goes swimmingly. But these 
 banks are not, therefore, rich or sound ; they 
 may be just the reverse. Several of them are, 
 Indeed, at the present moment strained to the 
 utmost to keep afloat, and it will, of course, 
 depend on the nature of the securities they 
 hold whether or not they can ultimately 
 weather the storm which such financing is 
 sure to breed. 
 
 The practice of thus dividing profits, which 
 are In many instances nothing else than 
 accretions to the debts due by their customers, 
 is the exact financial counterpart of what a 
 
 according to custom, be made as follows : — To liability on current, 
 deposit, and other accounts, ;i^4, 500,000 ; by bills discounted, 
 ^3. 500,000. According to the length that this kind of doubling is 
 carried will be the totals shown on both sides. It is needless to 
 say that this kind of balance-sheet making is about as delusive 
 as any that could be devised, and yet it is common enough.
 
 ENGLISH JOINT-STOCK BANKS. 
 
 31 
 
 railway company does when It credits itself 
 with interest on capital advanced to tributary 
 lines, and distributes dividends upon this credit, 
 although the lines may not have paid a penny 
 of the money. I remember an instance of a 
 company which did this at a time when the 
 worked lines were not paying their working 
 expenses, and the company came to grief in 
 consequence. Some of the joint-stock banks 
 appear to be coming perilously near this kind 
 of denoueme^it. 
 
 I shall Illustrate the situation by an example. 
 Without giving their names, I take the balance- 
 sheets of two banks, one urban, and one with 
 agricultural business, and combining their 
 figures, place them before the reader : — 
 
 Abstract of the Co7nbifted Balance-Shects of two Cotintry 
 Joint-Stock Banks. 
 
 Cash, 
 
 Securities, . 
 Bills discounted, 
 Advances to customers, 
 
 Total, 
 
 Assets. 
 1873. 
 
 ;£l,623,000 . 
 
 212,000 . 
 
 2,840,000 . 
 
 2,171,000 . 
 
 1877. 
 
 ;^I. 406,000 
 
 1,073,000 
 
 2,114,000 
 
 4,747,000 
 
 — ;^2I7,00O 
 + 861,000 
 
 — 726,000 
 4- 2,576,000 
 
 ^dfiifi.ooo . • ;£9,34o,ooo Net increase.;£2,904,ooo 
 
 Liabilities. 
 
 Deposits, credits on current |^ ^g 
 
 account, etc., . • ) ' "' 
 
 Capital and reserves. 
 
 Total, 
 
 000 
 625,000 
 
 ;£8,II2,000 
 
 1,206,000 
 
 1 ;^2,0I7,0OO 
 
 -|- 581,000 
 
 ;£6,72o,ooo . . ;C9.3iS,ooo . Increase,^2o98^ooo 
 
 I have omitted minor items, such as the cost 
 of bank offices, current profits, etc., and have
 
 32 THE POSITION OF 
 
 given only the bare skeleton of the balance- 
 sheets. The figures are in truth sufficiently 
 startling. Every available resource of these 
 banks is absorbed in maintaining the swollen 
 credits into which they have been drawn, and 
 even were we to take the ^8,000,000 of liabili- 
 ties to the public at the end of last year as 
 all real liabilities, which they are not — a large 
 proportion being obviously the cross entry 
 of advances representing, perhaps, the trade 
 losses or locks-up of their customers — the 
 position is not nearly so satisfactory now as 
 it was four years ago. It will be seen that 
 the apparent increase in the sum due to the 
 public under various heads approximates to 
 the augmentation in the advances, and that 
 these advances, together with the more extend- 
 ed investment in stocks, absorb the increase 
 in capital and the money set free by the dimin- 
 ished bill discounts, besides trenching on the 
 cash in hand. 
 
 In judging of the soundness or otherwise of 
 a bank, we have first of all to consider what 
 proportion its most available assets bear to the 
 liabilities. These assets are the cash and the 
 trade bills discounted — the actual money, and 
 the security most easily convertible into money 
 immediately and without loss, or which is al- 
 ways in the ordinary course of business con-
 
 ENGLISH JOIXT-STOCK BANKS. 3 
 
 ■^ 
 
 verting itself. If trade bills are good they 
 should be equal to cash, less the price of dis- 
 count, however bad the times. Now, in 1873, 
 the cash and bills of those two banks amounted 
 to upwards of y^, per cent, of the liabilities to 
 the public, but at the end of last year they 
 were equal to but about 43I- per cent. These 
 banks have therefore locked up their capital 
 and available assets to an enormous extent in 
 advances, and in stock which may or may not 
 be realisable. Now these balance-sheets may, 
 I believe, be taken as representative of a state 
 of things which prevails all over the land, and 
 the explanation of which is that although trade 
 has been bad in nearly all its branches, 
 merchants have gone on buying and selling, 
 and the banks have hitherto sustained them 
 under the losses incident to a narrower and 
 a falling market. Farmers have suffered from 
 short crops and low prices, and they in turn 
 have been helped by their bankers in the hope 
 that a better time will come when high profits 
 will permit losses to be recouped. Manu- 
 facturers have kept their mills running in 
 order to be ready for a revival of trade when 
 it came. Miners have continued their output 
 in the same way, and the net upshot of it all 
 has been constantly falling prices and dwind- 
 ling resources. The banks are therefore choked 
 
 c
 
 34 THE POSITION OF 
 
 with pawned securities of all kinds — stocks and 
 shares, mortgages on property, on manufactured 
 goods, on raw produce, and are under advances 
 without security in cases innumerable. The 
 losses of the community from those and other 
 causes have thus so far been buried in the 
 banks. In all probability a large proportion 
 of the advances which they have continued to 
 make in this fashion will never be fully recovered, 
 and the day may, therefore, be not far distant 
 when many a bank shareholder may have to 
 pay back the high profit he has enjoyed all 
 through the years of depressed trade in calls to 
 fill up yawning deficits which cannot otherwise 
 be made good. 
 
 It may be said that the amount of bills and 
 cash should not be taken as the only readily 
 available resource possessed by the banks. 
 Many of the securities they hold are good 
 and realisable, and ought therefore to be 
 included in the assets which could be turned 
 to account at a pinch. This is no doubt true 
 in a sense, but even if we allow that the 
 banks might be able to realise their Consols, 
 for example, on an emergency, the position 
 would not be materially altered. Consols 
 form, in the majority of cases, the smallest 
 of the securities which banks in this position 
 hold, and it would be impossible to find a
 
 ENGLISH JOINT-STOCK BANKS. 35 
 
 market even for Consols were many banks 
 pressed to sell at the same time. Outside 
 themselves there would be few buyers, and 
 amongst those disposed to buy few could find 
 the means without that banking assistance 
 which, in a time of financial strain, is sure 
 to be wanting. The truth of the matter is, 
 as I insisted at the outset, that it is not 
 in the long run prudent banking to lock up 
 in mere stock exchange securities any portion 
 of money which is liable at any time to be 
 called for by its owners. That money ought 
 to be in bills, in securities which represent 
 commodities continually changing hands and 
 undergoing realisation, securities which are 
 therefore continually bringing the money back 
 aofain to the banker's hands. If throuo^h dearth 
 of these, or from any other cause, a banker 
 buys interest-bearing stock to large amounts, 
 or lends money on such stock pawned with 
 him as security, he at once places himself in 
 the position of having to face indefinite losses 
 in the event of a forced realisation. He cannot 
 always be sure of being able to realise when 
 he wants to, and the more widespread the 
 lock-up in such stocks the greater the difficulty 
 of sale — the more certain the ultimate loss. 
 For a banker by employing money entrusted 
 to him in holding stocks contributes most
 
 36 THE rOSITION OF 
 
 materially to inflate the value of those stocks. 
 The demand thus created is not natural, the 
 outcome of private investment, but artificial, 
 and the result is artificial prices which tell 
 at once against the banker when his selling 
 day comes. Especially is this the case where 
 the price of certain kind of credit is abnor- 
 mally low, for then the customers of a bank 
 are only too ready to employ their deposit 
 money in the same way, partly as ' cover ' 
 for stocks bought and pawned with a view 
 to secure a hiorher rate of interest than the 
 banker chooses to allow. I cannot admit, 
 therefore, that the position of those banks 
 which have placed large sums of money out 
 on advances, or into stock investment, is 
 intrinsically sound, or that the test of bills 
 and cash applied to their ability to meet 
 engagements is other than a just one. But 
 if one can hardly believe in the soundness 
 of the banking which puts customers' money 
 largely out into stocks, what shall be said 
 of the immense credits which have been 
 granted on the security of real estate, the 
 huge loans on building speculations, the 
 pawned leases and the innumerable instances 
 where money has been advanced on personal 
 security only ? Can the banks stand a strain 
 of credit with all these on their back ? With-
 
 ENGLISH JOIXT-STOCK BANKS. 37 
 
 out calling upon their shareholders I am 
 sure that many of them cannot, and these 
 imprudent commitments are in many instan- 
 ces alone sufficient to imperil the position of 
 banks which now enjoy abundant credit and 
 the repute of good management. 
 
 It is to be noticed, moreover, that even the 
 strict test which I have applied is to some 
 extent a deceptive one, so far at least as 
 regards the ' cash,' for the figures which 
 appear in the half-yearly balance-sheets by 
 no means represent the actual state of the 
 till throughout the rest of the year. We 
 know from the sharpness with which loans 
 are called in just before the balance is 
 struck, that many banks make a regular prac- 
 tice of providiiig for a good show at the half- 
 year's end, and consequently we may justly 
 infer that much more money is in some shape 
 out of hand throughout the year than appears 
 in the balance-sheet. Now money out on 
 loan, even for a day, is money risked, and the 
 barer banks keep their tills of cash, the 
 greater the danofer of sudden demands which 
 a market by no means well supplied might 
 be unable to meet. A process of denudation 
 has been going on in respect to the cash at 
 the best, which the fictitiously low rate for 
 bill discounts in London has served to conceal. 
 
 389189
 
 J 
 
 8 THE POSITION OF 
 
 Country banks have, as we have noted, with- 
 drawn much of their balances from the hands 
 of their London agents, in order to help their 
 country customers, and everywhere the dis- 
 position has been to work on as narrow a 
 cash basis as possible. The Bank of England 
 has been for some time gradually losing its 
 store of gold, and its reserve of notes is at 
 present hardly ^11,000,000 with the discount 
 rate at 2-| per cent., and a liability on the part 
 of the banks to the public of probably not 
 less than ^500,000,000, including the deposits 
 in private banks. If, therefore, the little cash 
 that banks do show in their balance-sheets, 
 when compared with their liabilities to the 
 public and with the balance-sheets of four 
 years ago, is to a considerable extent in the 
 hands of bill-brokers, stock-brokers, speculators 
 of all kinds throughout the year, may we not 
 say that the position is beyond measure a 
 dangerous one ? It is bolstering all round. 
 A fictitious level of value is maintained on 
 mere windy credit, and when a pressure 
 comes, tending to make things find their 
 real level, there will be great danger of a 
 general collapse. The cash which banks hold 
 at the half-year's end is not their true avail- 
 able store all the year round. For the year, 
 all but four or five days, they may run
 
 ENGLISH JOINT-STOCK BANKS. 39 
 
 much shorter of mere till - money than their 
 balance - sheets reveal, and they do in fact 
 so run. It will be said that this is surel}- 
 a stupid and self -deluding way of conduct- 
 ing business, and no doubt it is, but so 
 long as banks are permitted to publish 
 such balance-sheets as they please, and when 
 they please, it is a practice that cannot be 
 rooted out. 
 
 In this view of the situation, nothing could 
 well seem more absurd than the nominally low 
 value of money ; but the position of the joint- 
 stock banks enables us to see without difficulty 
 how it has been brought about. There are in 
 fact two values of money ruling, as it were, 
 side by side : one a matter of bargain between 
 borrower and lender — the private loan made 
 with or without security, for which the interest 
 charged has been high — and the other, the 
 open market rate for bills of exchange of the 
 highest class. These latter have been a dwind- 
 ling quantity, and as they have fallen off more 
 rapidly than the surplus cash obtained by the 
 bankers either from customers or shareholders 
 was absorbed by the private lending and stock- 
 jobbing, the interest obtainable for their nego- 
 tiation has receded to a very low figure. But 
 this low figure is no test whatever of the 
 scarcity or abundance of money, except as
 
 •4.0 THE POSITION OF 
 
 regards its employment in a particular way, 
 and hence the supplies of real cash kept in 
 hand by bankers have been dwindling almost 
 everywhere, at the same time that the floating 
 balance available for discount purposes has 
 been almost valueless. Banks are thus drifting 
 towards a catastrophe, one may almost say 
 without being aware of it. They have striven 
 to make high profits in dull times and in 
 channels not safe for bankers, and they have 
 succeeded, but at a cost which only those who 
 survive the next credit storm will be able to 
 estimate. 
 
 That a storm of this kind is coming, I think 
 there can be not the least doubt, and we can 
 tell pretty clearly how it will come. Had this 
 country rushed into war and begun to call up 
 large sums of money on loan, that would have 
 brought on a financial crisis almost at once. 
 ,But it will come not less surely, though not 
 perhaps so soon, should the world once more 
 settle down to an uncomfortable armed peace. 
 Trade will in that event make an effort at 
 revival. It is showing some signs of life in 
 this country now, but these, I think, are merely 
 spasmodic — an outcome in part of the eager 
 haste with which the Government spent most 
 of its ^6,000,000. Still trade will wake up a 
 little now that peace is concluded, and with its
 
 ENGLISH JOINT-STOCK BANKS. 4I 
 
 revival there will be an immediate pressure on 
 the floatincr capital in bankers' hands. More 
 bills for large amounts will be drawn and 
 offered for discount, and directly these reach 
 a certain volume the bankers will find them- 
 selves without money to conduct their proper 
 business. An effort will then be made to sell 
 some of the securities held, or loans will be 
 called in, involving- sharp losses, and attempts 
 will be made to get rid of mortgages, all with 
 a view to find money for trade purposes. This 
 will in the first place produce a heavy fall in 
 stock exchange securities, and may induce 
 something like a panic. Banks will then in 
 some cases have either to face losses, or to hold 
 on to their securities and trust to weathering 
 the storm, and the pressure for money may 
 compel many of them to take the former alter- 
 native. For it will very soon be found that 
 there is little or no available money to be got 
 hold of, and, as a consequence, few buyers of 
 securities to be had. Private people will in 
 fact want to sell as well as banks, in order to 
 get cash for trade purposes. Depositors may 
 then also begin to take alarm, and by asking 
 for their cash force some banks to close their 
 doors ; the reserve of the Bank of England 
 will become depleted, and we shall find our- 
 selves, as usual, issuing a practically incon-
 
 42 THE POSITION OF 
 
 vertible paper currency in order to allay public 
 apprehension. 
 
 At the same time, I am bound to confess 
 that I think the majority of the English joint- 
 stock banks will ride through the storm, at con- 
 siderable cost to their shareholders perhaps, 
 but still they will ride it through. Some of 
 them are very strong, in spite of the bad times, 
 and would be perfectly solvent even if compelled 
 to shut their doors for a time ; others are solvent 
 though not strong ; and nearly all of any con- 
 sequence are backed by a proprietary capable 
 in time of making losses good. What is really 
 to be dreaded in present circumstances is the 
 condition of the private banks, about which we 
 know absolutely nothing with any degree of 
 certainty, and of which, therefore, I have not 
 spoken. We may safely conclude, however, 
 that they have been in no way exempt from 
 the errors and temptations of their joint-stock 
 neighbours, and we can at least be sure that in 
 many cases they are not backed as joint-stock 
 banks are, by a wealthy proprietary. There is, 
 indeed, too much reason to believe that not 
 a few of them are so poor as to be mere 
 skeletons, and the failure of one large old 
 private bank would be something more alarm- 
 ing, and fraught with deeper mischief, than 
 almost anything else that could happen. I
 
 ENGLISH JOINT-STOCK BANKS. 43 
 
 therefore think that the next financial crisis in 
 this country will produce a radical change in 
 the condition of all private banks, and perhaps 
 seal the fate of many among them. 
 
 It will also, I hope, cause the introduction 
 of several reforms which are very much needed 
 in joint-stock banking. It should stop, for 
 example, the present foolish race after pre- 
 posterously high dividends, and introduce 
 greater frequency, uniformity, and fulness in 
 the published balance-sheets. If the crisis 
 at the same time reads the community a sharp 
 lesson in regard to the practices which now 
 prevail of using bank balances as a medium 
 for gambling, and teaches bankers to be less 
 ready to lock up capital which should be 
 strictly ' floating ' in securities which, when the 
 time comes, refuse to ' float,' the ultimate out- 
 come must be good for the commercial stability 
 of the country.
 
 C H A P T E R I I. 
 
 THE LATE BANK FAILURES, AND WHAT 
 THEY REVEAL. 
 
 The banking crisis through which the country 
 has been passing since October last, has fully 
 justified the anticipations of the article forming 
 the previous chapter. Although it arose in a 
 quarter outside the range of that article, the 
 symptoms of distress manifested by many Eng- 
 lish banks, and the losses they have sustained, 
 sufficiently prove that their condition was such 
 as I had described. People are now hoping 
 that the worst of the crisis is past. Its effects 
 are still visible, but the banks have stood 
 the severe strain put upon them so well that 
 there is fair ground for this hope. All the 
 hidden rottenness may not be brought to light, 
 but the worst of it perhaps has been ; and at 
 anyrate the banks deserve the utmost credit for 
 the manner in which their difficulties have been 
 so far met. Some of them have paid away 
 millions of money to depositors, and are to- 
 day fully able to meet the demand for millions 
 more. In a sense some of them may be said to
 
 BANK FAILURES WHAT TIIF.Y REVF.AI.. 45 
 
 be stronger now than they were before pressure 
 on their resources began. Their Habihties are 
 less, and therefore more wieldy. They have 
 consequently less temptation to launch into bad 
 business. 
 
 All this is true ; and yet there are many points 
 connected with our modern system of banking 
 which demand the most serious consideration 
 from the country at large and from the Legis- 
 lature. We cannot afford to sit down and say 
 ' all is well,' merely because the strain has so far 
 been successfully borne. The calamities of the 
 City of Glasgow Bank failure and of subsequent 
 bank suspensions have been of too painful and 
 disastrous a character to permit us to neglect 
 the warnings or disregard the lessons they are 
 calculated to teach. We must find out what 
 these failures portend, and whether we can 
 safely regard the features disclosed by them as 
 something apart from the ordinary banking 
 business of the country. Did they arise out of 
 our banking habits by a natural process of 
 growth and development, or are we to regard 
 them as altogether of the nature of diseased 
 excrescences ? These are questions of the 
 highest moment, and their answer demands at 
 our hands a further analysis of some of the 
 leading characteristics of English banking. If 
 we see that these are from their nature likely
 
 46 THE LATE BANK FAILURES, 
 
 to produce unsoundness, then we must endea- 
 vour to find out how to reform them. 
 
 At the very threshold of the inquiry we are 
 in danger of being led astray by the intensity 
 of the feelings to which the disasters of the 
 past few months have given rise. The 
 circumstances and character of the City of 
 Glasgow Bank suspension are in a measure 
 burned in on the popular mind. It was a cala- 
 mity so unlooked for, so huge and disastrous, 
 that it riveted men's Q-aze and made their hearts 
 stand still, and we shall all remember it to our 
 dying day as a landmark in the history of our 
 generation. There is, therefore, in one sense, 
 small necessity for me to enter into details 
 about this failure, and yet the very magnitude 
 of it has tended to obscure some of its most 
 notable features. We have been stunned and 
 horrified at the same time, and on recovering 
 senses and breath, poured out wrath and con- 
 demnation upon the men who caused the misery 
 and ruin, tacitly assuming that the causes which 
 produced such a disaster could exist only in the 
 diabolical machinations of those instrumental in 
 bringing it about. Everybody joined in cen- 
 suringf the directors and manag^ers, but in doino- 
 so forgot that there might be more important 
 things to be attended to than even their punish- 
 ment. By all means let these men be co^^.
 
 AND WHAT THEY REVEAL. 47 
 
 demned, for they are worthy to be held up as a 
 warning to evil-doers for all time, but in con- 
 signing them to their own place, let us not for- 
 get to ask, How was it possible for such 
 frauds as those of the City of Glasgow Bank to 
 be committed ? That is the all-important ques- 
 tion, and we must look at the history and sur- 
 roundings of the bank in order to find an answer 
 to it. Nay, we must go beyond that even, and 
 look at the developments of what are called 
 banking customs in all directions before we can 
 get at the bottom of the matter. There have 
 been other bank failures since that of the City 
 of Glasgow, and under quite distinct conditions. 
 Though less disastrous, because of smaller 
 dimensions, these failures all tend to indicate 
 that something is wrong in the 'system.' What 
 is that something ? Is it one thing or many 
 things ? If our banking habits and customs are 
 deficient in safeguards or radically bad in any de- 
 gree, we must mend them. Going on in the old 
 way, after relieving the mind of a few maledic- 
 tions on the heads of those who have fallen, will 
 only lead to further mischief if things are wrong 
 at the heart. Let us examine then the circum- 
 stances of the City of Glasgow Bank collapse, 
 and one or two others, with a view to discover 
 if reformxS are needed, and what they must be. 
 One of the things most commonly heard
 
 48 THE LATE BANK FAILURES, 
 
 about the City of Glasgow Bank failure was 
 that it was due to the bank having departed 
 from the true system of Scotch banking, and 
 Scotch people in particular are never tired of in- 
 sisting upon this departure as the main cause of 
 the mischief. In one sense they are right. Old- 
 fashioned Scotch banking is a very peculiar and 
 very praiseworthy outcome of Scotch enter- 
 prise and thrift, and confined to Scotland, is 
 perhaps one of the safest kinds of banking in 
 existence. But it has lono- ag^o ceased to be so 
 confined. A majority of the existing Scotch 
 banks have overrun their borders and opened 
 offices in London, where they compete for 
 business with the banks that formerly were 
 their agfents, and lonof before that was done 
 they had become inextricably mixed up with 
 the extensive colonial and foreif^^n business of 
 the country. This was inevitable, for Scotch- 
 men wander everywhere, and rise to commer- 
 cial eminence everywhere. Glasgow, too, has 
 become a mighty city, with trade ramifica- 
 tions extending to nearly every land under the 
 sun ; and as the business of Glasgow was done 
 by Scotch banks, their foreign connection could 
 not fail to become extensive. Naturally, the 
 banks, in thus extending their business, con- 
 tinued to work on the old familiar lines which 
 had been found sufficient within Scotland. It
 
 AND WHAT THEY REVEAL. 49 
 
 was proudly asserted that no Scotch bank which 
 properly attended to its own peculiar business in 
 its peculiar Scotch way ever had failed, and the 
 stoppage of the Western Bank in 1857 was used 
 as an illustration in support of this assertion. 
 That bank, it was said, failed because it had 
 stepped out of its proper sphere, and by giving 
 large credits in New York and elsewhere, in- 
 volved itself in foreio^n business over which it 
 had no control. Nothing could be more satis- 
 factory or conclusive ; but then, we ask, what is 
 there in the Scotch system of banking to pre- 
 vent the repetition of this offence ? And when 
 we look closely at that system, we find, to our 
 amazement, that there is nothing at all. On the 
 contrary, it distinctly fosters the kind of busi- 
 ness which brought both the Western Bank and 
 the City of Glasgow Bank to ruin. Take the 
 balance-sheet of almost any Scotch bank that 
 you please, and, meagre as it always is, you will 
 find on the asset side, wrapped up with other 
 items of account, the word ' credits,' or the 
 phrase 'advances on cash and credit accounts,' 
 and if you ask what this means, you will dis- 
 cover that a large part of the business of Scot- 
 land is carried on by means of advances obtained 
 from the banks, with or without security. By 
 means of money thus obtained, generally on 
 personal security, or what amounts to the same 
 
 D
 
 50 THE LATE BANK FAILURES, 
 
 thing, on bonds, bills, or other ' cautionary ' 
 documents signed by third parties, men begin 
 business in all walks of life, take shops, open 
 factories, and work farms. The mere commer- 
 cial bill-discountinof of the Scotch banks thus 
 comes to form a comparatively small portion of 
 their business, and reduced to their essence they 
 are to a large extent mortgage institutions, 
 lending money at long dates, which they borrow 
 from depositors under, as a rule, a contract to 
 repay at fourteen days' notice.* Within Scot- 
 
 * A singular and most instructive light is thrown upon Scotch 
 banking pure and simple, by the detailed balance-sheet re- 
 cently presented to the shareholders of the Caledonian Bank- 
 ing Company. This respectable little bank became involved 
 in the City of Glasgow Bank failure, through being registered 
 as a holder of four of its shares, and the ruthless liquidators of 
 that bank, in their determined pursuit of ' 20s. in the £, with 
 interest till date of payment,' insisted, it is said, on pulling it 
 down. Its stoppage revealed the strange fact that the bank was 
 both sound and insolvent. That is to say its advances on cash 
 credits and current account were so heavy that by no possibility 
 could the 'bank have paid 20s. in the £ at the date of its suspen- 
 sion. At the head office in Inverness the cash credits and current 
 account advances largely exceeded the total deposits, and 
 at nearly all the branches these over-drafts, of various kinds, 
 were very heavy. There were also many bills discounted over- 
 due, and in short the whole statement is so curious that I have 
 printed it in an appendix. If the reader will turn to the figures 
 there given he will see, for example, that the cash credits and 
 overdrawn accounts in Inverness exceed the total deposits and 
 current account balances held there by ^200,000. Practically 
 speaking the Caledonian Bank was, there can be no doubt, in- 
 solvent at the date of its suspension, and yet in another sense 
 it was sound enough. Misfortune overtook it at a bad time. 
 Its customers had been struggling for years against the effects 
 of bad harvests and low prices, and in their struggles they had
 
 AND WHAT THEY REVEAL. 5 I 
 
 land, as I have said, this kind of business is 
 probably as safe as banking- can be, its principal 
 weak spot being the liability to repay money 
 immediately which may be practically lent for 
 an indefinite period, or at least for months. So 
 long, however, as the ' credits ' given to strug- 
 ghng farmers and trades-people are confined to 
 small amounts, and well distributed, the system 
 works, on the whole, safely enough. But extend 
 the system to the large operations of firms en- 
 gaged in foreign trade, give to these huge open 
 credits, i.e., liberty to draw upon the bank for 
 large sums of money, for the lending of which 
 it has little security, or no security at all, and 
 we are at once face to face with a momentous 
 peril. The system which worked well in a 
 small compass, slides easily into a position 
 which makes it the vehicle for the most stupen- 
 dous frauds. Scotch banks under it may spread 
 their branches all over the country, not to act 
 
 been driven more and more back upon the bank for help. 
 So long as the bank was distributing this help all over its dis- 
 tricts in small sums to individual borrowers, it was doing a 
 valuable work, and one that has always been a very honourable 
 feature of Scotch banking. It could in ordinary circumstances 
 only fail through doing such work when the communitv itself 
 failed. A few years of good harvests coming after the bad time 
 would have brought back much of its money, overdue bills 
 would have been paid, overdrafts cleared off, and the whole 
 situation made more easy. As it happened, the bank was 
 pulled up just at the very worst time, and its weaknesses dis- 
 closed when they couH least bear inspection. Hence its prac- 
 tical insolvency.
 
 52 THE LATE BANK FAILURES, 
 
 as supports to local enterprise, but as suckers 
 which draw in to the central office the means 
 for supporting far-reaching speculations. 
 
 A point like this must not be forgotten in 
 discussing the meaning of the City of Glasgow 
 Banli fraudulent collapse. A rdsumd of the 
 principal features of its history will suffice to 
 prove at once that the collapse was eventually 
 brought about, not by a departure from, but 
 by an undue expansion of the system of busi- 
 ness which is a peculiar feature of Scotch bank- 
 ing, and to a large extent of English provin- 
 cial banking also. If I might so phrase it, 
 the managers of the City of Glasgow Bank 
 diverged into fraud by following the tra- 
 ditional banking system of the country too 
 foolishly and too far. At the outset nothing 
 was probably further from their thoughts than 
 crime. This bank was never a strong one, 
 and after its temporary stoppage in 1857, was 
 for a long time distrusted. As bankers would 
 say, it was in ' poor credit.' It, however, did a 
 large business in Glasgow, and the usual exi- 
 gencies of that business compelled it to follow 
 the example of its neighbours, and give free 
 accommodation to its customers. This accom- 
 modation consisted largely in granting 'cash 
 credits' to certain firms, and after a time these 
 unsecured advances landed the bank in heavy
 
 AND WHAT THEY REVEAL. 53 
 
 losses. Being a weak bank, its managers were 
 afraid to face these losses. The revelation of 
 them might have led to its suspension, and so it 
 was thought better to try and ' nurse ' the bad 
 accounts and insolvent firms, trustine to better 
 times for recovery of the loss. You may call 
 such a decision mad or unprincipled if you like, 
 but it is what all Scotch and other bankers are 
 more or less in the habit of doing every day 
 of their lives. In the case of the City of Glas- 
 gow Bank affairs did not mend. On the con- 
 trary, they went as usual from bad to worse, 
 and when the disastrous fall in silver took place 
 after the close of the Franco- Prussian war, the 
 losses of the firms in the Eastern trade, which 
 the bank was supporting, became stupendous. 
 Hope died away in the breasts of those respon- 
 sible for these losses, and in the end they lost 
 their heads, grew reckless, criminal, desperate, 
 and plunged headlong into this wild speculation 
 and that in the mad endeavour to stave off 
 inevitable ruin. Land in Australia and New 
 Zealand was bought with the bank's money, at 
 prices far beyond its realisable value ; railways 
 in the United States whose paper would not 
 float there or anywhere else, found refuge and 
 money in the City of Glasgow Bank, rotten 
 firms and unscrupulous adventurers grew to be 
 such tyrants over it in its helplessness, that
 
 54 THE LATE BANK FAILURES, 
 
 they had what cash from it they wanted for 
 the asking, and the bare hint of stoppage 
 on the part of any one of them seems to have 
 paralysed the directors with terror. Thus when 
 the end came, the deficiency of the bank was 
 found to be about ^6,800,000, inchiding the 
 paid-up capital and reserve. It was the most 
 stupendous banking collapse that the world had 
 ever seen, and naturally men cried out that it 
 was due to utter rascality, and to the defiance of 
 all sound banking customs. No doubt it was 
 so, but I repeat, it began through adherence to 
 the Scotch system of banking, and its outward 
 conformity to that system to the very last, 
 served to hide its utter rottenness from all 
 its neighbours. On to that system had been 
 tacked the modern practice of accepting bills. 
 The bank, that is to say, suffered the people 
 who were sucking it dry to draw upon it bills, 
 which it accepted against credits opened in 
 its books, and then, when the bills became 
 due, paid them either with money out of its 
 till — money drawn from its country depositors, 
 or if the market would take them, with money 
 obtained on fresh batches of bills. As the eame 
 grew desperate, and the weight of these accept- 
 ances became too much for the London market, 
 the bank had to discount some of them itself 
 through third parties. Thus losses accumulated
 
 AND WHAT THEY REVEAL. 55 
 
 on every hand, and each year saw a larger and 
 larger portion of the assets of the bank, of its 
 trusting customers' money, irretrievably gone.- 
 But the whole swindle was done more or less 
 in conformity with banking practices, Scotch 
 and English, to the very last, and it unquestion- 
 ably began in what would be considered a 
 legitimate application of these practices. The 
 very fact that all its neighbours remained to 
 the last ignorant of the danger at their doors, 
 and that at the last the London market was 
 'caught' with between two and three millions 
 sterling of the City of Glasgow Bank's finance 
 paper, is enough to demonstrate the absurdity of 
 the plea that this failure arose out of a departure 
 from banking usages. It was due to an undue 
 extension of these usages, and to nothing else. 
 
 Had the business of the City of Glasgow 
 Bank been diverging altogether from the 
 wonted banking habits of the community, 
 would it have been possible for the divergence 
 to remain long unknown ? If it would, we are re- 
 duced to the painful necessity of concluding that 
 its neighbours were all fools. As we cannot 
 accept that conclusion, we are driven to the 
 alternative one, that the City of Glasgow Bank 
 was really making no departure from the cus- 
 toms of its neio-hbours. It ofranted credits as 
 they did, and allowed its debtors to draw
 
 56 THE LATE BANK FAILURES, 
 
 against these credits just as they did. Wise 
 after the event, bankers have set up the usual 
 chorus, ' We all knew,' and call to the recollec- 
 tion of their friends the fact that ' they had 
 always said the City of Glasgow Bank had too 
 many acceptances afloat.' Of course they 
 said that, but what does that prove ? Just 
 nothing at all, for the same thing has been said 
 time out of mind about half-a-dozen other 
 banks that I could name, whose business goes 
 on and seems to flourish to this day. 
 
 There is no getting out of the dilemma then. 
 The City of Glasgow Bank merely did as its 
 neighbours do, with only this difference, that 
 being weak it suffered a few firms, and ulti- 
 mately a group of gamblers, to get so deep in 
 its debt, that it became their abject though 
 secret slave. Its managers made away with 
 other people's money, and hid the theft for 
 years, because they were slaves ; but they be- 
 came slaves by doing in the first instance just 
 as their neighbours did, and to the last they 
 stole in proper banking form. The conclusion 
 therefore to which we are driven, is that the 
 Scotch banking system is capable of being easily 
 ' developed ' into a medium for fraud, now that 
 the field of its operations has become extended 
 on every side. It is a system, in short, which, 
 when aided by ' acceptances,' may well be
 
 AND WHAT THEY REVEAL. 5/ 
 
 worked In a manner that makes fraud probable, 
 for it is one which draws the banks into danger- 
 ous risks almost in spite of themselves. 
 
 Let us now see how it stands with failed 
 English banks. We have had only one large 
 joint-stock bank failure in England — that of the 
 West of England and South Wales District 
 Bank, and the conditions of English banking 
 are naturally much more varied than those of 
 Scotch banking. We have London banks and 
 provincial banks, and joint-stock and private 
 banks, all governed by traditions and customs 
 more or less varied. There are also Indian and 
 Colonial banks, whose chief offices are in Lon- 
 don, and the nature of whose business induces 
 peculiar habits. All these we shall presently sub- 
 ject to more or less examination ; but in the 
 meantime this West of England Bank failure may 
 be cited as offering a remarkable confirmation of 
 the soundness of the conclusions arrived at in 
 the preceding chapter. It has failed because it 
 was drawn into heavy advances on securities 
 once thoueht to be crood, but now unrealisable 
 except at a serious loss. Like the City of 
 Glasgow Bank, its failure involves calls on the 
 shareholders, though to a smaller amount. For 
 years the balance-sheets of the bank must have 
 been false, and its profits more or less illusory. 
 Yet the directors have not been arrested, nor
 
 58 THE LATE BANK FAILURES, 
 
 accused of fraud. Why is this distinction 
 drawn ? For a very simple reason. The West 
 of England Bank directors made no false entries 
 in their balance-sheets or books. All the 
 figures they put down represented some equiva- 
 lent reality. They had lent so many hundreds 
 of thousands to Booker & Co., or to the Ply- 
 mouth & Aberdare Co., and they held something 
 against these advances as security. All that they 
 did was to ignore the fall in the value of this 
 supposed security. It was just as if by some 
 mysterious power bags once filled with gold had 
 become stuffed with chaff, but notwithstand- 
 ing this disastrous change, still figured in the 
 books as so many bags of gold. The directors 
 ' hoped,' and were victims of a too sanguine 
 disposition, to such an extent that, when the 
 end came, the bank was found a loser by 
 nearly ^1,300,000. Nothing wrong was done 
 by anybody, nor did the bank managers think 
 that they had gone beyond banking customs in 
 their dealings. 
 
 Attentively considered, therefore, this fail- 
 ure illustrates what I take to be one peculiar 
 danger of English provincial banking. Pro- 
 vincial banks have acquired the habit of lending 
 to firms upon their fixed property. Mill- 
 owners obtain loans on the security of their 
 mills, coal-owners on the security of their
 
 AND WHAT THEY REVEAL. 59 
 
 mines and iron-works on the security of their 
 plant. This is nominally a different kind of 
 lending from the Scotch ' cash-credit ' system, 
 inasmuch as the bank takes what is called 
 ' security ' for the loans ; but in its results it 
 is, perhaps, fully more dangerous ; because 
 directly the security becomes depreciated, the 
 lending bank stands in danger of being sad- 
 dled with larger losses than the Scotch credit 
 system, unaided by acceptances, usually entails. 
 It cannot realise and get its money back any 
 more than the 'open credit' giving bank, because 
 depreciation means in all such cases the practi- 
 cal unsaleability of the * security,' except at a 
 sacrifice which few bankers, when left to them- 
 selves, have the courage to face. The alter- 
 native of * nursing ' is, therefore, here again 
 usually resorted to, the loss is not written off, 
 and in the end the bank may become insol- 
 vent. A loan upon inconvertible security or 
 real estate is thus a most dangerous asset 
 for a bank, and, above all, a deposit bank, 
 to touch with money which it may be called 
 upon to refund at any moment ; and the fact 
 that English provincial banks deal more or 
 less largely in these loans, is one of the 
 gravest possible significance at the present 
 time. A further depreciation of real property, 
 of mines and manufactories, may yet come
 
 6o THE LATE BANK FAILURES, 
 
 upon US before trade revives, and beyond 
 question that cannot take place without in- 
 volving several banks still considered solvent 
 in heavy losses and possibly in bankruptcy. 
 
 Here again, then, the bank failure has not 
 been due to exceptional or extraordinary 
 causes, but to such as are common to many 
 banks. Custom has sanctioned business of 
 the kind done by the West of England Bank 
 to a much greater extent than sound banking 
 theories would permit ; and we owe it to the 
 prudence of individual managers, and to that 
 alone, if one bank is found standing clear of 
 risks such as bring its neighbours to the 
 ground. Wherever the balance - sheets ex- 
 amined in the preceding chapter give indi- 
 cations of the nature of the business done, 
 they show that this development of banking 
 has been on the increase — this and the habit 
 of giving credit to distressed customers ; but as 
 the dangers thus arising to banks have been 
 already sufficiently dwelt upon, I shall not 
 enlarge further upon them here. Before pro- 
 ceeding, however, to discuss other peculiarities 
 of banking, or the legal and other checks and 
 remedies which they may demand, I should 
 like to draw the reader's attention for a moment 
 to the failure of a private bank in Rochdale. 
 In one sense there was nothing very remark-
 
 AND WHAT THEY REVEAL. 6 1 
 
 able in this failure, or at all events nothing 
 typical. Messrs. Fenton, the hereditary part- 
 ners of this bank, had taken a stockbroker 
 into partnership, and this stockbroker had 
 gradually drawn the funds of the bank in to 
 the vortex of certain speculations in which 
 he was engaged, so that when the owners of 
 these funds came and demanded them they 
 were not forthcoming. This is a very simple, 
 but let us hope, a very exceptional kind of 
 complication. Very few persons have suffi- 
 cient control of a bank to lock up nine-tenths 
 of its funds in their own operations. And 
 yet, exceptional though it might be, we fear it 
 was so only from its magnitude, not from its 
 nature. At every turn we see evidence of 
 the fact that in their own minds none of the 
 people instrumental in bringing these various 
 banks to ruin have felt, or feel now, that 
 they are morally guilty. They have been the 
 victims of adverse fortune. A little loneer 
 time, a lucky chance or two, and they would 
 have pulled out of their difficulties all right. 
 This peculiar attitude of mind is one of the 
 most alarming symptoms of our time ; and it 
 is this which gives significance to the failure 
 of Messrs. Fenton & Son's bank. There may 
 be no more Jonathan Nields in the country, 
 so far as extent and boldness of operations are
 
 62 THE LATE BANK FAILURES, 
 
 concerned ; but there are a great many bankers 
 who, hke him, see nothing wrong in similar 
 operations, and who when occasion offers 
 imitate them to the best of their power. Apart 
 from the extraordinary laxity which permitted 
 the manager of a bank to direct to his own 
 purposes, without let or hindrance, nearly the 
 whole of the bank's assets, there was nothing 
 in Mr, Nield's proceedings out of the ordinary. 
 We may, in short, take the failure of this 
 private bank as an illustration of a wide-spread 
 custom which sanctions the locking up of large 
 amounts of banking capital in unrealisable 
 stock-broking securities. Mr, Nield lent the 
 money to himself ; and other bankers, for the 
 most part, lend it to third parties. That is the 
 sole difference. 
 
 The custom of taking ' large lines ' in stocks 
 is by no means so uncommon as many people 
 suppose, and it is one of the most dangerous 
 customs of the day. A bank may go on for 
 years prosperously lending to stockbrokers, 
 thereby aiding these to maintain stocks at ficti- 
 tious values, and lose very little money. Yet 
 even that business has peculiarly heavy risks 
 in a time of difficulty, because should the 
 stockbrokers fail to find the money when 
 wanted, as they probably would, the bank 
 would be left with an unrealisable security.
 
 AND WHAT THEV REVEAL. 6^ 
 
 That risk, however, is much smaller than the 
 risk involved in out - and - out purchases of 
 depreciated or second-class securities, or the 
 kindred risk of large advances to Governments, 
 syndicates of financiers, and the like, or on the 
 ' security ' of loans, or of bonds, or shares, to 
 be issued at a future day. It is this latter 
 kind of business which the Rochdale failure 
 exemplifies, and many besides Mr. Jonathan 
 Nield, of Rochdale, deeply commit themselves 
 to it. Nothing could be more utterly foreign 
 to the spirit and purpose of all banking as 
 understood in this country. The most essen- 
 tial feature of that banking, it cannot be too 
 often reiterated, is the approximate ready con- 
 vertibility of all banking assets. Our banks 
 all live and work on the assumed condition of 
 being able to pay every deposit and other 
 creditor in full, when called upon to do so ; 
 and that condition imperatively demands that 
 banks shall not lock up the money entrusted to 
 them where it cannot be found when wanted. 
 In actual business practice this is, of course, an 
 impossible condition taken in its absolute sense, 
 and therefore actual banking credit rests on a 
 well-understood compromise. A kind of un- 
 defined law of averages prevails, whose dictates 
 are, that in order to be practically safe a bank 
 must carefully subdivide its risks. If it is the
 
 64 THE LATE BANK FAILURES, 
 
 custom, as in Scotland and provincial England, 
 to give cash credits or liberty to overdraw, the 
 limit should be a narrow one, and the security, 
 personal or other, the best that can be obtain- 
 able. Also in lending to firms on the security of 
 deeds or bonds, the loans should be small in all 
 instances, so that the risks of the bank may be 
 divided to an extent which practically identifies 
 it with the wellbeing of the community. And 
 in stock-jobbing transactions, distribution and 
 subdivision of risks are as essential to sound 
 banking as in any other, while such transac- 
 tions as advancing to loan mongers on un- 
 issued bonds of railways. Governments, muni- 
 cipalities, and the like, are in no sense bankers' 
 business at all. 
 
 Here, then, are at least three distinct * banking 
 dangers,' which stand out clearly defined amid 
 the wrecks of the past six months. Every bank 
 failure of consequence, from the City of Glasgow 
 collapse downwards, has been due primarily 
 to a vice or vicious tendency inherent in the 
 banking customs of the country. There has 
 been a too free use of banking credit in some 
 ofiven direction where bankino- credit is cus- 
 tomarily granted, and the money lent has been 
 lost. That is the sum of the matter. There- 
 fore it is that these bank failures are warnings, 
 not mere phenomena to shake the head over
 
 AND WHAT THEY REVEAL. 65 
 
 and pass by. They point to dangers that lie 
 deep in the very heart of our banking system, 
 and we must find means to guard against these 
 dangers at all hazards in the future, lest a 
 worse fate overtake us. What has happened 
 may happen again, and indeed must happen, 
 if we do not mend our ways in time.
 
 CHAPTER III. 
 
 BANK AUDIT AND BANK BALANCE-SHEETS. 
 
 To be in strict sequence, I ought perhaps 
 to examine, first of all, that peculiarly modern 
 banking currency known as ' bank accept- 
 ances.' The City of Glasgow Bank managed 
 to postpone the day of its collapse by means 
 of these acceptances, and by means of them 
 also the crash was all the more stupendous 
 when it did come. This feature of banking 
 has, however, so many ramifications, and is 
 so much an outgrowth of banking habits 
 prevalent beyond the reach of English law, 
 strictly speaking, that I think it best to 
 defer an examination of it until the to us 
 more vitally important subject of banking law 
 reforms has been disposed of If the recent 
 bank failures are due to dangers lying inher- 
 ent in the banking customs of the country, 
 the most important question for us is how 
 to moderate these dangers. It is a question 
 which we dare not let lie, without a practical 
 answer; and it must not be a mere 'put off' 
 answer, either. A gulf of bottomless com-
 
 BANK AUDIT AND BALANCE-SHEETS. 67 
 
 mercial perdition has been opened for a 
 moment, as it were, beneath our feet ; we have 
 had a glimpse of the possible ruin that might 
 overtake us all, of dangers threatening the 
 very existence of England as a leader among 
 commercial nations, and we cannot afford to 
 disregard the warning thus given. If we had 
 reason to suspect that these dangers are hidden 
 in the very core of our modern banking 
 habits, part of their hitherto masterful vitality, 
 we must be prepared almost to revolutionise 
 these habits, in order to oret rid of them. To 
 sit down now and say 'all is well' because 
 there is a respite, because the storm has lulled 
 for a time, because a new cycle of speculation, 
 with its manifold chances of gain, may pos- 
 sibly be opening before us, would be more 
 than folly. The bank failures that the country 
 has suffered from warn us that we must not 
 sit still. Smooth speeches will not do, there 
 must be action. Not only must banking credit 
 cease to be synonymous with systematic de- 
 ception, as it too genei-ally is now, but the very 
 possibility of the terms becoming synonymous 
 must, at all hazards, be removed. In one 
 word, if we would save the country from many 
 more City of Glasgow Bank failures, we must 
 reform our banking customs, by bringing them 
 within the scope of the law.
 
 68 BANK AUDIT AND 
 
 When we directly approach the subject of re- 
 form in this direction, the startHng fact confronts 
 us that our much belauded banking institutions 
 exist in a state of chaos. There is literally 
 and truly no well-defined banking law in the 
 country, still less any well defined-banking 
 habits. Outside the single point of the note 
 circulation, the banks are left free to follow their 
 own devices. In no other civilised or semi- 
 civilised country does such a state of things 
 exist as this discloses. We are therefore be- 
 wildered at the outset by the variety of forms 
 and conditions of banking that we see around 
 us, and the task of reducing them to something 
 like order is enough to make any man despair. 
 But into order they must be brought, and if 
 reformers do not ask too much at once, 
 good progress may be made, hopeless though 
 the task at first sight appears. One can do no 
 more here than indicate the main lines on 
 which banking affairs ouo-ht to run. 
 
 Putting aside for the time being the private 
 banks of the country, and dealing only with 
 joint-stock institutions, we find, at the outset, 
 a distinction which is of very great importance. 
 Joint-stock banks may be constituted either 
 on the ' limited ' or the ' unlimited ' liability 
 principle, and until the recent failures took 
 place, the latter was on the whole the form of
 
 BANK BALANCE-SHEETS. 69 
 
 constitution most in favour, for the very 
 sufficient reason that it was thought by the 
 shareholders more conducive to profit, and by 
 the depositors, more Hkely to give safety. It 
 is the only form with which we need at present 
 concern ourselves. Under unlimited liability, 
 the shareholders of a bank are jointly and seve- 
 rally liable for its debts to the uttermost farth- 
 ing they possess ; and amongst shareholders in 
 Scotland, under the ruling of a Scotch appeal 
 case — Lumsden v. Buchanan, are included trus- 
 tees. The unheard of deficit of the City of 
 Glaseow Bank has brous^ht home to the share- 
 holders and trustees interested therein what a 
 liability of this kind may come to mean. Al- 
 ready a call of ^500 per share has been made 
 upon that portion of the capital of the bank 
 in private hands, and hundreds of families have 
 been ruined thereby. But that is only the 
 beginning of the misery. Call upon call will 
 follow, until every individual connected with 
 the bank may be utterly ruined, and not these 
 alone. The shareholders of the Caledonian 
 Bank, which has been pulled down by the mere 
 prospect of what it might have ultimately to pay 
 as the reo^istered owner of four shares in the 
 Glasgow Bank, may also be all ruined before 
 the ideal 20s. and interest is realised. So 
 intense is the suffering and misery which the
 
 JO BANK AUDIT AND 
 
 failure has produced, that business in Scotland 
 has become paralysed. The Scotch have lost 
 their heads in the midst of the horrors of the 
 disaster, and grave, responsible men amongst 
 them have gone so far as to try to break or defy 
 the law of the land in a despairing endeavour to 
 bring relief to the distressed shareholders. Such 
 is the practical meaning of unlimited liability. 
 
 Naturally a calamity such as this has opened 
 the eyes of the community to the dangers 
 which lurk beneath the fair, prosperous appear- 
 ances of unlimited joint-stock banking. People 
 rushed to sell their shares, not in Scotch banks 
 alone, but in English also, and bank directors, 
 alarmed both at the fall and at the prospect of 
 a deterioration in the quality of the names on 
 their shareholders' registers, have set up a com- 
 mon cry for some change whereby the liability 
 of all bank shareholders may be limited and 
 defined. The matter has gone so far, that if 
 the bankers can but agree on what they want, 
 the Chancellor of the Exchequer is said to be 
 ready to submit a bill to Parliament during the 
 ensuing session. What the bankers may decide 
 on is not yet certain ; but from what has tran- 
 spired about their desires, I am disposed to think 
 that they seek a measure which those people 
 interested in unlimited joint-stock banks, either 
 as depositors, or as ordinary customers pos-
 
 BANK BALANCE-SHEETS. 7 I 
 
 sessed of a balance at their credit, ought to 
 oppose. For when we look closely at the 
 position of unlimited banks, we find that they 
 cannot change that position without changing 
 many things not contemplated by the uneasy 
 directors or frightened shareholders. Round 
 this question there lies, in fact, others far more 
 vital, which must be satisfactorily settled before 
 it can be even looked at. It is a remarkable 
 fact, in view of the present clamour for limi- 
 tation of liability, that until last October it was 
 the pride and ambition of bank managers and 
 directors to make their institutions unlimited. 
 The ' limited liability banks ' were looked down 
 upon as institutions of a petty kind, dwarfed 
 by the very restrictions now so much belauded, 
 and incapable of more than a feeble existence. 
 The higher feats of banking were not for 
 them, and the reason of this was very plain. 
 Unlimited banks had an enormous advantage 
 over their competitors in the struggle for de- 
 posits. A depositor would be much more 
 likely to trust his money with a bank whose 
 shareholders he knew must yield up to him 
 the uttermost farthing that they possessed, in 
 making good losses should the bank fail, than 
 with a bank whose shareholders were liable 
 only to the amount uncalled on their shares. 
 Therefore banks on all hands took advantage of
 
 72 BANK AUDIT AND 
 
 the law, and registered themselves as ' un- 
 limited,' and by this means have drawn to 
 themselves enormous amounts of money. 
 There are three banks whose head offices 
 are in London, the aggregate liabilities of 
 which to depositors and on current account 
 balances amount at the present time to nearly 
 ^70,000,000, and they are all unlimited. Now 
 the question which forces itself upon the atten- 
 tion from the point of view of the owners of 
 all that money is this : ought these banks to 
 be permitted to limit the liability of their 
 shareholders in a manner that might prevent 
 repayment in full of all their liabilities, should 
 they from any cause go the way of the City of 
 Glasgow Bank ? In other words, would not 
 limitation of liability in these cases, if granted 
 now, imply a grave breach of contract if it 
 were effective limitation as regards its share- 
 holders ? To my mind there can be but one 
 answer to such a question. The unlimited 
 banks cannot be allowed to contract themselves 
 out of the obligations which they have deliber- 
 ately incurred, unless prepared at the same 
 time to ofrant safeguards in another direction 
 of sufficient stringency to afford more protec- 
 tion to the public. In the race after the money 
 of depositors, banks chose to become ' un- 
 limited,' and thereby obtained enormous sums.
 
 BANK BALANCE-SHEETS. "] 2> 
 
 They ought not to be permitted now to turn 
 round in a fright and say, ' We shall only pay 
 you I OS. in the pound, or 5s. in the pound, 
 if the worst come to the worst.' That is 
 practically what they do say by their present 
 clamour for power to limit their liability on 
 shares ; and if they are to have their way, the 
 public must say, ' Very well, then limit your 
 liability ; but give us, in the first place, the 
 right to look after you, so that you may be 
 compelled to stop payment should your losses 
 ever approach the line fixed by the limitation 
 you may make.' A stipulation of this kind is 
 absolutely necessary as preliminary to any con- 
 cession, when we consider such a fact as this, 
 for example, that a limitation of the liability 
 on shares of a bank like the London and 
 Westminster to ^500 per share, would not half 
 cover its present reduced indebtedness to de- 
 positors and customers. 
 
 This consideration, therefore, brings us at 
 once to the main point at issue between banks 
 and the public at the present time. In nothing 
 is the freedom, I may say the lawlessness, of our 
 banking institutions more visible than in the total 
 disregard which their managers have uniformly 
 shown towards both shareholders and deposi- 
 tors in the matter of information about their 
 affairs. You have had to take everything on
 
 74 BANK AUDIT AND 
 
 trust as regards your banker ; and blind faith is 
 the one virtue which the shareholders and de- 
 positors have always had to exercise. This ap- 
 plies in a special sense to unlimited and private 
 banks, but compared with what is done in 
 other countries all our banks sin most griev- 
 ously in this respect. The unlimited liability 
 custom has here again unquestionably played a 
 conspicuous part in sending men to sleep. Yet 
 there is no system of banking which more im- 
 peratively demands thorough supervision than 
 this, or than ours in all its ramifications. For 
 one thing, the practice of giving interest on de- 
 posits has become so ingrained in our banking 
 habits, affecting all kinds of banks — unlimited 
 joint-stock, unlimited private, chartered, and 
 limited- — that it has been the means of swelling 
 the total liabilties of the banks of the kingdom 
 on interest-bearing deposits alone to probably 
 about ^300,000,000. The gross liability of all 
 the banks on deposit and current accounts is 
 not much if at all short of ^600,000,000. Now, 
 what are depositors but sleeping partners in the 
 business ? They are in a sense bankers just as 
 shareholders are bankers, since both parties en- 
 trust their money to certain men with a view to 
 profit. The essential difference is that in the 
 case of joint-stock banks the shareholders con- 
 tract to hold the depositors indemnified in the
 
 BANK BALANCE-SHEETS. 75 
 
 event of loss. Take away this indemnification 
 to any extent and the depositors become ahiiost 
 as deeply interested in the good management 
 of the bank as the shareholders. On this 
 narrow ground alone, therefore, it is imperative 
 that all banks taking deposits should be com- 
 pelled to give information about their affairs of 
 a kind hitherto withheld. Shareholders and de- 
 positors alike have claims on managers of joint- 
 stock banks which it has been the practice to 
 ignore, and not these alone. The broad ground 
 of general public interests demands that all 
 banks, joint-stock and private, be compelled to 
 render periodical accounts setting forth their 
 position, and that these accounts should be 
 certified by some independent authority. So 
 much is this the case, that reform in this direction 
 is far more essential to safety and good banking 
 than limited liability. Those who clamour for 
 that, lead themselves and others astray, and 
 follow a mere shadow. In one sense all banks 
 limit their liability most effectually by their con- 
 stitution. Had the City of Glasgow Bank, for 
 example, been subjected to such supervision as 
 would have revealed its losses in 1 870 or in 1 868, 
 it would have been compelled by its memoran- 
 dum of copartnery to stop payment, and the 
 shareholders would have lost nothing but a por- 
 tion of the value of the shares they held, with the
 
 76 BANK AUDIT AND 
 
 premiums thereon. In like manner, the Chair- 
 man of the London Joint-Stock Bank stated 
 the other day at the half-yearly meeting, that if 
 the reserve fund and one-fourth of the paid-up 
 capital was lost, the bank must, by the law of its 
 being, be wound up. What do these revelations 
 point to if not to this — that banks in order to 
 be safe want outside supervision far more than 
 arbitrary limitation of shareholders' liability ? 
 Events have proved abundantly that the man- 
 ao^ers and directors of banks cannot themselves 
 be trusted to exercise this supervision. They re- 
 fuse to admit losses which stare them in the face. 
 They go on and on, hoping against hope, till the 
 ruin becomes too horrible for the ruined to realise, 
 and stare in blank astonishment when it breaks 
 upon their heads, just as if they knew no cause 
 for it. And now that they find shareholders 
 alarmed, deposits withdrawn, and general dis- 
 trust prevailing, they cry ' limit our liability.' 
 The true answer to that cry is — make arrange- 
 ments to give effect to the limitations you al- 
 ready possess. Take a broad common-sense 
 view of your position, and, if you have nothing to 
 hide, be ready to prove that you have nothing. 
 In my view of the matter, looking at the 
 extraordinary examples of folly and self-decep- 
 tion which the City of Glasgow Bank has given 
 us, which other failures display every day of our
 
 BANK BALANCE-SHEETS. 'J'] 
 
 lives, there are two practical banking reforms 
 absolutely wanted, and two only, so far as the 
 law of the land goes. The one is the audit of 
 bank accounts by independent authorities out- 
 side the directorate or the copartnery, and the 
 other is the periodical publication of banking 
 balance-sheets properly certified by the audi- 
 tors. The latter reform all the chairmen who 
 have spoken at recent meetings have professed 
 great willingness to submit to, but they kick at 
 the former, and with equal unanimity. Yet 
 the latter without the former is of no value. 
 It would not be possible to frame a balance- 
 sheet which could not be made a vehicle of 
 fraud and deception, if the compilers of it so 
 chose, and an audit to establish the authenticity 
 of the balance-sheets of all banks is conse- 
 quently essential to any banking reform 
 worth the name. Certainly, without submit- 
 ting to both these conditions, no unlimited 
 bank should be permitted to become ' limited.' 
 A glaring wrong w^ll be done to the com- 
 munity if they are in this respect let off 
 without a satisfactory concession. 
 
 Strong objections have, however, been made 
 to the ' audit ' of bank accounts by the mouth- 
 pieces and authorities of all unlimited banks. 
 Limited banks already submit to a kind of 
 audit, and have therefore nothing to say.
 
 78 BANK AUDIT AND 
 
 These objections when scrutinised do not seem 
 of a very soHd kind, and may be said to resolve 
 themselves into these two: — (i) an audit is 
 unnecessary, and (2) an effective audit is im- 
 practicable. It is unnecessary, say the bank 
 chairmen, ' because we audit the accounts our- 
 selves,' Sir John Rose drew a remarkable pic- 
 ture of the thoroughness of this * audit ' at the 
 London and Westminster meeting in January 
 last. According to his statement, the bank 
 appears to be managed by committees of 
 directors, who hedge round their nominal 
 official manager with safeguards and restric- 
 tions till, so far as we can see, his work might 
 be as well done by an ordinary ledger clerk. 
 These committees supervise everything, and a 
 * continuous audit ' thus goes on, which is de- 
 clared to be far more satisfactory than any em- 
 pirical hasty outside audit could even be. That 
 phrase, a ' continuous audit,' was marvellously 
 adroit, and took the public fancy so much that 
 we find it repeated on every hand as a com- 
 plete reply to all objectors. This being so, it 
 may seem unkind to quarrel with it, and yet 
 the facts compel me to set it and the whole 
 of this special plea down as practical nonsense. 
 I cannot shut my eyes to the history of the 
 London and Westminster Bank for the past 
 five years, and the singular commentary which
 
 BANK BALANCE-SHEETS. 79 
 
 that history is on this wonderful system of 
 audit. In spite of these elaborate directorial 
 checks, and this continuous systematic scru- 
 tiny of the bank's affairs, there has hardly 
 been a gigantic commercial failure since 1874 
 in which the London and Westminster has 
 not been more or less deeply involved. 
 How are we to reconcile the benefits of 
 the elaborate provisions described by Sir 
 John Rose with a fact like that? If such 
 complete supervision did not prevent the bank 
 from having to write ^500,000 off its reserve 
 to help to cover the losses incurred in the 
 Collie and Aberdare failures, if it did not 
 prevent the bank from having ^114,000 of 
 City of Glasgow Bank acceptances in hand on 
 its own account at the date of the failure, 
 besides the large amounts held on account of 
 bill-brokers of little or no means, with whom it 
 does business, it is clearly of no avail as a 
 safeguard to either shareholders or depositors. 
 
 These very City of Glasgow Bank accept- 
 ances afford a remarkable instance of the de- 
 lusions to which bank managers and directors 
 are subject when brought face to face with pos- 
 sibilities of losses. It is worth while pausing for 
 a moment to see how this matter stands. The 
 investigators' balance-sheet showed the City of 
 Glasgow Bank to be owing ^2, 742,000 on ac-
 
 8o BANK AUDIT AND 
 
 ceptances at the date of its suspension, and there 
 was known to be upwards of ^100,000 addi- 
 tional indebtedness floating about the market 
 in the shape of bills of the bank's insolvent 
 customers discounted without its acceptance. 
 Altogether, therefore, the paper of this bank 
 and its bankrupt customers amounted to nearly 
 ^2,900,000 at the date of the bank's suspen- 
 sion. Of that paper a very small proportion 
 has been retired by third parties, not, I be- 
 lieve, ^200,000 in all ; so that at the very lowest 
 estimate there is more than ^2,600,000 of it 
 still in the hands of the creditors of the bank. 
 Now it is a remarkable fact, that the total 
 amount acknowledged by the London banks 
 and discount houses in their half-yearly reports 
 is less than ^800,000.* The Scotch banks 
 
 * The following are the amounts of the City of Glasgow 
 Bank acceptances acknowledged to be held by London banks 
 and discount houses : — 
 
 ( y£ 1 67,600, Glasgow Bank. 
 
 London and County Bank,* ) 57,334) other firms in con- 
 
 ( nection therewith. 
 
 Alliance Bank, . . . . 12,155 
 
 City Bank, .... 18,000 
 
 London and Westminster Bank, 114,000 
 
 Union of Australia,+ . . . 5,000 
 
 General Credit and Discount, . 47,437 
 
 National Discount, . . . 156,000 
 
 United Discount, . . . 219,000 
 
 * Of which ^17,198 had, at the date when last half-year's report was made up, been 
 covered or cleared off. 
 t Of this total £3000 had been received at the date of the meeting, or January 13th.
 
 BANK BALANCE-SHEETS. 8 I 
 
 are stated to hold in one way or other from 
 ^400,000 to ^600,000, and, accordiniy to a Hst 
 in my possession, have directly proved on the 
 estates of the insolvent firms for about ^340,000. 
 Take their total interest at ^600,000, and we 
 have still, on the most favourable estimate, 
 nearly ^1,500,000 of the known amount of this 
 paper unaccounted for. Where are the bills 
 which represent this sum ? A certain propor- 
 tion of them is no doubt held by Colonial 
 and Indian banks which have as yet made no 
 statement, or by private bankers who make 
 no report to the public at all ; but from all 
 one can learn, it seems improbable that so 
 much as ^400,000 is thus held ; and there can 
 be not the least doubt that for the most 
 part the bills are in the possession of these 
 very banks which say that their interest in 
 the failure is only so much. The banks 
 did not take these bills direct ; they are merely 
 pawned to them by the bill discounters who 
 got them in the open market, and inasmuch 
 as they bear these bill - discounters' endorse- 
 ments, the banks say, ' That class of bill is not 
 to be taken as a liability of ours ; it is So-and- 
 So's.' Yet ' So-and-So ' cannot ' lift ' these bills ; 
 and were the bank to fall short of full payment 
 of them by 2s. 6d. in the pound, 'So-and-So' 
 would probably fail and throw the loss on the 
 
 F
 
 82 BANK AUDIT AND 
 
 bank. Most of the private bill discounters 
 who took these bills to the banks are, in short, 
 mere go-betweens, used by the banks for lend- 
 ing their money — men with little or no capital, 
 who could do nothing to assist the bank in 
 meeting losses on this or any other pile of 
 accommodation paper. For all that, as I be- 
 lieve, the banks treat these men's names on the 
 bills as something solid between them and loss 
 on about, in round figures, ^1,000,000 of City 
 of Glasgow Bank paper. They refuse to take 
 the bills which they are compelled to hold as 
 their own liability, and say, ' We have only so 
 much interest in this great disaster.' A more 
 remarkakle instance of the sanguine tempera- 
 ment of bankers it would not be possible to 
 find. 
 
 We must speak out plainly on this subject. 
 Bank directors and managers are not in the 
 nature of thino^s to be trusted to audit their 
 own accounts, and it is monstrous that they 
 should make the claim to do so. They cannot 
 'help taking an over sanguine view of bad or 
 doubtful transactions ; they have the strongest 
 possible inducements to minimise losses, and 
 will always do so. How, to take but one 
 example, is the board of a bank which gives 
 loans to its own directors to be trusted to 
 assess the amount of losses which may be
 
 BANK BALANCE-SHEETS. 83 
 
 incurred through these advances ? Let the 
 story of the City of Glasgow Bank crime 
 furnish the answer. What was done by the 
 board there will be done elsewhere when 
 necessity urges. 
 
 ' That may be all very true,' say others ; 
 * we grant you that an audit is highly desirable, 
 but in the case of banks of the magnitude of 
 the Westminster, the London and County, or 
 the National Provincial, an outside audit is 
 entirely impracticable. It could not be done 
 by any accountant in existence within six 
 months at the very least' If this be true, the 
 true answer to it is — then these banks are all 
 too big, for accounts that men cannot audit 
 other men cannot keep in order. But that the 
 assertion is true only in a relative sense is 
 proved by he mere fact, that banks as large as 
 the Westminister and London and County do 
 have an audit of a kind. The accounts of the 
 London and County profess to be audited each 
 half-year by a committee of shareholders, and 
 if these can do the work efficiently, why cannot 
 a professional auditor ? I admit freely that if it 
 be the business of an auditor to overhaul all 
 the accounts of the bank, and to assess the 
 value of all its securities, he could not audit the 
 accounts of a bank like the London and County 
 or the National Provincial, with their numerous
 
 84 BANK AUDIT AND 
 
 branches, within twelve months. But that is 
 not what I mean, nor what any sensible person 
 means by a banking audit. What is really 
 desired is not an inquisition into a bank's 
 affairs, but a check on fraud, and for the pur- 
 poses of such a check much less than this 
 scrutiny is required. 
 
 The one absolutely essential thing is that 
 the audit shall be independent, and in order 
 to be so, it ought to be done by parties 
 entirely outside the bank. It must also be a 
 skilful audit, and that condition can only be 
 met by the employment of professional auditors. 
 Shareholders are as a rule practically useless 
 for such a purpose ; their interest is the same 
 as that of the directors and managers, viz., to 
 keep the credit of the bank good at all hazards. 
 
 In order to define more clearly the 
 object and scope of what I venture to call 
 true banking audit, suffer me to diverge 
 here to the question of bank balance-sheets. 
 They are at once the test and measure of 
 efficient audit, and if we can settle on an in- 
 telligible basis the lines on which published 
 bank balance-sheets ought to be framed, we 
 shall go a great way towards defining the 
 limits of bank audit. Some short time ago I 
 drew up a form of bank balance-sheet, which, 
 on Its publication in a morning newspaper, was
 
 BANK BALANCE-SHEETS. 85 
 
 the subject of a good deal of criticism. So far 
 that criticism was gratifying, in that, while ob- 
 jecting to minor details, the objectors never 
 went the length of saying — ' You ask the 
 bankers for too much,' except on one point, 
 to which I shall presently refer. Profiting by 
 the suggestions and criticisms which this pro 
 forma balance-sheet drew forth, I have sought 
 to amend and improve its details, and now 
 submit it for the consideration of the reader 
 in a more complete form : — 
 
 BANK BALANCE-SHEET. 
 
 Liabilities. 
 To capital paid up, . . £,\ 
 'I'o reserve fund, 
 To notes in circulation. 
 To deposits bearing interest, 3, 
 To current and otheraccounts, 
 
 with credit balances, . 7,700,000 
 To cash borrowed on bills 
 
 rediscounted, . . .1 
 To acceptances 2ls per contra, 
 Against which are held as 
 security — 
 Cash, . . £y),ooo 
 Bills with docu- 
 ments attached, 400,000 
 Other securities at 
 market value, 
 exceeding . 150,000 
 
 Uncovered credits, 100,000 
 
 500,000 
 500,000 
 350,000 
 200,000 
 
 000,000 
 500,000 
 
 ;C 700,000 
 
 To balance brought down, 10,000 
 
 To rebate do. do., 20,000 
 
 To gross profits for half-year, 220,000 
 
 ;£l5, 000,000 
 
 Assets. 
 
 By cash in hand, .... 
 
 By cash at Bank of England, . 
 
 By loans to bill-brokers, at call and 
 at notice, not exceeding 14 days, 
 
 By loans to stockbrokers, at call or 
 till next S.E. account, . 
 
 By investments, viz.* : — 
 
 Consols, . . . . \ 
 
 India Government bonds, ' 
 
 Colonial Government bonds, C 
 
 English railway debentures, / 
 
 By bills discounted, not yet due. 
 
 By bills discounted, overdue, . 
 
 By loans to customers for fixed 
 periods on convertible securities 
 (present value of securities exceed- 
 ing ^ ), 
 
 By loans to customers for fixed 
 periods on mercantile security 
 (nominal value of security £ ), 
 
 By overdue loans and loans on 
 security, the value of which is 
 unascertainable 
 
 By advances oii personal security, or 
 witliout security, .... 
 
 By acceptances 3^^ per contra. 
 
 By bank buildings, . ;^35o,ooo 
 
 Less value written off, . 100,000 
 
 By current expenses, interest due, etc., 
 
 ;{J400,000 
 
 500,000 
 
 1,000,000 
 
 900,000 
 
 3,000,000 
 
 4,500,000 
 100,000 
 
 1,500,000 
 1,000,000 
 
 500,000 
 
 750,000 
 500,000 
 
 250,000 
 100,000 
 
 ^15.000,060 
 
 * Only one or two examples of investment are given here, but the designations 
 and amounts of all ought to be completely exhibited.
 
 86 
 
 BANK AUDIT AND 
 
 Profit and Loss Account. 
 
 Dr. 
 
 To rebate on bills at bank rate, ;^25,ooo 
 To interest due to depositors, 35,000 
 To bad debts written off, . 10.000 
 
 To loss allowed on doubtful 
 
 debts, ..... 20,000 
 To salaries of staff at head office, 
 and branch rent, stamps, 
 taxes, etc. .... 52,000 
 To directors* fees, . . . 3,000 
 To addition to reserve, . . 20,000 
 To dividend to shareholders, 
 at the rate of 10 per cent, per 
 annum, .... 75,000 
 
 To balance carried forward, . 20,000 
 
 ^^2 50,000 
 
 Cr. 
 
 By balance brought forward, . . ;C 10,000 
 By rebate do. do., . . 20,000 
 
 By gross profits as pe r balance-sheet, / 220,000 
 
 ;^250,000 
 
 auditors' CERTIFICATE. 
 
 We have examined the books of the bank with the vouchers, and found them cor- 
 rect. The entries in the above balance-sheet also correspond with the entries in the 
 books. Further, we have ascertained the correctness of the items of cash and bills of 
 ex-change, and have inspected the investments and securities held by the bank, and 
 find them to be in its possession as above stated. We also certify that no individual 
 or corporate customer of the bank has advances to the e.xtent of one-fifth of the paid- 
 up capital, and that the allowances for bad and doubtful debts are in accordance with 
 the actual amount of bad debts and doubtful accounts to be found in the books. 
 
 A careful study of the items of this balance- 
 sheet will not, I am persuaded, discover that 
 there is any material point in it upon which 
 bankers ought not to be willing to give infor- 
 mation. Our banking institutions, public and 
 private, must recognise that the day for con- 
 cealment is past. Banking business is no 
 longer a fetish to be worshipped blindly. The 
 confidence bred of intelligence must supersede 
 the take -all -for -granted superstition. As a 
 first step to this progress, it seems to me 
 essential that all banks in the country, joint- 
 stock and private, should be compelled to set 
 forth twice a year some such balance-sheet 
 as the model here given. There would be 
 modifications, of course ; some banks have note
 
 BANK BALANCE-SHEETS. 87 
 
 circulations, others none ; some give credits to 
 their customers without security, others do 
 not. Many country banks rediscount their 
 bills with London brokers or bankers ; few 
 London banks do so — they ' accept ' instead, 
 and so on. Colonial and Indian banks habitu- 
 ally take deposits at long dates, averaging, I 
 believe, from one to five years, and they might 
 be made to set forth the particulars of these 
 deposits ; but with such exceptions this balance- 
 sheet probably contains all that could fairly be 
 demanded of the banks. Most of what is here 
 asked they would, I believe, be willing to con- 
 cede, with one important exception. They are 
 most reluctant to be forced to set forth their 
 losses by bad and doubtful debts. ' It would 
 never do,' they one and all declare. ' Some 
 half-year we might make a big loss, and if we 
 could not hide it up we should bring share- 
 holders and depositors about our ears. Any- 
 thing you like to ask but this. This we cannot 
 give.' That is the declaration, and it is what 
 the traditions of banking lead us to expect. 
 But there is no reason in the plea ; it is a 
 very bad one, however looked at, embracing, 
 as it does, everything that the City of Glasgow 
 or other fraudulent bank directors could urge 
 in justification of their conduct. For all that, 
 bankers cling to it. They dread the unknown
 
 88 BANK AUDIT AND 
 
 in this respect, accustomed as they are to conceal 
 losses when made, to glose over bad debts, and 
 generally to put as good a face as possible on 
 ugly bits of business. That the daylight should 
 be let in on this system may now be impera- 
 tive, but the bankers none the less resent it. 
 A more curious example than this plea of the 
 strange vaearies to which modern commercial 
 morality is subject could not be given. 
 
 It demonstrates, with greater force than any 
 conceivable argument, the absolute need for 
 an independent audit. A balance-sheet such 
 as this would be entirely, or almost entirely, 
 useless without such an audit ; because it is 
 impossible to make this or any other model 
 balance-sheet an absolute preventive of decep- 
 tion. Banking safety, in short, does not lie in 
 any prescribed form of published accounts, but 
 in the steps taken to make the form a reality. 
 
 Now, it will be plain to any unprejudiced 
 mind that the items of the above-given balance- 
 sheet offer no obstacle to the practically effective 
 audit of any bank, however large. The auditors 
 are not, speaking generally, called upon to certify 
 to anything beyond the correctness of the book 
 entries. In a month's time such an audit as 
 this balance-sheet demands could be carried 
 through In the largest bank in the kingdom, 
 the first few times that the work had to be
 
 BANK BALANCE-SHEETS. 89 
 
 done it might take longer, but once the system 
 was in order, and the auditors had become 
 famihar with the operations of the bank, their 
 work would simplify itself and become practi- 
 cally easy enough. The auditors would check 
 the various classes of bank books, count the cash, 
 examine the investments, scrutinise the loan 
 returns, and generally find out whether the 
 entries on the debit and credit sides of the 
 account balanced. Into the question of the 
 value of this or that banking security it would 
 be no part of their duty to go, except where 
 losses had been incurred or were threaten- 
 ing. The audit would merely indicate the 
 nature of each class of security — house pro- 
 perty, stock, dock warrants, whatever it might 
 be. I repeat that this could be done with 
 the largest bank in the kingdom with no 
 insurmountable difficulty. 
 
 Admitting all this, some bankers unwilling to 
 surrender at discretion fall back on the further 
 difficulty implied in the question, Who is to 
 effect such an audit ? Some say the Govern- 
 ment must do it ; others that the Government 
 ought to have nothing to do with banking, for 
 the simple reason that its interference might 
 lead to more evil than it could cure. ' What, 
 then, is to be the true means for securing a good 
 audit ? ' This is, perhaps, the most difficult
 
 90 BANK AUDIT AND 
 
 point of all ; but I do not even believe it to be 
 insurmountable. It is only difficult, indeed, 
 because of the low standard of professional 
 morality which the existing bankruptcy law has 
 developed amongst professional accountants. 
 What is really wanted, therefore, is some means 
 of raising the prevailing standard of morals 
 amongst the members of this most useful and 
 valuable class of men. And the Government, 
 although taking no part in audits, might in- 
 directly help to do this by demanding substan- 
 tial oruarantees from those accountants who 
 are chosen as bank auditors. They ought to be 
 compelled to make up their bank returns under 
 heavy penalties, partly, perhaps, in the shape of 
 deposits of money in neutral hands, to be for- 
 feited in the case of fraud or collusion. As a 
 further check, no director or director's nominee 
 should be allowed to hold proxies for the election 
 of an auditor. It should be stringently placed 
 in the hands of the shareholders. Still further, 
 I think that no bank ought to be audited by a 
 shareholder, even if that shareholder be a pro- 
 fessional accountant. The shareholders should 
 be compelled to elect men entirely outside of their 
 own body. By means like these it would not, 
 I feel sure, be difficult to obtain all reasonable 
 provisions for an honest audit of accounts, 
 sufficient, if not to prevent losses, at least to
 
 BANK BALANCE-SHEETS. 9 I 
 
 protect the community against fraud on all 
 ordinary occasions. 
 
 The one imperative thing to be insisted on is 
 that these reforms must be submitted to. Bank- 
 ing cannot any longer be allowed to take care 
 of itself, and to run riot without control. The 
 last few months have witnessed what mischiefs 
 may come of this unhappy licence, and to what 
 dangers ignorance and folly may subject the 
 strongest institutions. In the three months 
 that elapsed between the failure of the City of 
 Glasgow Bank and the making up of the half- 
 yearly balance-sheets, thirteen London banks 
 lost no less than ^11,767,000 of their deposits 
 entirely through the popular distrust."" Bankers 
 
 * The following are the banks in question : — 
 
 
 Liabilities 
 
 on deposit and 
 
 
 
 current account. 
 
 
 Bank. 
 
 Dec. 1878. 
 
 June 1878. 
 
 
 Alliance, 
 
 • ;^I,62I,724 
 
 ^2,271,852 
 
 i:65o,i28 
 
 Central of London, 
 
 964,789 
 
 1,147,951 
 
 183,162 
 
 City, . 
 
 . 2,872,067 
 
 3,922,480 
 
 1,050,413 
 
 Consolidated, 
 
 . 2,500,365 
 
 2,966,902 
 
 406,537 
 
 Imperial, 
 
 1,807,716 
 
 2,434,714 
 
 626,998 
 
 London & County, 
 
 .. 21,474,916 
 
 23,611,443 
 
 2,136,527 
 
 London & Provincial, 
 
 . 1,849,222 
 
 1,886,027 
 
 36,805 
 
 London & S. -Western, 
 
 1,559,978 
 
 1,576,430 
 
 16,452 
 
 London & Westminster, 21,485,767 
 
 26,763,364 
 
 5,277,597 
 
 London Joint-Stock,* 
 
 13,849,586 
 
 14,680,863 
 
 831,277 
 
 Metropolitan, 
 
 .76,836 
 
 318,955 
 
 142,119 
 
 National, 
 
 • 8,097,794 
 
 8,360,920 
 
 263,126 
 
 Union of London, 
 
 . 12,398,337 
 ^90,719,097 
 
 12,544,020 
 
 145,683 
 
 
 ^102,485,921 £ 
 
 11,766,824 
 
 
 
 90,719,097 - 
 
 
 Net decrease. 
 
 ;^I 1,766,824 
 
 
 '■ In both these cases the acceptances are included in the total amount of deposits.
 
 92 
 
 BANK AUDIT AND 
 
 were loud in condemning the unreasonableness 
 of this distrust ; but they have themselves almost 
 entirely to blame for it, since they have syste- 
 matically refused the people information. Con- 
 trast, for example, the usual balance-sheet of the 
 London and Westminster Bank with that com- 
 piled by the Eco7ioniist from the figures given 
 in the chairman's recent speech, and you will see 
 at once how utterly insufficient the ordinary 
 figures are.* Other banks habitually behave 
 even worse to the public in this respect than 
 the London and Westminster, and the conse- 
 quence is that when any large failure occurs 
 people are unable to discriminate. Rumour 
 works on their ignorant fears, and they believe 
 
 * The following is the balance-sheet given to the shareholders 
 at the London and Westminster Bank meeting : — 
 
 LONDON AND WESTMINSTER BANK, sist December, i 
 
 Dr. 
 To proprietors for \ 
 
 paid-up capital, J ;{^2,ooo,ooo 
 
 To amount due by^ 
 
 the bank on de- 
 posits, circular 
 notes and other \ r o <: 
 moneys, includ- f-^2i,485,767 
 ing rebate on 
 bills discounted 
 not yet due, . > 
 To cash against "] 
 East Indian se- ' 
 curity as per [ 
 contra, . . } 
 
 900,000 
 
 To rest or surpUis \ 
 
 fund, 30th June V £914,814 
 
 1S78, . . ) 
 
 To net profits of\ 
 
 the past half- V- 200,878 
 
 year, . . J 
 
 *22, 385,767 
 
 ,692 
 
 ;C25,5oi,459 
 
 Cr. 
 By cash in hand and at Bank of 
 
 England, . . . ^^3.427,501 
 
 By Government stock, 
 
 ,>X,i,i50,ooo 
 
 3- 197.973 
 
 By securities guar- '\ 
 the f 
 
 of I 
 
 anteed by 
 Government 
 India, . . ) 
 
 By Metropolitan . 
 stock, colonial | 
 bonds, and rail- I 
 way debenture | 
 and preference 
 stocks, . . . ' 
 
 761,151 
 
 By loans, at call and not ex- 1 
 ceeding 15 days, . . J 
 
 By bills discounted, loans- 
 
 1,911,151 
 1-673,975 
 
 y bills discounted, loans, \ „ 
 
 and other securities, . . / 5>29o, 59 
 
 -^25. 509.459 
 
 * This amount does not include acceptances, ;£7i9,448.
 
 BANK BALANCE-SHEETS. 
 
 93 
 
 the worst of what they hear. In this way 
 disasters might well be brought about, which 
 would shake the credit of the nation to its 
 
 And the following 
 Economist from the fi 
 the meeting : — ■ 
 
 is the balance - sheet compiled by the 
 gures given in Sir John Rose's speech at 
 
 Liabilities. 
 
 
 
 
 Assets. 
 
 
 Capital paid up, 
 
 £2 
 
 ,000,000 
 
 Cash in hand and at Bank 
 
 
 Deposits — at call and no- 
 
 
 
 
 of England, 
 
 ;£3, 428,000 
 
 tice, say, under £,^00,000, 
 
 
 
 
 Loans and call, and under 
 
 
 current accounts, circular 
 
 
 
 
 fifteen days. 
 
 1,674,000 
 
 notes, and rebate, say, 
 
 
 
 
 Government stock. 
 
 3,198.000 
 
 over ^12,500,000, 
 
 21 
 
 ,48s 
 
 000 
 
 Indian Government securities 
 
 , 1,150,000 
 
 Cash borrowed upon East 
 
 
 
 
 Metropolitan stock, colonial 
 
 
 Indian securities, . 
 
 
 900 
 
 000 
 
 bonds, and railway deben- 
 
 
 Rest, 30th June 1878, . 
 
 
 9^5, 
 
 000 
 
 ture and preference. 
 
 761,000 
 
 Half-year's ret profits, 
 
 
 ^201 
 
 000 
 
 Bills discounted not over 
 
 
 (Acceptances, ^71^,000 ; 
 
 / 
 
 
 
 three months to run. 
 
 8,070,000 
 
 against securities, 
 
 / 
 
 
 
 Bills discounted over three 
 
 
 ;^i,66i,ooo; not included 
 
 / 
 
 
 
 months, .... 
 
 545.000 
 
 in the balance-sheet). / 
 
 / 
 
 
 
 Loans to customers on mar- 
 ketable securities, . 
 
 Loans to customers on leases, 
 deeds, etc., 
 
 Over-drafts by customers 
 and country' banks against 
 securities deposited. 
 
 Advances on dock warrants, 
 
 Bank premises (worth 
 ;{;578,ooo). 
 
 4,280,000 
 1,157,000 
 
 830,000 
 125,000 
 
 283,000 
 
 
 ;^2= 
 
 .5°i 
 
 000 
 
 ;{;2 5, 501,000 
 
 On this the Economist comments as follows: — 'All will 
 admit that this statement is amply sufficient, except, perhaps, 
 on two points. Were the cash in hand divided from that in 
 the Bank of England, and were the accounts signed by recog- 
 nised auditors, even though we knew them to have been 
 efficiently prepared, we should be inclined to regard the 
 balance-sheet as very nearly perfect.' 
 
 With this I cordially agree, except in so far as the ' per- 
 fection ' of the balance-sheet is concerned, but the astonishing 
 thing is that the giving of these figures was a. necessity that Sir 
 John Rose seemed to lament. As if the revelation was of the 
 nature of a calamity, he hoped the bank's affairs would not 
 need to be ' turned inside out' in this way again. In point of 
 fact, the statements made by him at that shareholders' meeting 
 did more to calm the public mind than anything else that we 
 know, and their magical effect is the most convincing proof that 
 could be cited of the folly shown by bankers in habitually 
 fostering a habit of almost thaumaturgical secrecy.
 
 94 BANK AUDIT AND 
 
 very foundation. I repeat, no other country 
 accustomed to banking credit in a highly de- 
 veloped form would tolerate this state of things, 
 and it must be put an end to at all costs. Pot- 
 tering, temporary, and partial legislation con- 
 ceived in the interests of shareholders alone, 
 may do mischief rather than good if it obscure 
 the true issues at stake. 
 
 Contrast for a moment our position with 
 that of the banks of the United States. Banks 
 fail there often enough, but rarely or ever does 
 the failure of one bank, or of half-a-dozen 
 banks, cause a blind panic 'run,' Nor are 
 banking losses at all so severe in the States as 
 they have often been here in the past. One 
 reason for this is, no doubt, to be found in the 
 smallness of the banks, a characteristic not 
 without its advantages. Our banks have in 
 several instances become so overgrown as to be 
 nearly unmanageable. But the main cause of 
 the more satisfactory condition of affairs which 
 prevails in America is, without doubt, to be 
 found in the restrictions under which the banks 
 work in most of the States, and, above all, 
 under the ' national ' bank law. As a rule, 
 even the State banks are subject to Govern- 
 ment inspection — not an efficient system, but 
 one which some responsible audit should re- 
 place here. They are bound by law also in
 
 BANK BALANCE-SHEETS. 95 
 
 the State of New York to make at least five 
 returns of their accounts a year, and in no case 
 are they permitted to lend to any one person 
 or firm an amount exceeding one-tenth of the 
 capital. Under the * national ' system, estab- 
 lished in 1863 — a system which now comprises 
 some 2000 banks — periodical returns must be 
 made to the Government at least twice a year, 
 showing the position of each individual bank, 
 its capital, reserves, liabilities, profits or losses. 
 Statements may also be called for by the 
 Comptroller of the Currency at any time, he 
 having authority to demand whatever informa- 
 tion may be deemed of value.* 
 
 This is but an example of the stringency 
 with which banks may be controlled, but in- 
 stances can be multiplied at every turn. To 
 go no further than France, one may find every 
 week in the pages of the Econo^nist an abstract 
 of the balance-sheet of the Bank of France, 
 which puts to shame all the pleas for secrecy and 
 for the maintenance of the ' confidence ' system 
 urged by bankers in this country. The Bank 
 of France is one of the most perfectly organised 
 institutions of credit in the world, and yet it pub- 
 lishes every week fully more than is here asked 
 
 * Vide Comptroller Knox's report on the currency of the 
 United States for 1878. It contains a most interesting account 
 of the national banks, to which I shall have more than one 
 occasion to refer.
 
 96 BANK AUDIT AND 
 
 of our joint-Stock and private banks twice a 
 year. Still more elaborate are the balance- 
 sheets of the Bank of Germany, issued once a 
 year ; and I should indeed be sorry to subject 
 English banks to the rigorous scrutiny which 
 its balance-sheet implies. Again, I am told 
 that the law in some of our Australian colonies 
 compels the banks there to make a quarterly 
 return of their assets and liabilities, under oath 
 of the manager and accountant. These returns 
 are, perhaps, far from complete, but it is hardly 
 likely that they are materially false. In short, 
 we nowhere find banking so lawless as in 
 England — in the country which boasts of the 
 wonderful development of its credit institutions. 
 The boast is in many respects a just one, and 
 in applying the safeguards that may seem neces- 
 sary to prevent liberty from diverging into 
 dangerous licence, we must be careful that 
 nothino^ is done to check real freedom. Plain 
 common sense, however, teaches us that the 
 reasonable amount of publicity here pleaded 
 for cannot injure any sound bank, or impair 
 its just liberty of action. All that is required 
 is the abandonment of the take-us-upon-trust 
 policy, which our banks have clearly far out- 
 grown. The intimate connection which they 
 have established with the commerce not of 
 England only, but of the world ; the extent to
 
 BANK BALANCE-SHEETS. 97 
 
 \vhich the operations of the great trades and 
 the small alike depend on them ; their enormous 
 resources, and the constant tendency of these 
 resources to impel the banks into channels of 
 business and risks in business, which prudence 
 should teach their managers to avoid, all warn 
 us that the traditions of the past must be aban- 
 doned. We must protect bankers and bank 
 managers from themselves, as well as from the 
 pirates or privateers of trade, and teach them 
 to be content to work within well-defined 
 lines, where, if their profits are less, their risks 
 will be less also. 
 
 Such are some of the chief questions 
 involved on that side of banking reform 
 within scope of the law. Unless unlimited 
 banks consent to supervision, or to the publi- 
 cation of fuller accounts, there should be no 
 permission given to them to transform them- 
 selves into limited liability companies ; and the 
 reforms here indicated ouQ^ht to be instituted 
 with regard to all banks, whether limited or 
 not. It will, no doubt, be said by some that 
 private banks should be exempt from the obli- 
 gations laid upon joint-stock banks. But there 
 is no really strong ground for such exemption. 
 Private banks have of late years been driven 
 to enter more and more into competition 
 with joint-stock banks for deposits, and are 
 
 G
 
 98 BANK AUDIT AND 
 
 affected by precisely the same temptations 
 and dangers. At the same time they offer to 
 the pubHc less security than corporate insti- 
 tutions do in the matter of reserves of cash 
 and unpaid capital. Their copartnery is always 
 changing, and without the check imposed by 
 the necessity for publishing accounts periodi- 
 cally, a private bank can easily grow, as it were, 
 hollow. Death or retirement may take away 
 the support of monied partners, and leave the 
 customers to deal only with men of straw or reck- 
 less speculators. Therefore, the private banks 
 of the country ought to be made to submit to 
 the same law as their joint-stock neighbours. 
 
 The mere plea of uniformity and complete- 
 ness, ought, apart from these considerations, 
 to be sufficient reason for including all banks. 
 We have no complete banking statistics, and 
 should no longer be without the means of 
 assessing so essential a part of our national 
 wealth. So far as I can learn, the best and 
 largest private banks will have no objection to 
 compulsion in this respect, and if we may judge 
 by the apparently satisfactory outcome of the 
 recent private - bank failures, none of them 
 should have much to fear. The dividends 
 offered on such banks as the Cornish Bank of 
 Truro, Fenton's of Rochdale, or the Lough- 
 borough Bank, appear indeed to belie the some-
 
 BANK BALANCE-SHEETS. 99 
 
 what gloomy anticipations of the first chapter 
 of this work. I hope, sincerely, that it will 
 prove so, but we must wait a little before 
 being too sure. When the dividends offered 
 are all paid, it will be time enough to offer 
 congratulations. These small private bank 
 failures, moreover, offer no just test of the 
 staying power of the private banks, which have 
 not yet been actually tested. I trust they may 
 not be so, and, at all events, feel satisfied that 
 the best way to avert the strain of distrust, is for 
 the private banks to descend to the arena with 
 their joint-stock neighbours, and boldly make 
 their position known to the world.
 
 CHAPTER IV. 
 
 THE DEFECTS OF THE BANK OF ENGLAND 
 WEEKLY RETURN. 
 
 The position of the Bank of England in relation 
 to other banks makes a revision of some of its 
 practices absolutely essential to any banking 
 reform worth having. The mere periodical 
 issue of bank balance-sheets on a revised basis 
 fixed by law, would do comparatively little good 
 were the Bank of Endand account left as it is. 
 In some respects the Bank of England is pro- 
 bably as much in need of overhauling as any 
 bank in the country. Long familiarity with its 
 customs and mode of doino- business in some 
 degree prevents us from seeing its defects. 
 And some of these defects arise from changes 
 brought about by time, and cannot, perhaps, be 
 cured by anything that the law could do. As 
 an instance of such we may note the unsatisfac- 
 tory relation which this bank as a private insti- 
 tution holds towards the outside money market. 
 The other banks have overwhelmed it, so it no 
 longer leads, but follows. Thus it has ceased 
 to be that efficient protector of the bullion
 
 BANK OF ENGLAND WEEKLY RETURN. lOI 
 
 reserve of the country which it once was. And 
 for much the same reason it has nearly ceased 
 to be a discounting bank except by fits and 
 starts. For the present, however, we are con- 
 cerned with the Bank of England in one aspect 
 only. We must, in the meantime, set aside all 
 except incidental reference to its position as a 
 note-issuing bank, or to its powers and privileges 
 as the banker of the Government. Doubtless 
 these functions and privileges have given it a 
 power, and drawn down upon it obligations 
 which it would never otherwise have had. But 
 when all is said, the Bank of England is, in its 
 essentials, merely an ordinary English bank, 
 doing, as far as may be, ordinary business. As 
 an ordinary bank, however, it possesses one 
 peculiar feature which is of more importance in 
 any discussion of banking reform than all the 
 others put together. Through being the Gov- 
 ernment bank, and for long the supreme bank 
 in the country in point of resources, as well as 
 from its note-issuing privileges, the Bank of 
 England has always been the ' bankers' bank.' 
 It keeps the spare cash — the coin-reserve of all 
 the banks in the country, as well as the actual 
 working balances of the other Clearing-house 
 bankers. This is obviously a most important 
 function. If well performed it should add 
 greatly to the stability of the other banks ; but
 
 I02 THE DEFECTS OF THE 
 
 if done badly, the whole banking credit of the 
 country may be undermined. 
 
 There is great reason for fearing that the 
 Bank of England does not perform this function 
 well. There are, it is true, but slender means 
 of judging how far it may go astray from the 
 only safe course in such a case, but still an 
 estimate can be formed ; and, as we shall see, 
 the Bank of England may turn out to be an 
 exceedingly unsatisfactory custodian of the na- 
 tional banking reserve. Attention has again 
 and again been drawn to this subject ; but people 
 have been so accustomed to assume that the 
 Government will permit the Bank to manufac- 
 ture money when necessity arises, that no effort 
 at reform has ever prospered. An indifference 
 prevails on the subject which few could feel 
 were the real dangers of the situation clearly 
 before their minds. 
 
 It is, for example, a remarkable fact that no 
 effort has ever been made to compel the Bank 
 of England to separate the money of its pri- 
 vate customers from that of the other banks. 
 Once a year, about five months after date, a 
 return is made to Parliament, which separates 
 the ' bankers' balances ' from the other money 
 in the Bank of England ; but for all practical 
 purposes that return is useless. All that it 
 does is to convince those who see the figures —
 
 BANK OF ENGLAND WEEKLY RETURN. IO3 
 
 a comparatively small number — that the posi- 
 tion of the Bank of England towards the other 
 banks is about as unsatisfactory as it could well 
 be. It neither acts as a check upon the reckless 
 lending of other banks in times of business in- 
 flation, nor as a genuine preserver of their credit 
 in times of doubt and depression. Were the 
 * weekly returns ' issued by the Bank of Eng- 
 land to set forth the ' bankers' balances ' as a 
 separate item, people would at once see how 
 these banks were working, and would be able 
 to forecast in some measure the dangrers towards 
 which the banks might at any time be drifting. 
 The very fact that nothing is known about the 
 state of the national Reserve, except in an in- 
 direct way through the amount of the note re- 
 serve in the banking department, is sufficient 
 condemnation of the present custom of secrecy. 
 It is a custom which is, I am persuaded, 
 fraught with the greatest dangers to the com- 
 munity. In the first place, it permits the Bank 
 of England to use at its own pleasure the 
 bankers' money entrusted to it for its own or- 
 dinary business. The Bank can without check 
 or question asked use this reserve money to 
 an extent which brings it into the position of 
 having no cash reserve against its own private 
 liabilities at all, in which case it must, if un- 
 supported, prove in a time of crisis to be about
 
 I04 THE DEFECTS OF THE 
 
 the most insolvent bank in England. Any ex- 
 treme pressure causing other banks to withdraw 
 their money, would at once drain it of all its 
 resources, and leave it with a mass of unrealis- 
 able securities. The business of the country 
 might thus be brought to a standstill, and the 
 Bank of England be declared bankrupt. In 
 the second place, the same result might be 
 brought about by the outside banks trading on 
 the Bank of England's published note reserve 
 as if it were all their own. Their keen com- 
 petition for profits, and the spur of deposit 
 money, tend to induce all banks to work on an 
 extremely narrow margin of cash, and they con- 
 sequently depend practically, almost wholly, on 
 the Bank of England reserve for any extra 
 supply. It may thus sometimes occur that the 
 reserve in the banking department does not 
 cover by several millions the cash actually de- 
 posited in the Bank of England by other banks 
 for safe keeping. Or in times of inflation it may 
 happen that the outside banks deplete their 
 reserve to an unsafe extent. In that case they 
 probably drive the Bank of England out of the 
 market by underbidding it, and, as it were, take 
 away its own money in order to carry on their 
 business. Within the past few years we have had 
 both extremes to some extent, and as a result 
 the situation has been mischievously unsound.
 
 BANK OF ENGLAND WEEKLY RETURN. IO5 
 
 In order to try to discover practically what 
 this habit of secrecy in regard to the national 
 banking Reserve may mean, let us endeavour 
 to make an estimate of the position of the 
 Bank of England in relation to the other banks 
 at the end of last year. It can only be an esti- 
 mate, for the data afforded by the half-yearly 
 balance-sheets are of the most meagre descrip- 
 tion. Only two of the London banks separate 
 their cash in hand from cash in the Bank of 
 England; and we are therefore, as usual, driven 
 to guessing. I have, however, taken the figures 
 of the two banks which show their Bank of 
 England reserve as an approximate guide to 
 the proportions held in hand and at the Bank 
 by the other institutions, and the result is the 
 
 Approximate propor- 
 tion of this cash at 
 the Bank of England. 
 
 ;£l35,ooo 
 155,000 
 537,220* 
 440,000 
 345,000 
 
 2,224,000 
 280,000 
 322,000 
 
 2,285,000 
 
 1,242,000 
 32,000 
 
 2,306,667 * 
 
 following table : 
 
 
 
 Cash in hand and at 
 
 Banks. 
 
 Bank of England 
 
 
 on Deer. 31. 
 
 Alliance, . 
 
 • ;^203,778 
 
 Central of London, . 
 
 232,210 
 
 City, . . . . 
 
 725,484 
 
 Consolidated, . 
 
 666,518 
 
 Imperial, . 
 
 518,844 
 
 London and County, 
 
 . 3,339,697 ^ 
 
 London and Provinci 
 
 al, . 420,037 1 
 
 London and S.-West€ 
 
 ;rn, . 483,546 
 
 London and Westmir 
 
 ister, 3,427,502 
 
 London Joint-Stock, 
 
 . 1,862,672 
 
 Metropolitan, . 
 
 47,759 
 
 Union of London, 
 
 • 3,777,143 
 
 
 ^^15,705, 190 
 
 £io,303,SS7 
 
 * In both these instances the actual cash reserve at the Bank of England is 
 separately stated. 
 
 t The balance-sheet of this bank makes no reference to the existence of a cash 
 reserve at the Bank of England, but in the above table it has been treated similarly 
 with the others.
 
 I06 THE DEFECTS OF THE 
 
 These figures are, of course, not set down 
 as strictly accurate. We cannot have more than 
 guesses on many critical points in English bank- 
 ing ; but the estimate is not, I think, an over- 
 estimate, and it shows us that these banks 
 alone held, roughly speaking, ^10,300,000 
 at the Bank of England last December. But 
 these are, by no means, all the banks even in 
 London who had money there on the 31st 
 of December. There is besides these the 
 National Provincial Bank of England, which 
 is probably now the largest bank in the king- 
 dom ; and, judging by the past figures of that 
 bank as well as by what is known about its 
 cautious policy, it would be imprudent to place 
 its cash at the Bank of England at less than 
 ^2,500,000. Further, there are the private 
 banks of The City and West End, whose re- 
 sources are in the aggregate very large, and 
 whose balance at the Bank of England must 
 be considerable, not only on their own ac- 
 count, but on account of the country banks, for 
 which they act as agents. To place these 
 balances at ^3,000,000 more, would not, I 
 believe, be an over-estimate at a time like the 
 present, whatever it might be when the credit 
 machine is running smoothly. But to be mode- 
 rate, let us place all these country bank and 
 private bank balances at ^2,500,000, and then
 
 BANK OF ENGLAND WEEKLY RETURN. IO7 
 
 see to what conclusion these figures drive us. 
 Adding these totals together, we get an aggre- 
 gate of more than ^15,000,000, as the sum 
 probably due at the end of the year by the 
 gank of England to the other banks, of whose 
 money it is custodian, and according to the 
 weekly return of the Bank for the week ended 
 January ist, 1879, the total reserve of coin 
 and notes in the banking department was 
 ^10,306,000, or just about ^5,000,000 less 
 than it owed at that date to the other 
 banks on a favourable estimate of the pro- 
 babilities. In other words, instead of keeping 
 any money in hand against its own private 
 liabilities as a trading bank, the Bank of 
 England had actually, at that date, more 
 than ^5,000,000 on the wrong side of the 
 account. With a fact like that staring us in 
 the face, is it too much to say that the Bank of 
 England, judged as a bank merely, and not as 
 a qiiasi Government institution, was practically, 
 at that moment, one of the most insolvent 
 banks in the country ? Or could any demon- 
 stration be stronger in support of the demand 
 for a change in the form of making up its 
 weekly returns ? Weigh for one moment 
 what these considerations mean. For one 
 thing, they mean a chronic condition of un- 
 sound banking. From the senior institution
 
 I08 THE DEFECTS OF THE 
 
 downwards, nearly all banks, on ordinary occa- 
 sions, use their reserves heedlessly, and hold the 
 trading community hanging, as it were, over 
 an abyss of ruin. With ' reserves ' handled in 
 such a reckless fashion, it is no wonder that 
 banking collapses occur. The wonder rather 
 is that they can be staved off, or that when they 
 do occur, they are not far more widespread. 
 
 In order to understand the position a 
 little more intimately, let us sketch here 
 what a banking^ friend of mine has called 
 ' the natural history of a deposit.' A man 
 deposits, say, ^10,000 at interest with his 
 banker in Liverpool or Manchester. The 
 banker there considers it perfectly safe to lend 
 ^7000 of this ^10,000 to local borrowers. 
 He lends, say, ^1000, by way of over-draft, to 
 a customer whom he considers good ; ^2000 
 to a millowner or shipowner on the security 
 of his mills or ships ; ^2000 to a stockbroker 
 engaged in making money for his clients, by 
 holding stock off the market till the public can 
 be persuaded to pay higher prices for it ; and 
 ^2000 on produce, on dock warrants, or on 
 bills of exchange. Interest has, however, to 
 be paid on the whole ^10,000, so it would not 
 do to let /■3000 of it lie idle in the till. For 
 all practical purposes a hundred or two will 
 suffice. The balance all but that hundred or two
 
 BANK OF ENGLAND WEEKLY RETURN. IO9 
 
 is therefore transmitted to London, and lent 
 either to a banker there or to a bill-broker, at 
 call, and treated as cash. He in turn lends 
 the money out on bills, or other securities 
 at call, to the extent of perhaps ^2500 more, 
 leaving as a residuum some ^300, which finds 
 its way to the Bank of England, there to help 
 to swell the total of the ' other deposits.' But 
 even this poor, lean ^300 is not all left to lie 
 in the Bank of England in peace. Quite the 
 contrary. The Bank of England has need of 
 part of it in its own business, and thinks it 
 perfectly justifiable to take, perhaps, ^100, or 
 even ^150, of the ^300 when occasion re- 
 quires, in order to make loans on stock, or on 
 such bills as find their way to its discount 
 office. As the final outcome of this interesting 
 history, we find the /" 10,000 deposited prac- 
 tically all invested in some kind of interest, 
 bearing security, with the exception of some 
 ^350, or, it may be, in brisk times, when 
 demand for money is very good, some ^250. 
 And after accomplishing this marvellous distri- 
 bution of loanable capital, all the bankers and 
 money lenders concerned sit down compla- 
 cently with a confiding faith in the ' absolute 
 soundness of our banking system,' and in the 
 all-sufficiency of the Bank of England reserve. 
 Under the influence of this soothing super-
 
 no THE DEFECTS OF THE 
 
 stition, bankers are frequently content to allow 
 their total balances at the Bank of England to 
 run below ^10,000,000. According to the 
 annual returns issued in May of last year for 
 1877, these balances were at one time, in the 
 course of that year, as low as ^8,000,000, and 
 only twice during its course reached an amount 
 above ^13,000,000. In former years also these 
 balances were frequently much lower than even 
 ^8,000,000 ; but then, of course, the aggregate 
 banking liabilities of the country were smaller. 
 There has, however, been no growth in the 
 reserve at all proportional to the growth of 
 these liabilities. 
 
 The moral of this history is, that deposit 
 banking, and indeed all banking, is overdone. 
 Some check must be put upon the tendency of 
 the banks to run into extremes — a tendency 
 which the Bank of England encourages, al- 
 though it is not spurred on by ' deposits at 
 interest.' It could not stand that spur and its 
 enormous weight of capital at the same time. 
 The question is, What shall the check be ? It 
 appears to me that it need not be anything 
 revolutionary. The customs which have grown 
 up during generations cannot be rudely swept 
 away. Our banking is entirely unscientific in 
 its conception and forms, and no amount of 
 * tinkering ' will ever entirely change its hap-
 
 BANK OF ENGLAND WEEKLY RETURN. I I I 
 
 hazard riile-of-thumb characteristics. All that 
 we want or can do in this instance also is to 
 secure publicity. If the Bank of England be 
 compelled week by week to make up its re- 
 turns, so as to show the ' bankers' balances ' in 
 its keeping, a most salutary and powerful check 
 on reckless over-employment of banking capi- 
 tal will be at once provided. Without this 
 reform, indeed, the changes proposed in the 
 balance-sheets of other banks would be in a 
 large measure inefficient. The weekly figures 
 of the bankers' reserve are a necessary corollary 
 to improved balance-sheets, and they ought to 
 be made public. If we, for example, make up 
 the last return for 1878, so as to show these 
 bank balances, we shall obtain some idea of 
 the good that the constant publication of such 
 a return would do. Here are the figures as 
 now given by the Bank : — 
 
 THE BANK OF ENGLAND. 
 
 BANKING DEPARTMENT. 
 
 Proprietors' capi- i Government Secu- 
 
 tal, . . .;^i4,553>ooo ! rities, . .^14,720,223 
 Rest, . . . 3,312,545 ! Other Securities, 29,119,440 
 Public Deposits,* 4,940,137 j Notes, . . 9,408,480 
 
 Other Deposits, . 31,118,758 | Gold and Silver 
 
 Seven - day and 
 other Bills, . 221,574 
 
 ;£54,i46,oi4 
 
 Coin, . . 897,871 
 
 ^54,146,014 
 
 * Including Exchequer, Savings Banks, Commissioners of National Debt, and 
 Dividend Accounts. 
 
 jan^i'^U 2. Frank May, Chief Cashier.
 
 112 THE DEFECTS OF THE 
 
 And the following table shows the same figures 
 separated, as they ought to be, if the Bank of 
 England is to continue to fulfil its functions 
 as the keeper of the banking reserve of the 
 country : — 
 
 Amended Form of Bank of England Weekly Return. 
 
 BANKING department. 
 
 LL\BILITIES. 
 
 Proprietors' Capital,^i4, 5 53,000 
 
 Rest, . . . 3,312,545 
 
 Public Deposits, 4,940,137 
 Private Customers' 
 
 Balances, . 15,818,758 
 
 Bankers' Balances, 15,300,000 
 Seven-day and other 
 
 Bills, . . 221,574 
 
 /54,i46,oi4 
 
 ASSETS. 
 
 Government Securities 
 
 purchased, . ^12,720,223 
 Temporary Loans to 
 
 the Government, 2,000,000 
 Other Stocks pur- 
 chased, . . 18,000,000 
 Bills Discounted, 3,000,000 
 
 Loans on Bills, . 5,000,000 
 
 Advances on Stocks, 3, 1 1 9,440 
 Notes, . . 9,408,480 
 
 Gold and Silver Coin, 897,871 
 
 ^54,146,014 
 
 It will be observed that this amended form 
 of return makes some changes in addition to 
 that setting forth the bankers' money. To 
 these I shall revert later on. Confining the 
 attention in the meantime to this one item, 
 let us try to estimate the influence it might 
 have on banking if made compulsory every 
 week. At the particular date chosen for illus- 
 tration, it is difficult to say what the exact 
 effect of a return like that would have had 
 upon the public mind. I am disposed to think 
 that it would have reassured people, so far 
 as the outside banks were concerned, but it
 
 BANK OF ENGLAND WEEKLY RETURN. I I 3 
 
 might have alarmed them about the Bank of 
 England. People would have said, — If we 
 draw our money from the banks, there will 
 be a suspension of the Bank Act, for the 
 Bank of England has not enough money on 
 hand to pay the other bankers out. And a 
 suspension of the Bank Act is the usual end 
 of such a state of affairs. We have been 
 saved from it in the late crisis merely by 
 the dulness of business, and the comparatively 
 limited necessary demand for accommodation. 
 Had the City of Glasgow and other bank 
 failures occurred when trade was in full career, 
 the suspension of the Bank Act would have 
 followed as a matter of course. Its non- 
 suspension was therefore due to the slackness 
 and unprofitableness of business. Surely this 
 cannot be deemed a satisfactory position by 
 anybody ; and since we cannot alter our bank- 
 ing habits, we must, so to say, put the drag 
 on. The weekly exhibit of what the Bank 
 of England owes other banks would, in all 
 likelihood, prove a very efficient drag upon 
 highly speculative banking. It would, for one 
 thing, compel the maintenance of a much 
 larger reserve, and that in turn would help 
 to prevent the flooding of the market with 
 millions of money that ought to be kept in 
 hand, and to restrain that competition which 
 
 H
 
 1 14 THE DEFECTS OF THE 
 
 is always driving discount rates down to the 
 point where the export of bulHon sets in. 
 As banking is now carried on, there is a 
 constant tendency for the vakie of money to 
 run to extremes. Directly bankers and others 
 get over a scare, during which they all 
 hold the purse strings tight, they rush into 
 the market and outbid each other for business, 
 with every penny they can scrape. Under 
 this competition rates recede, and, especially 
 if business be slack, money may in a few weeks 
 pass from a state of extreme tension and high 
 banking profits to one of diseased profusion. 
 This happened in the crisis at the end of last 
 year. For a few weeks, money ruled at rates 
 varying from 6 to 8 and 9 per cent, but di- 
 rectly the New Year was turned, and bankers 
 felt they w^ere somewhat more at ease as 
 well as free from scrutiny, rates fell away, 
 until by the end of January discounting was 
 done at less than 3 per cent. This could 
 hardly occur did every week reveal to the 
 nation what the bankers were keeping by way 
 of reserve, for these bankers would not dare to 
 deplete that reserve to the extent they now 
 do with impunity. The accommodation given 
 by the banks would no doubt be less under this 
 system than it is now, and the profits might 
 also be less, though that is doubtful, but
 
 BANK OF ENGLAND WEEKLY RETURN. II5 
 
 all these drawbacks could be endured with 
 equanimity for the sake of greater financial 
 stability. There is no greater curse to our 
 trade at present than the reckless lending 
 to all kinds of borrowers which prevails, 
 and few more pernicious habits than the 
 habit of paying huge bank dividends. In no 
 other country in the world do banks yield 
 returns such as they give here, not even in 
 countries like the United States, where the 
 value of money is, as a rule, much higher 
 than with us. This reform in the mode of 
 treating the bankers' balances is therefore 
 one which must be insisted upon at any cost, 
 as the readiest and simplest means of affording 
 some check to our banking recklessness, and 
 as a complement of the universal half-yearly 
 balance-sheets which all banks should be com- 
 pelled by law to furnish under audit. 
 
 This, however, is not all that we must de- 
 mand from the Bank of EnHand. It is a 
 joint-stock trading bank just like its neighbours, 
 and ought to be made to conform to the law in 
 the same way as its neighbours. If they are to 
 be compelled to publish half-yearly balance- 
 sheets, it must not be allowed wholly to avoid 
 a similar obligation. At present it publishes 
 nothing except the imperfect weekly return, 
 and outsiders have the dimmest possible con-
 
 Il6 THE DEFECTS OF THE 
 
 ception of the extent and character of its opera- 
 tions. To make reform in this direction com- 
 plete, this return will have to be remodelled. And 
 inasmuch as the Bank of England has features 
 in its business due to its Government connec- 
 tion which no other bank has, certain special 
 items ought to be set out in its weekly return, 
 both as a help to the market in following the 
 movements of credit, and as compensation for 
 the absence of a half-yearly balance-sheet. 
 
 A common fallacy attributes to the Bank of 
 England a large bill discounting business, where- 
 as in point of fact its bills form but a small part 
 of its assets in ordinary times. In former years 
 it included these separately in its annual Parlia- 
 mentary return, but since 1857 I believe that 
 practice has been discontinued. On referring 
 back to the figures for that and previous years, 
 I find that this item of account frequently ranks 
 below ^2,500,000, and for many years averaged 
 from ^4,000,000 to ^5,000,000. Occasionally 
 in panic times, or when the bank had by some 
 special cause obtained temporary control of the 
 outside money market, the amounts under dis- 
 count would rise to ^8,000,000 or ^9,000,000, 
 and in the panic of 1857 they rose one week 
 to nearly ;!^ 1 8,000,000 ; but these exceptional 
 times must only be taken as proving the rule. 
 In ordinary times the Bank of England dis-
 
 BANK OF ENGLAND WEEKLY RETURN. I T 7 
 
 counts little, and of late years has probably 
 done less business in this way than formerly. 
 It would not surprise one to find that the 
 assets under this head were frequently nearer 
 ^1,000,000 than ^3,000,000 during the past 
 four or five years. 
 
 The Bank of England, however, frequently 
 lends a good deal of money on bills pawned 
 with it by bankers and bill discounters outside, 
 and as the pawning always, when it becomes 
 extensive, indicates pressure on the outside 
 market, the items ' discounts ' and ' pawned 
 bills ' ought to be clearly separated in the 
 weekly return. 
 
 In like manner, the extent to wdiich the 
 Bank of England traffics in stock ought to be 
 distinguished. I am far from saying that it is 
 wronof for the Bank to do this. On the con- 
 trary, there are many reasons fairly adducible in 
 support of the practice, not the least being the 
 absolute immunity of the Bank from anything 
 like a run on its deposits. But all the same 
 this business ouo-ht not to be hid, were it for no 
 other reason than that afforded by the necessity 
 for keeping the bankers' reserve intact. The 
 bankers' money is always liable to be withdrawn, 
 and it would be far better for the banking 
 credit of the country w^ere the Bank of Eng- 
 land to charge the individual institutions a
 
 Il8 THE DEFECTS OF THE 
 
 commission for keeping- their reserves, than 
 that it should invest any portion of the money 
 in stocks, however good the stocks might be. 
 
 Apart from this special plea there is the 
 strong one of general utility. As now framed 
 the greatest monetary experts of the City have 
 often the utmost difficulty in determining 
 what the present return means, and often 
 guess wrong. Private stock - dealing on the 
 part of the bank, trafficking in loans to the 
 Government, in pawned bills, in temporary 
 advances on the security of stocks — these and 
 other peculiar features of the Bank of Eng- 
 land's business, are all more or less wrapped up 
 together in an inextricable way, which is very 
 unfair to the banking community. Therefore 
 the return ought to be remodelled in the manner 
 above set forth. It would then form a weekly 
 key to the positions of the money market of in- 
 estimable value, as well as an admirable corol- 
 lary to the half-yearly balance-sheets published 
 by the other banks. By this means, and with- 
 out attempting any revolution in the banking 
 habits of the country, we should gradually 
 attain to something like a banking system, 
 and banking statistics would give some trust- 
 worthy information upon the practices of bank- 
 ing credit. In short, if such a change as this be 
 not adopted it will be necessary to cause all
 
 BANK OF ENGLAND WEEKLY RETURN. IIQ 
 
 banks to make a certified return of their cash in 
 hand, and at the Bank of England once a 
 month. That, however, would be at once a 
 more clumsy and less easily managed plan than 
 the one now suggested, by which the weekly 
 return of the Bank of England may be made 
 the complement of the half-yearly balance- 
 sheets, and as such the faithful barometer of 
 banking credit.
 
 CHAPTER V. 
 
 DEPOSIT BANKING, AND THE POSITION OF 
 DIRECTORS. 
 
 In the three previous chapters we have dealt 
 with such characteristics of banking as may 
 fairly be considered easily reformable by law. 
 These, however, are by no means all that 
 demand consideration at the present time, 
 and we must now proceed to treat of certain 
 features in practical banking which cannot 
 perhaps so well be reformed by Parliament. 
 Some of these are of the highest, others of 
 only secondary importance, and amongst the 
 latter I am disposed to place ' deposit ' banking. 
 In some respects, no doubt, this is a vital fea- 
 ture in English banking habits, but I believe 
 such changes as have been advocated in pre- 
 vious chapters would in time tend much to 
 reduce its importance. Should limited liability 
 also become the universal basis of joint-stock 
 banking, there can be little doubt that the 
 dangers of deposits at interest will become 
 less than they are now. There are, however, 
 some points in which this deposit system itself
 
 THE POSITION OF DIRECTORS. 12 1 
 
 seems to demand handling by law ; and there- 
 fore it may perhaps be best to deal with it 
 now. Other matters have probably a higher 
 immediate practical importance, but being less 
 susceptible of legislative handling, come, strictly 
 speaking, under a different category. 
 
 We have seen incidentally that 'deposit- 
 money ' plays a most important part in guiding 
 the policy of nearly all bankers now-a-days. 
 They take enormous sums on deposit, and 
 are hounded on by these deposits to assume 
 dangerous risks, and to use money without 
 due regard to contingencies or common pru- 
 dence. In one sense, the custom of taking 
 money on deposit at interest may be said to 
 have bred the high-dividend craze by which 
 our joint-stock banks have become corrupted. 
 When people were making money freely, 
 they lent it to the banks, under temptation of 
 interest and apparently ample security, and 
 when trade was active, the banks made high 
 profits by this money. A bad habit was thus 
 cultivated which in tim.es of adversity the banks 
 have not the courage to abandon. They are 
 determined to make the big dividends still, and 
 therefore try to retain their deposits, which thus 
 spur them on towards many dangers. The 
 spur acts with much stronger force than the 
 actual money paid away to the depositors as
 
 122 DEPOSIT BANKING, AND 
 
 interest might lead us to suppose, because the 
 habit of looking on deposit-money as money 
 which must at all hazards be used, extends its 
 influence in the banker's mind to all the 
 money he holds. He practically draws no 
 distinction between one class of liability and 
 another, and consciously or unconsciously comes 
 to regard all the money in his keeping as 
 money which he must somehow, and at all 
 hazards, make profit upon, under peril of direct 
 loss. Big dividends and deposits thus act and 
 react on each other. This habit has grown so 
 inveterate, that a bank manager with ^100,000 
 unlent at the end of the day beyond his mere 
 ' till ' money, and his meagre Bank of England 
 balance, offers a picture of misery not easily 
 matched. To have any money in this way 
 ' over,' i.e., unlent, is almost always looked 
 upon as an actual loss of income. 
 
 That the mischiefs bred by this deposit 
 system can ever be entirely rooted out of our 
 banking habits, is, I fear, impossible. Late 
 events have checked the flow of money towards 
 that form of investment, as it may be called, 
 and some banks have, as we have seen, lost a 
 good deal of what money they once held in this 
 way. Since 1873 the London banks alone 
 have lost about ^22,000,000. The tempta- 
 tions, however, are too great for human nature
 
 THE POSITION OF DIRECTORS. 123 
 
 to resist long, and deposits may flow back 
 again directly the banks can afford, or think 
 they can afford, to bid for them, unless some 
 change is made in the law affecting deposi- 
 tors' security. Even the change to ' limited ' 
 might merely have the effect of distributing 
 deposits, not of actually reducing the gross 
 amount. Banks would become smaller in- 
 dividually, perhaps, but, on the other hand, 
 would in all likelihood grow more numerous. 
 We must therefore accept this deposit system 
 as something ingrained in our banking habits 
 too deeply to be got rid of. And yet a little 
 consideration must satisfy any unprejudiced 
 mind that on its present basis the system is 
 thoroughly unsound. 
 
 For one thing, the depositors are always the 
 first people who cause a run upon a bank. Its 
 regular customers who keep balances, and who 
 it may be get occasional advances, never as a 
 rule rush to withdraw their money at the first 
 breath of suspicion. They are too intimately 
 bound up with the interests of the bank to do 
 so. But depositors rush like scared sheep the 
 moment a whisper of danger reaches their ears 
 and demand payment. At such times the fact 
 that depositors are supposed to be obliged to 
 give notice of withdrawal, avails the bank ' run ' 
 upon very little. It dare not allow its credit
 
 124 DErOSIT BANKING, AND 
 
 to be ' blown upon,' as the slang phrase is, and 
 usually pays at once over the counter all money 
 demanded of it. The consequence is that these 
 very persons whose money may have impelled 
 a bank into taking dangerous risks, are usually 
 the first to cause its stoppage. I believe that 
 no thoroughly sound bank has ever yet been 
 pulled down by a depositors' scare ; but that 
 does not alter the fact that a liability of this 
 kind involves a danger of embarrassment such 
 as at times puts a strain on all banks. Indian 
 and Colonial banks get over this difficulty to 
 some degree by taking deposits at long dates — 
 for one, two, or three, even five years, but in the 
 end their safeguard in this respect may prove 
 their snare. The same or even greater impulsion 
 is given to them to take risks outside legitimate 
 banking business, for they usually engage to 
 pay fixed and tolerably high rates of interest 
 for the money, and they have no fear of a 
 ' run ' before their eyes, such as in the case of 
 home banks, may occasionally act as a check. 
 It is by no means improbable, therefore, that 
 these Indian and Colonial banks may ulti- 
 mately prove to be less sound and more in 
 danger from their depositors than the banks at 
 home. 
 
 Be that as it may, does not the fact seem 
 strange, that precisely those people who enjoy
 
 TFIE POSITION OF DIRECTORS. I 25 
 
 advantages from banking without taking any 
 of its risks, should be the very people to 
 whom a bank may, both directly and indirectly, 
 owe much of its troubles ? In other words, 
 is not the relation of a bank to its depositors 
 a false one, which nothing but an inflated sys- 
 tem of credit would tolerate. Let us return 
 to the City of Glasgow Bank, in order to see 
 by means, as it were, of the misery it has 
 caused, what the position of depositors actually 
 implies. That bank was due at the date of its 
 stoppage about ^8,800,000 on deposits and 
 current-account balances mostly bearing interest, 
 and on the average its debts under this head 
 had been about as much for a series of years. 
 During all that time, therefore, the owners of 
 this money had received a considerable sum 
 annually in the shape of interest, supposed to 
 be paid out of the profits of the bank. They, 
 in effect, shared in the gains, or alleged gains, 
 of the banker, and were to that extent bankers 
 themselves ; and yet, when the bank fails, they 
 claim against the estate on precisely the same 
 footing as the holders of its notes, or the credi- 
 tors on current account, without interest, or as 
 the holders of the bank's acceptances. Is this 
 arrangement just ? Can the banking ever be 
 sound which sanctions such a custom ? I think 
 not. The more it is considered, it seems to
 
 126 DEPOSIT BANKING, AND 
 
 me, the more monstrous will it appear that 
 there should be no distinction between the 
 risks of the depositor and those of the ordinary 
 trade creditor or note holder of the bank. As 
 has been very aptly said, a depositor is ' a 
 sleeping partner ' in the bank where he puts his 
 money, and in some fashion ought to be made 
 to share the risks of the copartnery. The un- 
 heard-of misery and loss which has fallen upon 
 the unfortunate shareholders of the City of 
 Glasgow Bank is a grim commentary upon our 
 banking customs in this respect ; and I marvel 
 how its depositors can have the face to stick 
 out for the uttermost farthing as they appear to 
 do. They certainly have no moral right to 
 payment in full ; but then morals have nothing 
 to do with the customs of modern bankingf. 
 
 For my part, I should be disposed to modify 
 any limited-liability provision which the Legisla- 
 ture might make for the benefit of distressed 
 joint-stock banks, so as to cause the depositors 
 to share the risks. Were shareholders made 
 liable for all debts of the bank up to the limit 
 of say five times the amount of the uncalled 
 capital at the outside, or to any limit they may 
 agree upon, and after that were the dejDOsitors 
 brought in as liable for the deficiency that 
 might be due to ordinary creditors, we should 
 have things on a rather more satisfactory foot-
 
 THE POSITION OF DIRECTORS. 12/ 
 
 ing. Nay, were it only provided that deposi- 
 tors must suffer deduction of all interest which 
 they had received since the date when the bank 
 became practically insolvent, much good would 
 be done. The deposit accounts of banks would, 
 no doubt, be much diminished in consequence 
 of such a law, but the condition of banking 
 generally would be much sounder. A provision 
 of that kind might make a difference of fully a 
 million sterling to the liabilities of the City of 
 Glasgow Bank shareholders alone, and it would 
 not be one whit more unjust than the law to- 
 wards these shareholders as it now stands. 
 There is no kind of investment in existence 
 which gives, legally, theoretically, or practically, 
 such immunity from risk as the customs of 
 modern English banking give to depositors. 
 The investor in consols stands to lose by his in- 
 vestment to the extent of having to sell at a 
 lower price than he paid ; and the holders of 
 the so-called * debentures ' of land and credit 
 companies are always subject to the risk that the 
 value of the assets and the realisable uncalled 
 capital of the company may prove insufficient to 
 pay them. But the depositor in an unlimited 
 bank enjoys his interest undisturbed by any 
 fear. Short of the utter collapse of banking all 
 over the country, we can hardly imagine a con- 
 dition of things which would not permit of his
 
 128 DEPOSIT BANKING, AND 
 
 being paid. The wonder to me is, that bank 
 shareholders tolerate such a one-sided bargain. 
 I am sure if the mass of them knew anything 
 about the business in which they are engaged, 
 they would not tolerate it for a day. But that 
 is just the misfortune. Parsons, widows, retired 
 schoolmasters, doctors, and all those classes of 
 people of limited means and no business know- 
 ledge, who invest in bank shares, are as utterly 
 ignorant of banking as they are of Chinese. 
 
 It might be possible by another change in 
 the law to limit the shareholder's liability almost 
 as effectively as by fixing the outside limit of a 
 bank's capital. Were no banks to be allowed 
 to take deposits at interest beyond say twice 
 the amount of the paid-up capital, the risks of 
 the shareholders would be greatly reduced. 
 But that might prove too drastic and revolution- 
 ary a remedy, and it would certainly be opposed 
 by a number of the largest banks in England, 
 as well as by the leading Scotch and Irish banks. 
 The size of many of these banks renders 
 anything like thorough legislation upon this 
 and upon other banking anomalies most diffi- 
 cult, and on the whole I am disposed to adhere 
 to the simple remedies already indicated. Pub- 
 licity and effective outside checks will do more 
 to limit shareholders' liabilities than anything 
 else, and in time may do more to change the
 
 THE POSITION OF DIRECTORS. 1 29 
 
 present swollen condition of many banks than 
 any hastily drawn law could do. If, in addi- 
 tion to the provisions made to secure publicity 
 we have some changes made in the relations 
 of the depositors to the bank in the direction 
 here indicated, time may perhaps be trusted to 
 cure the rest. 
 
 There is another point to which we must 
 turn for a moment before passing on to treat 
 of a subject which I consider of higher import- 
 ance than even deposit banking. It is the 
 position of bank directors. Since the late fail- 
 ures, this has been a subject much discussed, 
 and numerous suggestions have been made 
 with a view to increase the responsibilities of 
 directors. The result of the trial of the City 
 of Glasgow Bank directors has to some extent 
 increased the desire for a change in the constitu- 
 tion of banks in this respect. From one point 
 of view, the punishment inflicted upon these 
 directors is considered by many to be most in- 
 adequate to the offence. And bank shareholders 
 naturally say, ' We must have a greater hold 
 over our directors ; they will have to be made 
 liable for the debts of the bank in some extra- 
 ordinary way.' Some would have directors 
 made liable for the debts of the bank to an 
 unlimited extent, while the whole of the ordi- 
 nary shareholders enjoyed limited liability. 
 
 1
 
 130 DEPOSIT BANKING, AND 
 
 Others with more reason insist that the quali- 
 fications of directors should be increased, so 
 that they should always be men possessed of 
 the highest stakes in the concern ; and still 
 others would prescribe certain penalties, crimi- 
 nal and pecuniary, with a view to keep their 
 directors straight. 
 
 Most of these proposals would, I fear, prove 
 futile. Some of them would undoubtedly pro- 
 duce deterioration in the quality of directorates, 
 and others would prove a dead letter. In one 
 most important sense directors are like bank- 
 rupts ; it is almost impossible to control them, 
 for the simple reason that those most inter- 
 ested in doincr so will never take the trouble. 
 The bank shareholder usually cares for his 
 dividends alone, and so long as his directors 
 tell him a pleasant story and pay good divi- 
 dends, they are left to do as they please. 
 Hence it is more a matter of accident than 
 of good management if a board be good and 
 well fitted for its work. Were it otherwise, we 
 should not see so many incompetent, good-for- 
 nothing persons diligently following the trade 
 of director. There are numbers of impecuni- 
 ous people in the City who draw handsome 
 incomes from this trade. You will find their 
 names on the boards of half a dozen or more 
 different companies, from each of which they
 
 THE POSITION OF DIRECTORS. I31 
 
 draw fees, amountinor in the asfereeate to 
 thousands a year. It is physically impossible 
 for them to discharge the duties they thus 
 undertake, and the bulk of them are probably 
 entirely incapable of discharging them ; but the 
 shareholders tamely submit to the imposition, 
 and frequently find, should they try to kick 
 a little, that their 'boards' are so carefully 
 hedged round with safeguards as to be prac- 
 tically invulnerable. 
 
 A legislative cure for the apathy and stupid- 
 ity which suffers this kind of plague to prevail 
 is hardly conceivable. If you forbid directors 
 to elect new men to vacancies, they can always 
 manipulate the shareholders by means of 
 proxies. If you abolish proxies, the directors 
 can pack meetings, and the poorer shareholders 
 at a distance will be completely shut out from 
 any share in the affairs of the company, and so 
 on. It is always 'checkmate' against the 
 shareholders. 
 
 There are, however, some things that the 
 law could do, and especially in regard to direc- 
 tors of banks, which might have considerable 
 practical effect in checking some of the more 
 conspicuous mischiefs now visible. 
 
 First of all, the law should break up the 
 ' happy family ' system, whereby a man once a 
 director may be always a director. It ought to
 
 I ^ 2 DEPOSIT BANKING, AND 
 
 be compulsory for a certain proportion of the 
 board of a bank — say two directors — to retire 
 every second or third year, and to be inehgible 
 for re-election for at least another two years. 
 That provision would not disturb the continuity 
 of the board, and yet it would have an incalcul- 
 able indirect effect in checking abuses. Fur- 
 ther, and as complement to this provision, some 
 effort should be made to make shareholders 
 take some kind of practical influence in their 
 affairs, by making them the sole electors of 
 new members of the board. It should be pro- 
 vided that a list of at least five shareholders, 
 holding the necessary qualification, and willing 
 to act, should be forwarded to the shareholders 
 a fortnight before the half-yearly meetings, for 
 the purpose of voting, the two names having 
 the majority of votes on the scrutiny to be the 
 new members of the board. Practically that 
 provision might not be worth much, but it 
 would be entirely the shareholders' fault if it 
 were not. The receiver of these votes might 
 also be some person other than the board 
 or the managers of the bank, such as, say, 
 its leeal adviser, and the scrutineers should 
 always be two shareholders, elected by ballot 
 by those present at the half-yearly meeting. 
 
 Beyond these provisions there is, I believe, 
 little that the law could do, unless it were
 
 THE POSITION OF DIRECTORS. 1 33 
 
 to render plurality of directorships illegal. 
 That would be a most valuable law could it 
 be worked, and above all for banks, w^here a 
 director's duties, if faithfully performed, are of 
 the most arduous kind. There are many 
 directors who attend their bank daily and work 
 a heavy day's work every day in the week, and 
 such men could not possibly discharge the 
 duties on half-a-dozen or a dozen boards. If, 
 however, such a law were enforced, it would be 
 imperative upon shareholders to raise the scale 
 of directors' remuneration. At present bad 
 directors, who form the majority, are over-paid, 
 and good directors are under-paid. It would, 
 therefore, be a wise and almost essential corol- 
 lary to such a law to reduce the number and 
 increase the pay of directors ; and that is far 
 more than bank shareholders, or any other kind 
 of shareholders, are prepared to do. 
 
 There is but one other point calling for 
 notice before I leave this subject. Much has 
 been heard about directors' advances from the 
 banks of which they are the head. Naturally 
 recent discoveries have evoked a orood deal of 
 feeling on this subject, and it is in the main a just 
 feeling. Yet it is hardly possible to lay down 
 a hard and fast line of conduct for directors in 
 regard to these advances. They may be, and 
 often are legitimately given, and might, if pro-
 
 134 DEPOSIT BANKING, AND 
 
 perly restricted, afford as profitable and safe 
 business to the bank as any that it could do. 
 The chief danger arising from the practice is its 
 secrecy. If a member of a board can get loans 
 from the manas^ers without the coo^nisance of 
 the board, he may ruin the bank, but if they are 
 made in the ordinary way they may perhaps be 
 safely made. At all events, the remedy for this 
 evil, if it be a serious evil, lies with the share- 
 holders themselves, not with the Legislature. 
 They must judge of this business for themselves ; 
 and if they judge it unsafe or unwise to grant 
 accommodation to members of their boards, they 
 must pass laws to that effect, either prohibit- 
 ing advances altogether, or restricting them to 
 amounts which may be considered safe. We 
 must not forget that some of the best class of 
 bank directors are men engaged in business, 
 who have bills to discount just as other mer- 
 chants may have ; and if these are to be abso- 
 lutely precluded from discounting at their own 
 bank, they must perforce carry their business 
 elsewhere. Bill discounting is a form of 
 making advances just as liable to grow into an 
 abuse, as loans on security, or for that matter, 
 without security, and a hard and fast rule would 
 affect the one as much as the other. 
 
 The danger of a time like the present is 
 panic legislation, and I feel sure that any legis-
 
 THE POSITION OF DIRECTORS. I35 
 
 lation upon this point would partake of that 
 character. What is required is not more laws, 
 but more intellio-ence and o-reater common 
 sense in conducting banking business. The 
 mere prospect of a periodical bank audit would 
 practically do more to check abuses of this 
 nature than any legal restrictions which could be 
 devised, for corrupt directors could always find 
 means to evade the statutes, but the difficulty 
 of hoodwinking a professional auditor, wholly 
 unconnected with the bank save in a professional 
 capacity, would probably in most cases stop 
 mischief of this kind at a very early stage. To 
 keep him straight, he might, in addition to his 
 deposit of caution-money, be held liable, con- 
 jointly with the directors, for all money paid 
 away as dividends out of unrealised profits. 
 
 We must now leave this part of the subject, 
 and pass on to one which, though more 
 vitally important, is yet one with which the 
 law cannot be expected in any direct sense 
 to interfere.
 
 CHAPTER VI. 
 
 BANK ACCEPTANCES AND LOSSES IN THE 
 ASIAN TRADE. 
 
 No part of modern banking- has been so pro- 
 minently before the pubHc mind of late as the 
 business of accepting bills. The collapse in 
 Glasgow was seen to be due in great measure 
 to the enormous extent to which the City Bank 
 there had carried this part of its business. At 
 the date of its stoppage, it had nearly ^2,800,000 
 in ' acceptances ' current in the discount market, 
 and the immediate cause of its stoppage was the 
 impossibility of finding means to retire such of 
 these bills as were falling due. The credit of 
 the bank got whispered about, and its paper 
 was refused, with the result that the bank 
 stopped within a few months. When the inves- 
 tigators' report disclosed a deficit of ^6,800,000, 
 including the capital and reserve, people's minds 
 became filled with strong distrust about all 
 ' accepting ' banks, as a natural consequence. 
 In the unreasoning fear of the hour they per- 
 haps too readily confounded all kinds of 'accept- 
 ing' with the City of Glasgow Bank kind.
 
 LOSSES IN THE ASIAN TRADE. 1 37 
 
 A severe drain accordingly set in upon more 
 than one other bank known to have large com- 
 mitments in this way, and there is little doubt 
 that some of them continue still to suffer. It is 
 important, therefore, that the facts should be 
 known regarding this kind of business, so that, 
 if possible, further mischief may be avoided. 
 All accepting business is not bad business, but 
 much of it is unquestionably very imprudent, 
 and a orood deal of it hovers on the confines of 
 the absolutely bad, to an extent that may be in 
 the end highly mischievous. The public ought, 
 if possible, to learn the facts, so that they 
 may act with judgment ; and bank shareholders, 
 above all, should lose no time in trying to com- 
 prehend the nature of the business which they 
 tamely suffer their directors to commit them to. 
 With a view to throw some light on this sub- 
 ject, I propose in this chapter to try and 
 explain — (i) What an acceptance is ; (2) Some 
 of the modes adopted by banks in conducting 
 'acceptance' business ; and (3) To discuss gene- 
 rally the principles which ought to guide us in 
 determining whether ' acceptance ' business can 
 be considered a safe kind of business for any 
 bank. 
 
 First, As to the nature of an acceptance. 
 At the very outset the reader should disabuse 
 his mind of the notion that an acceptance is, by
 
 1^8 BANK ACCEPTANCES AND 
 
 J 
 
 the nature of it, a bad security. There could be 
 no greater mistake. What are called ' accept- 
 ances ' are nothino- more nor less than bills of 
 exchange, and the word has only by custom 
 become, as it were, the special property of 
 bankers' bills of exchange. If a merchant in 
 London has bought goods in, say, Melbourne, 
 the seller there would, in the ordinary course of 
 business, draw upon him for the money which 
 the London merchant had agreed to pay. On 
 the arrival of the bill, the latter would ' accept ' 
 it, payable at a given date, and it would then 
 probably find its way into the money market 
 for discount as Mr. So-and-so's * acceptance.' 
 A document of this kind is in no respect essen- 
 tially different from an inland bill of exchange, 
 which a merchant in a large distributing centre 
 may draw upon a country retailer. It is a 
 document representing the value of a certain 
 quantity of goods, which the retailer has bought 
 at a certain price, and his ' acceptance ' of the 
 wholesale dealer's draft or bill, payable three or 
 four months after date, is neither more nor less 
 than his ' promise to pay ' the cash for the 
 goods at that date. In the belief that he will 
 be able to fulfil that jDromise, the banker or bill 
 broker ' discounts ' this bill or acceptance just 
 as he would the Melbourne draft, i.e., he ad- 
 vances the wholesale dealer the amount stated
 
 LOSSES IN THE ASIAN TRADE. 1 39 
 
 on the draft, less so much per cent, retained as 
 profit for lending the money. 
 
 This is done all the more readily that the 
 money lender has, in addition to the security of 
 the acceptor, the security of the drawer, who is 
 bound by law to pay back the money advanced 
 on the bill should the acceptor fail to do so. 
 The advantages of an arrangement of this kind 
 are obvious enough, since we see that by it the 
 buyer of the goods gets time to sell them again 
 before being called on to furnish the money, 
 while, on the other hand, the seller is at once 
 put in possession of means wherewith to enter 
 upon new transactions, at the cost of a trifling 
 payment to the discounter. 
 
 This is briefly the nature and purpose of an 
 ' acceptance ' or bill of exchange, and in their 
 essence bankers' ' acceptances ' ought not to 
 differ in origin or purpose from the bill of an 
 ordinary merchant. They, however, obviously 
 do in many ways differ, and we must now try 
 to find out wherein the difference lies. That 
 will bring us to the second point mentioned 
 — the various modes adopted by banks in 
 conducting their acceptance business. 
 
 The most patent fact regarding this business 
 is that, in adopting it at all, a bank is at once 
 placing itself, to a certain extent, in the position 
 of the ordinary merchant. If the bills drawn
 
 140 BANK ACCEPTANCES AND 
 
 represent real transactions in goods, these 
 transactions ought to have been entered into 
 by merchants, and that being so, the merchants 
 are the proper parties to draw and accept the 
 bills arising out of their dealings. They, and 
 they alone, can know intimately the character 
 and prospects of the transactions which produce 
 the bills. It is impossible that a banker can 
 watch closely the markets in Calcutta, Hong 
 Kong, Bombay, Melbourne, Dunedin, New 
 York, Paris, Antwerp, or wherever it may be, 
 and equally impossible that he can familiarise 
 himself with the movements of prices in the 
 thousands of articles which form the objects of 
 merchants' dealings. 
 
 When, therefore, a banker steps into the 
 position of the merchant, and undertakes to pay, 
 or to receive payment, for goods bought or sold 
 by the merchant, he is in a sense stepping 
 beyond his own business. That, at all events, 
 is the first and most obvious view, and if he 
 carries his accommodating disposition to the 
 extent of trustijig the merchant with the means 
 to buy or sell, he becomes a full-blown principal 
 in the transaction, with all the risks, and a 
 miniinum knowledge of the business. 
 
 Here, in a sentence, we have one leading 
 difference between what may be called safe and 
 what is certainly unsafe bankers' ' acceptance '
 
 LOSSES IN THE ASIAN TRADE. I4I 
 
 business. The City of Glasgow Bank accepted 
 bills against credits or advances of its own 
 money given to penniless adventurers, and 
 thereby became a huge trader on its own 
 account in all sorts of articles, of which its 
 managers could not possibly know anything. 
 These adventurers were, from this point of 
 view, its mere agents, and only became its 
 masters when the losses proved too great for 
 the managers to confess. But a bank may 
 accept against good security lodged, or against 
 cash even, and then it at the very worst divides 
 risks with other people. Business thus re- 
 stricted may therefore be deemed compara- 
 tively safe, if kept within well-defined and 
 narrow bounds. Altoo-ether safe it can never 
 be, for reasons which we shall discover when 
 we examine, as it is now necessary to do, 
 the actual business of bank accepting as now 
 carried on. 
 
 To simplify the matter, it will be as well to 
 leave out of sight whatever inland bill ac- 
 cepting may go on between country bankers 
 and their London agents, as also the custom, 
 prevalent with banks possessed of branches, of 
 drawing bills between one branch and another. 
 The bank acceptance, business which really 
 contains in it the elements of dangers similar 
 to that made known by the City of Glasgow
 
 142 BANK ACCEPTANCES AND 
 
 Bank, is entirely foreign business, and owes its 
 origin to a combination of circumstances easily- 
 enough explained. Confining the attention to 
 the Indian, China, and Colonial trades, which 
 are the trades by far the most fruitful in bank 
 ' acceptances,' we shall find two principal in- 
 fluences at work. One is the excessive 
 multiplication of banks, and the other is an 
 equally excessive multiplication of non-capi- 
 talist traders. In a sense we might say that 
 the multiplication of banks is the cause, and 
 the multiplication of non-capitalist traders the 
 effect, so much does the one influence react to 
 produce the other, and out of their conjunction 
 the acceptance business has arisen. An over- 
 supply of banking accommodation leads to over 
 competition for business, and when once banks 
 begin to eagerly outbid each other as lenders, 
 the mushroom trader is sure to come to the 
 fore. Instead of lending cautiously, the banks 
 struggle for opportunities to employ their 
 money, and in the struggle, inevitably come 
 to give credit to men of straw. Yet, although 
 this is true, it would be unfair to leap to the 
 conclusion that all acceptance business is thus 
 originated. With our colonies, in particular, 
 there is a consideration which must have due 
 weight in modifying a harsh rapid judgment. 
 The colonies are necessarilv filled with new
 
 LOSSES IN THE ASIAN TRADE. 1 43 
 
 men, who, by their energy and enterprise, have 
 risen to the position of considerable traders. 
 In the particular colony where they reside, 
 these men may be trusted, because they are 
 known and respected ; but on the London 
 money market, their signature to a bill would 
 be of almost no value whatever. To help 
 such men, the colonial banks step in, lending 
 them their names on bills, so as to enable 
 them to transact their business with freedom. 
 This may be perfectly legitimate business. A 
 merchant in Sydney, we shall say, instructs his 
 agent in London to buy for him ^looo worth 
 of goods. To cover the cost of the goods, the 
 merchant goes to a bank in Sydney, and ob- 
 tains, either by purchase or by the deposit of 
 security, a bank bill on London for the ;^iooo, 
 drawn in favour of the sender of the goods. 
 On the arrival of that bill in London it is ac- 
 cepted — always, I believe, in the case of colonial 
 banks, by their own London branches — more to 
 certify its genuineness than anything else, and 
 handed to the man in whose favour it is drawn, 
 who then endorses it, and offers it for discount, 
 and with the proceeds buys the goods on behalf 
 of his Sydney correspondent. Without the in- 
 termediary bank, he probably could not discount 
 the bill at all, or only at much more onerous 
 rates, because the name or credit of the actual
 
 144 BANK ACCEPTANCES AND 
 
 remitter would be comparatively unknown on 
 the market ; but by the help of the bank which, 
 as drawer and acceptor both, guarantees, as it 
 were, the genuineness of the bill, or, in other 
 words, pledges its credit for it, the paper is dis- 
 counted at once at the best rate of the day. 
 This is the best, and, indeed, the only justifiable 
 form of foreign or colonial bank acceptance ; and 
 the fact that there are many such in existence, 
 must prevent a too sweeping condemnation of 
 the system. It is a system by which honest 
 poor men may possibly work their way up to 
 wealth, since it is one which places the man of 
 small capital precisely on a level with the man 
 of laro;e means in the matter of what are called 
 business facilities. 
 
 When, however, this has been said, all has 
 been said in favour of this modern develop- 
 ment of banking. The most uninstructed 
 mind can see at once that it must be an essen- 
 tially dangerous system, because of the strong 
 temptations which it offers to competing and 
 enterprising bankers, either to grant credits, or 
 to accept too extensively, for the sake of the 
 ' profit ' of the commission charged. A cus- 
 tomer of a bank does a few transactions in the 
 fair, legitimate manner just sketched out, and 
 presently sees his way to ' a big thing,' if only 
 a little temporary credit can be got. The 
 eager banker grants the temporary credit, and
 
 LOSSES IN THE ASIAN TRADE. 1 45 
 
 loss results. To try and retrieve that loss he 
 grants another credit, and so on, till in the end 
 the small loss becomes an unbearable one. I am 
 told that this credit-giving practice, without 
 which acceptance business would not be very 
 risky, has not taken much root in the Australian 
 trade, and I trust the information is correct. It is 
 the more likely to be so that the Australian trade 
 has not of late years suffered as some branches of 
 our business have done. The extreme dangers 
 of acceptance business of this kind are only 
 developed when losses become the rule and 
 profits the exception ; and as that has been 
 the condition of the trade with the East for 
 some years now, there is, I fear, no doubt at all 
 that the banks in that trade have become more 
 or less involved. No banking practice facili- 
 tates the making of bad debts so easily as the 
 practice of lending banking credit on accept- 
 ances. A bank slips into large losses almost 
 before it can be aware of them, and it takes 
 courage to face a large loss once made such 
 as men seldom exhibit. 
 
 In well-informed banking and bill discount- 
 ing quarters, the feeling that losses have been 
 made, and undue credit given, is the chief 
 cause of the present distrust of all Eastern 
 bank acceptances. Men know very well that 
 nothing can be better than a good banker's 
 
 K
 
 146 BANK ACCEPTANCES AND 
 
 acceptance, if it is honest in its origin ; but as 
 no one can vouch for the honesty, and as trade 
 is known to be bad, suspicion prevails. Here 
 is a form common enough in the City, which 
 will at once show how impossible it is to tell 
 whether the bill represents anything or not. 
 The names are, of course, fictitious in this 
 example : — 
 
 FORM OF BANK ACCEPTANCE BILL. 
 
 Bombay, 28/A October 1878. 
 The Imperial Bank of India. 
 
 Exchange for ^2000. 
 Six months after sight of this First of Exchange (second and 
 third unpaid) pay to the order of Messrs. John Smith & Co. 
 Two Thousand Pounds sterling, value received. 
 
 For the Imperial Bank of India, 
 
 A. Jones, Manager. 
 To the British Bank, P. White, Cashier. 
 
 Leadenhall Street, London. 
 
 The 'British Bank," on receiving the bill, writes or stamps the word 'accepted' 
 across it, and the manager and a director sign below. 
 
 Now, it is ten chances to one if the bill 
 discounter, or the accepting bank for that 
 matter, knows anything whatever about John 
 Smith & Company, their standing, or busi- 
 ness ; or, if they do know about the firm, 
 they are altogether ignorant of what may be 
 called the true oriofinatino^ cause of the bill 
 in India. Presumably the bank out there 
 did not draw it of its own motion. Somebody 
 asked to have it drawn in favour of John 
 Smith «& Company, but did that somebody 
 pay cash for it, the proceeds of goods sold,
 
 LOSSES IN THE ASIAN TRADE. 1 47 
 
 or was it drawn against an uncovered credit of 
 the City of Glasgow Bank order ? There is 
 not the slightest means of answering that 
 question. All depends upon the good faith 
 of the bank which actually draws the bill. 
 So thoroughly is this the case, that the accept- 
 ing bank here does not even care to know any- 
 thing. Banks doing business in India and 
 China now almost invariably draw all their 
 larger bills on London banks, instead of, as is 
 the practice of colonial banks, on their own 
 offices in London, and these institutions take 
 absolutely no means to know whether the bills 
 they become pledged to pay in certain eventu- 
 alities, are genuine trade bills or not. They 
 trust the banks for whom they act as agents, 
 and very frequently take large responsibilities 
 upon themselves, with no more security than a 
 letter from the Eastern bank promising to have 
 money always ready for bills falling due. 
 
 Does the reader now begfin to see the dan- 
 gerous side of this ' acceptance' business for the 
 bankers concerned ? It is a business which 
 has completely revolutionised the character of 
 our Eastern trade. The banks have become 
 the common capitalists for that trade, and its 
 detailed transactions have come to be more 
 and more controlled by a class of men who, 
 having little or nothing to lose, and no credit
 
 148 BANK ACCEPTANCES AND 
 
 to maintain, are neither more nor less than 
 adventurous dependents upon the banks. 
 As such they may make fortunes in 'good 
 times,' and in bad may 'place' all their losses 
 with the banks, which, for the sake of a little 
 extra profit, took to accepting their bills. 
 
 It is, in short, to this peculiar development 
 of modern banking enterprise that we owe the 
 worst liability of banks to gigantic losses. Re- 
 vert for a moment to the history of the City 
 of Glasgow Bank, in order to find a simple 
 illustration on this point. That bank accepted 
 bills drawn by private customers against its 
 own credits, and by thus combining the 
 modern practice of ' accepting' with the old 
 Scotch custom of granting advances, practically 
 unsecured, laid itself open to prodigious loss, 
 for the very simple reason that it placed itself en- 
 tirely in the power of the customers in question. 
 It dared not refuse to 'accept' the bills drawn 
 on it by them, because the refusal would have 
 at once brought the drawers down. They had 
 little or no means outside the bank credits 
 given them, and their fall would consequently 
 have revealed the dangerous position of the 
 bank. And the bank had no compensating 
 advantage whatever to put against this abject 
 and humiliating position. It could not even 
 control the bill-drawing propensities of these
 
 LOSSES IN THE ASIAN TRADE. 1 49 
 
 dangerous customers. They knew their power, 
 and drew as they pleased, well assured that 
 the bank must accept the bills and pay them 
 so long as it had a penny of available money 
 in its coffers. Thus the credits erew lamer 
 and larger month by month^ and loss upon loss 
 was added to those previously realised. The 
 skill of this extraordinary kind of financing 
 was, in short, reduced to the level of a primi- 
 tive school-boy recreation. All that the ad- 
 venturers did was to 'whip the top.' It was 
 bound to spin while it held together. 
 
 What made the position still more masterful 
 and simple, so far as the whippers of this top 
 were concerned, was, so to say, the extreme 
 length and numerous doublings of the lash 
 w^iich they held in their hands. It wound 
 round the top in many folds and ' tails,' 
 till escape was impossible. To speak without 
 metaphor, the antiquated and pernicious habit 
 of drawing oriental and colonial bills at six 
 months after sight, enabled the adventurers 
 who controlled the City of Glasgow Bank to 
 drag it into trouble probably before its manag- 
 ers knew where they were. In these days of 
 business conducted by telegraph, and of rapid 
 communication by steam, three months after 
 date would afford ample time for the comple- 
 tion of business transactions, and there is
 
 150 BANK ACCEPTANCES AND 
 
 therefore no justification for adhering to the 
 old six months' sio^ht ' usance' for Eastern bills. 
 It would probably have been discontinued 
 before now, were not most Eastern banks, to 
 some extent, in the same kind of involvement 
 as the City of Glasgow Bank proved to be. 
 They must submit to be ' spun' by their 
 masters, and if they attempted to shorten the 
 lash, whipper and whipped might in some 
 cases come to orrief togfether. 
 
 The business grows up to the dangerous 
 point in some such manner as the following. 
 A bank grants, we shall suppose, an uncovered 
 credit of ^50,000 to a firm possessing a capital 
 perhaps of ^10,000, and either draws for the 
 firm, if the bank is abroad, or permits the 
 firm to draw to that amount. Bills, let us 
 suppose, are drawn by the firm itself and 
 accepted by the bank, and for a time all 
 goes well. Big profits and handsome com- 
 missions are realised, and nothing could be 
 more satisfactory to the bank proprietors. 
 By-and-by the current changes : losses are 
 realised instead of profits, and, in the ordinary 
 course of things, the firm would have to go 
 to the bank and say, — 'We have lost ^10,000 
 or ^20,000 of your money, besides our own 
 capital, and must stop.' That, however, would 
 be unpleasant news, and the firm probably does
 
 LOSSES IN THE ASIAN TRADE. 151 
 
 nothing of the kind. The ' six months' usance ' 
 for Eastern bills puts the power to conceal its 
 losses in its grasp, and it usually elects to do so. 
 Nothing, indeed, can be easier : the firm has 
 only to increase its commitments. It begins to 
 buy and sell recklessly for larger and larger 
 amounts, without paying any regard to profit or 
 petty considerations of that kind, and at the 
 end of a couple of years say, it may probably 
 succeed in making the loss ^200,000, if trade 
 continues adverse. Once such a respectable 
 height of insolvency has been reached, the bank 
 may, perhaps, be told the truth, because the 
 chances are that it will then submit to fall into 
 the position of the top to be spun. But how 
 can a firm with a bank credit of only ^50,000 
 get into debt ^200,000 without the knowledge 
 of the bank ? The process is simplicity itself. 
 Suppose the firm finds that at the end of a cer- 
 tain year's operations it has lost ^10,000, that 
 it feels bound to hide that loss from the bank, it 
 will first of all see how many bills it has out. Let 
 us say that it finds ^60,000 in circulation in the 
 form of acceptances by the crediting bank, and 
 that of this ^60,000, ;^20,ooo falls due in one 
 month's time, ^20,000 in three months' time, 
 and ^20,000 in four months' time on the 
 average. Should the firm's business remain on 
 its existing footing, it might probably be able to
 
 152 BANK ACCEPTANCES AND 
 
 pay the first series with proceeds of a new series 
 created on fresh transactions, and the second 
 series by still another creation on still further new 
 business ; but by the time the third series was 
 reached there might be no more money, and 
 the bank would have to be applied to for more 
 credit, with the result, perhaps, that the firm 
 would be forced to suspend payments. But if 
 the firm chooses to increase its shipments, say, 
 of cotton goods, to Calcutta or to Shanghai, all 
 this danger may be for a considerable time 
 avoided. I nstead of buying each month ^20,000 
 worth of goods, for which it gives its accept- 
 ances at six months' sight, it begins to buy 
 ^30,000, and then ^40,000, and ^50,000 
 worth. By this means the firm has ^30,000, 
 ^40,000, and ^50,000 worth of securities, 
 instead of the usual ^20,000, to cover the bank 
 for the advance it makes, and whether the 
 transactions yield a loss or a profit, is placed 
 in ample funds to meet the threatened defi- 
 ciency on the earlier bills as they fall due. 
 The accepting and credit-giving bank need for 
 a time know nothing of the motives of this aug- 
 mented business. To its managers the increase 
 in the volume of business done is of course 
 represented as increased and most flourishing 
 trade, and as all is regular and above board, the 
 game goes merrily on. Losses get piled on the
 
 LOSSES IN THE ASIAN TRADE. 1 53 
 
 top of losses, until we can imagine the following 
 colloquy between the partners of the modest 
 firm on balance-sheet day: — 
 
 Thompso7i. — ' How much have we lost last 
 year, do you say, Brown ? ' 
 
 Brown. — ' Fifty-five thousand pounds,' 
 
 Tho7Jipson. — ' Not more than that. Why, 
 what does that make altogether ? ' 
 
 Brown. — ' Well, let me see. We lost £ 1 0,000 
 in 1874; ^15,000 in 1875; ^9000 in 1876; 
 and ^35,000 in 1877. It just makes ^^104,000.' 
 
 Thompson. — ' Does it though. That's a lot 
 of money. Brown. How on earth are we to 
 meet it ? ' 
 
 Broivn. — ' I see no way except to go on. 
 We must just continue to ship more goods, 
 trusting to luck to pull us through. The 
 bank knows nothing of this so far, as we have 
 always kept the cash turning in to meet our 
 bills so well up to time that our credit is not 
 much exceeded.' 
 
 And they probably do go on, — the total of 
 bills afloat swelling like the rolled snowball, 
 till some day a financial panic or a sudden rise 
 in the value of money causes a little difficulty in 
 discounting, when the whole organisation col- 
 lapses, and the bank wakes up to find itself a 
 loser, not of ^50,000, but perhaps of ^500,000. 
 Without the facilities given by the ' six months'
 
 154 BANK ACCEPTANCES AND 
 
 usance ' custom for the multiplication of trans- 
 actions, and the duplication and re-duplication of 
 credit, this could hardly occur. That custom, 
 joined to modern business facilities, enables a 
 speculative firm to crowd many transactions 
 into the period allowed for the payment of one, 
 and as money is at once raised by bills on each 
 fresh venture, it becomes easy to pay the first 
 series of bills by the proceeds of others dis- 
 counted at later dates, and these in turn by 
 still others. All that is required, should losses 
 accrue, is an increase in the amount of the bills, 
 and if this cannot be obtained by the creation of 
 purely fictitious paper, i.e., by bills drawn for 
 mere accommodation, it is for a time managed 
 easily enough by reckless enlargement in the 
 transactions actually entered upon. 
 
 There can be no difficulty in understanding 
 how easily under such a system as this banks 
 slip into large losses unawares, or almost un- 
 awares. They may do so whether they grant 
 credits or not, if they accept bills on account of 
 private firms over whose business they, as a 
 rule, can have no control commensurate with 
 the risks they run. Hence there is but one safe 
 rule which banks can follow in this respect. If 
 they accept for private firms at all, they must fix 
 a rigid limit as to the amount which they are 
 willing to become responsible for. An accept-
 
 LOSSES IN THE ASIAN TRADE. 1 55 
 
 ance is Itself an indirect credit, because it is 
 a pledge of the credit of the bank, and no 
 bank should give such a pledge in any one 
 quarter for an amount that could in the dark- 
 est eventuality involve embarrassing losses. 
 
 This illustration, however, applies, the reader 
 may say, only to banks accepting for private 
 firms,^ — a practice not greatly followed in Lon- 
 don. The large accepting banks there usually 
 pledge their credit only for other banks trading 
 in the East, and in doing so, cannot be sup- 
 posed to run the same danger as the City of 
 Glasgow Bank did. There is some force in 
 this observation, but not in the direction people 
 commonly suppose. We have already pointed 
 out that these accepting banks do know, and 
 can know nothing, of the origin of the bills 
 they accept. In that respect they are in fact 
 worse off than the banker who accepts for a 
 private firm ; for if he be a very shrewd man, 
 he may guess at mischief, and stop it in time. 
 But the London banks which accept bills 
 drawn upon them by banks in India and 
 China cannot, in most cases, even guess what 
 the bills are for. The drawing bank intervenes 
 between them and the business men in whose 
 favour the bills w^ere drawn, and hides the 
 business done almost completely from view. 
 It arises from this, accordingly, that these ac-
 
 156 BANK ACCEPTANCES AND 
 
 cepting banks take the bills blindly. They 
 trust in the credit and standing of the drawing 
 bank, and look no further ; and thus it comes 
 that some four banks in London are under 
 acceptance at the present moment to the extent 
 of probably something like ^16,000,000, mostly 
 to Eastern banks.* I say probably, because 
 one of the banks, the London Joint- Stock, 
 which accepts perhaps more largely than any 
 other, does not condescend to set forth its 
 acceptances in its so-called balance-sheet, but 
 the sum is approximately accurate. And it 
 is surely an enormous sum for only four banks 
 to take upon their shoulders as a contingent 
 liability. These bills are all floating about 
 the discount market, and the credits of the 
 accepting banks are pledged for their re- 
 demption as they become due, at the same 
 time that it is pledged for perhaps twice as many 
 millions on deposit. The banks are thus, as 
 
 * The four banks, and the amount of their acceptances at the 
 date of last balance-sheet, are the following : — 
 
 The City Bank, ;/^3, 267,000 
 
 *The London Joint-Stock Bank, . . 4,500,000 
 The London and County Bank, . . 3,301,000 
 The Union Bank of London, . . . 4,743,000 
 
 Total, 
 
 /15, 811,000 
 
 Besides these banks, the London and Westminster, the Im- 
 perial, the Alliance, the National Provincial, and the Consoli- 
 dated Banks accept to the small aggregate amount of about 
 ^2,600,000. 
 
 * Estimated on the last statement given, which was for December 1873.
 
 LOSSES IN THE ASIAN TRADE. 1 57 
 
 has been more than once very pertinently re- 
 marked, using their credit twice over ; and, 
 except so far as the cover they have 
 received might shield them, it would clearly 
 go hard with their shareholders did the 
 drawers of the bills in any instance fail 
 to pay. This huge system of bill creating 
 cannot surely be regarded as healthy, in this 
 or in any light ; and it is a remarkable fact that 
 the most skilful and prudent bankers in the 
 city see the danger, and avoid it. The essence 
 of good banking is sub-division of risks, and 
 bankers who receive deposits at interest ought, 
 above all others, to avoid breaking that sound 
 banking rule. Their disregard of it has de- 
 moralised our Eastern trade, degraded bank 
 management into a mere writing of signatures, 
 and created in the money market a class of 
 bill discounter which, without either money or 
 credit, becomes the medium for lodging these 
 unwieldly masses of acceptances with other 
 banks and finance houses all over the city. 
 Instead of beinof a less dangerous method of 
 accepting than that of the City of Glasgow 
 Bank, this huge swelling out of bank liabili- 
 ties may in the end prove a greater. A 
 ricketty trade can be upheld by it till it 
 becomes utterly demoralised and hollow. 
 
 It is usual, however, to reply to criticisms of
 
 158 BANK ACCEPTANCES AND 
 
 this kind, that the accepting banks are always, 
 or nearly always, abundantly 'covered' by 
 bills received against their acceptances, or by 
 securities. But that is no adequate answer 
 to the charge here made. This ' cover ' — the 
 bills and securities given to the accepting bank 
 — may, in the event of business being unsound, 
 prove no adequate cover at all. It may be 
 a delusion and a snare instead. In order to 
 justify this statement, it will be necessary to 
 enter into some details ; and in the first place, 
 I shall quote here a portion of a letter from 
 Mr. W. Rathbone, M.P., printed in the Econo- 
 mist of 25th January last. Speaking of the 
 six months' usance and its results as affecting 
 the import trade from the East, he says : — 
 
 'It is argued by some persons, that even 
 in the present day some produce is not 
 delivered and paid for until the maturity of the 
 six months' bills drawn against it ; but these 
 transactions are not in the ordinary course of 
 trade, and it is to the ordinary course of 
 trade that the usance should be adjusted. In 
 any trade a certain margin of capital is neces- 
 sary as a guarantee that the persons conduct- 
 ing^ it have the means to meet the losses to 
 which all business is liable. It cannot be 
 desirable that a trade should be so conducted 
 as not to require any capital on the part of
 
 LOSSES IN THE ASIAN TRADE. 1 59 
 
 those engaged in it ; yet the import trade from 
 the East by steamer now, as, a rule, supplies 
 instead of employing capital. Drafts against 
 shipments to Europe are generally presented 
 for acceptance within a few days of the arrival 
 of the produce ; and if this be sold and delivered 
 within a reasonable time, the importer has the 
 proceeds of the sale in his hands several months 
 prior to the maturity of his acceptance. These 
 bills no longer resting on any existing transac- 
 tion, become, as you rightly put in your number 
 of the 28th December, "to a certain extent of 
 the nature of mere accommodation paper." 
 
 'The six months' usance applied to shipments 
 by steamer lays, it seems to me, a burthen- 
 some responsibility upon the prudent, while it 
 lends an aid to the reckless, and facilitates the 
 concealment of insolvency. I venture to say 
 that, but for this undue length of usance, the 
 career of the City of Glasgow Bank must have 
 come to a much earlier termination. 
 
 ' When the drafts on the importers are sold to 
 the Eastern banks, with shipping documents 
 hypothecated as security, and when these 
 banks provide funds for the purchase by six 
 months' drafts on their London agents, the 
 evil only takes another form. The merchants 
 having to discount their acceptances in order 
 to obtain possession of the documents, the
 
 l6o BANK ACCEPTANCES AND 
 
 banks receive the money months before the 
 maturity of the habiHties the funds are intended 
 to meet, and the Eastern banks' own drafts 
 then become " to a certain extent of the nature 
 of mere accommodation paper." It is no 
 wonder that most of the leading- banks object 
 to the continuance of the present system, for, 
 if the holders of large deposits at call are to 
 continue to accept Eastern paper as an import- 
 ant branch of their business, it is absolutely 
 necessary for their safety, and that of the public, 
 that this serious cause of unsoundness should 
 be removed.' 
 
 In other words, the 'converse' of the bill 
 accepting business may just be as unsound 
 as the accepting business itself. The same 
 facilities are afforded, and thus may easily 
 lead to the same results. It is quite pos- 
 sible, indeed, that these foreign bills, with 
 documents held as ' cover ' by the accepting 
 bank, may be part of the game of ruin. In 
 all probability the goods consigned by say 
 native Indian merchants to buyers in London, 
 for which the documentary bills are remitted 
 from India, belong nominally to the very same 
 people whom the banks may be supporting by 
 their acceptances. The disastrous fall in the 
 Eastern exchanges,^ — a fall due to a variety of 
 causes, amongst which the actual decline in the
 
 LOSSES IN THE ASIAN TRADE. l6l 
 
 value of silver takes but a secondary position, — 
 has induced many firms trading to the East in 
 cotton goods and the like, to try to take home 
 the proceeds of their sales in produce. They 
 are therefore buyers in the markets of the 
 East as well as sellers, and in proportion as 
 trade becomes bad both ways, shipments are 
 apt to increase. With the increase in ship- 
 ments losses also increase. Competition for 
 produce to ship home, in lieu of bills, raises 
 prices in the Eastern markets against the 
 buyer, at the same time that the over supply 
 thrown by this competition on the home market 
 sends prices here down. Over stimulation, 
 due to depressed exchanges, thus of itself in- 
 duces prodigious losses. 
 
 The state of the Mincing Lane markets at 
 the present time fully bears out the supposition, 
 that this kind of forced and unhealthy trade is 
 going on, and has been going on for some time. 
 Nothing suffices to raises prices in Eastern 
 products. On the contrary, they continue to 
 drag lower and lower, and the markets have 
 all the appearance of a glut similar to that 
 so long complained of in the import mar- 
 kets of Bombay, Calcutta, and Shanghai. 
 And what is the position of drawing and 
 accepting banks in view of such a glut ? 
 They have gathered all the business into
 
 1 62 BANK ACCEPTANCES AND 
 
 their own hands. The merchants who buy 
 in the East, pass their purchases on to the 
 bankers, who hold them as security till 
 realised ; and the merchants who sell in the 
 East, sell at the risk of the banks which draw 
 and accept for them, not at their own. All the 
 trade is thus, as it were, forced through a few 
 channels. It may be swollen both ways to 
 altogether unhealthy proportions by the free 
 use of such devices as I have sketched, by 
 recklessness, by the very fury of despair, — and 
 yet on the surface all may look smooth. But 
 suppose something comes to stop the career 
 of some very large operator, and that as a result 
 the trade suddenly contracts, what will be the 
 position of the banks ? 
 
 For one thing, they must at once become 
 the direct holders of enormous quantities of 
 produce. All the ' documents ' attached to 
 bills, which the acceptors of Eastern drafts 
 have held as ' cover,' will become in effect 
 mortgages, as Mr. Thomson Hankey pointed 
 out in a recent letter to the Times. The forced 
 retirement of the intermediary operators will 
 be equivalent to the foreclosures of these mort- 
 gages. The banks must step in and try to sell 
 the produce represented by the papers they 
 hold. These sales must be effected speedily, 
 too, because the banks have in circulation many
 
 LOSSES IN THE ASIAN TRADE. 1 63 
 
 millions of acceptances which are constantly 
 falling due, and which they must find money 
 to pay. Now, there is nothing more certain 
 in the world, I believe, than the uniformity 
 with which banks lose money when they have 
 produce warrants left on their hands. The 
 market always goes against them, be the 
 quantity of stuff great or small. Is there 
 any reason to suppose that the banks would 
 fare differently when they came into the 
 market with ^10,000,000 or ^15,000,000 
 worth of produce instead of ^10,000 ? Would 
 not the mere fact of such a huge lock up, of 
 such an urgent necessity to sell, stop dealing 
 altogether, and leave the banks face to face 
 with utter ruin ? 
 
 I am putting an extravagant and imaginary 
 case ? Nothing of the kind. The figures are 
 before ever)- one, and their meaning can be read 
 with little difficulty. Bankers openly boast 
 that against so many millions of acceptances 
 they hold so many more millions of docu- 
 mentary bills ; and that merely means that 
 they are to this extent mortgagees, holding 
 the most slippery, dangerous, and practically 
 unrealisable security that exists. Thus out 
 of the ' acceptance ' system, by means of which 
 the Eastern trade is carried on, there has 
 arisen a gigantic danger. It threatens to
 
 164 BANK ACCEPTANCES AND 
 
 paralyse all business. Under it the Eastern 
 trade labours like a dismasted ship in a 
 storm. Before it capitalists flee from that 
 trade as from a threatened plague. 
 
 In this view of the matter I have, indeed, 
 taken the most favourable standpoint. It has 
 been assumed that the accepting banks always 
 hold full nominal ' cover/ although it may be 
 of a delusive kind. But do they always hold 
 even such ' cover ' ? I believe not. On the 
 contrary, it is a common enough practice to 
 accept for an Eastern bank on a mere letter of 
 guarantee. The Eastern bank says, * We en- 
 gage to provide the money at such-and-such 
 dates to meet your acceptance of our drafts 
 within such another date ; ' and on this basis 
 the business eoes on, reachinof the griorantic 
 proportions we see. The bankers cannot 
 know the kind of trade that is being done. 
 They are utterly unable to follow or judge of 
 the markets. They 'trust' each other's 'credit,' 
 shut their eyes, and say, ' All is well.' Under 
 the facilities of the ' six months' usance,' all 
 the paper they create may be rapidly degener- 
 ating into mere ' accommodation ' paper, but 
 they know nothing of that. Goods continue 
 to be shipped both ways in large, probably 
 in augmenting quantities, and that is surely 
 enough. Whether the goods are shipped at
 
 LOSSES IN THE ASIAN TRADE. 1 65 
 
 a profit or not appears to be no part of the 
 bankers' business to ascertain. A more utter 
 demoralisation it is impossible to imagine. No 
 wonder that the private capitalists have one 
 by one been for years withdrawing from the 
 trade. Still less is it to be wondered at that 
 firms fail, and sink out of sight, without appar- 
 ently leaving any gap. The banks hide the 
 losses and go quietly on their way. Where, 
 for example, are the losses hidden of such a 
 firm as Messrs. Nursey, Kessowjee, & Com- 
 pany, which failed the other week in Bombay 
 for something Hke half a million sterling ? 
 From all that is known publicly, one would 
 think that such firms exploded in the air like 
 a bombshell, making a noise but hurting no- 
 body. But it will not always be so. There 
 is too much reason to fear that if the mischief 
 be not speedily stopped, the City of Glasgow 
 Bank will not be the only victim of depressed 
 Eastern exchanges and of trade carried on at 
 a loss. 
 
 It is impossible to leave this subject with- 
 out turning again to an unhappy product of 
 this modern development of banking touched 
 on above. The London money market has 
 been demoralised by it. Bill discounting has 
 ceased, except in two or three quarters, to 
 be done circumspectly and carefully. Hand-
 
 1 66 BANK ACCEPTANCES AND 
 
 lers of millions of money like to take what 
 they call ' big lines,' i.e., to lend in huge 
 sums. It saves trouble and makes life easy. 
 So they gather in these bank acceptances as 
 being the handiest kind of ' big line ' they 
 can get. They have the shareholders of the 
 accepting banks between them and loss, at all 
 events, and perhaps the shareholders of the 
 drawing bank also ; so what is the use of troub- 
 ling about the nature of the business done, or 
 the origin of the paper ? Debased by the 
 corrupting influence of these millions of bills, 
 that may be mere accommodation paper, gene- 
 ral banking business in the city has thus in 
 too many instances grown slovenly and slip- 
 shod. Looking at banking from the point of 
 view afforded by this analysis of the nature 
 and character of the ' acceptance ' system, and 
 what grows from it, it is difficult to avoid 
 the conclusion that one ought to have pro- 
 nounced more definitely for the limitation 
 of the liability of all bank shareholders. 
 That limitation would, perhaps, do more to 
 stop the curse than anything else short of 
 the collapse of two or three Eastern banks 
 and their London unlimited ' acceptors.' The 
 paper which these institutions manufacture 
 at need or to order, would no loneer find the 
 same ready currency in the discount market,
 
 LOSSES IN THE ASIAN TRADE. 1 67 
 
 did the bill-broker have to ask the question, 
 Will the uncalled capital of these banks cover 
 these bills, and the deposits too, in the event 
 of failure ? I am afraid, however, that the 
 actual existence of these bills in such amounts 
 only affords an additional argument against 
 any tampering with the present position of 
 shareholders in unlimited banks. They must 
 abide by their contract, and try to mend their 
 affairs gradually. Any legislative interference 
 to limit their liability now would probably 
 result in bringing the whole structure down 
 about their ears. 
 
 I have dwelt at much orreater leno^th on this 
 
 o o 
 
 acceptance question than the reader may per- 
 haps like, but it seemed absolutely necessary 
 that the true nature of it should not be mis- 
 understood. There is a lemtimate kind of bill 
 discounting for banks and an illegitimate, be- 
 tween which there is no other safe line than that 
 drawn by the sound banking principle — ' Divide 
 your risks, and lend to all men sparingly.' 
 The modern ' acceptance ' business, carried on 
 between India and China and this country, and 
 also, I fear, to some extent between the colonies 
 and this country, utterly disregards this prin- 
 ciple. The colonial banks, however, have 
 escaped all share of notice, because they draw 
 on their own offices, yet that will only make their
 
 1 68 BANK ACCEPTANCES AND 
 
 danger and risk all the greater should colonial 
 business become bad, and credits swell on their 
 books in turn. In short, if a bank accepts at 
 all, it should only do so against cash or Govern- 
 ment securities; but the safest course is to avoid 
 the business altogether. As Sir John Rose 
 wisely observed, in his speech at the recent 
 London and Westminster Bank meeting, the 
 business of accepting is a merchant's or ' mer- 
 chant-bankers' ' business, not the business of 
 a joint-stock bank, and no joint-stock bank 
 can go deeply into it without running the 
 most imminent peril of ultimate, and perhaps 
 unbearable, loss. 
 
 Before leaving this part of the subject, it 
 may be well to look further at one other point 
 closely connected therewith, which serves di- 
 rectly to illustrate the facilities with which 
 heavy losses may be incurred by banks when 
 they draw all the international business into 
 their own net. One most important factor 
 amongst the many which have of late years 
 contributed to make our Eastern trade unpro- 
 fitable, has been, as already remarked, the heavy 
 and persistent fall in the Indian and Chinese 
 rates of exchange. Not only has the fall been 
 great and long continued, but the fluctuations 
 have frequently been so violent that merchants, 
 drawers of bills, and acceptors could never be
 
 LOSSES IN THE ASIAN TRADE. 1 69 
 
 sure that business done at a profit judged by the 
 exchange rates of one day, would not result in a 
 loss when the bills founded on it came to be 
 drawn and remitted. These depressed ex- 
 changes have been one cause of prodigious 
 losses in the Eastern trade for years past, and 
 must have done a great deal to make the whole 
 trade rotten. 
 
 It would take me too much out of my way 
 to discuss the causes of this depression, for 
 they are many ; but there is one of the 
 effects of it which directly concerns every 
 Eastern bank shareholder, and some English 
 bank shareholders also. Excluding the Banks 
 of Bombay and Bengal, which, although working 
 almost exclusively with English capital, are 
 both so bound up with purely native interest as 
 to be to a large extent Indian, and therefore 
 dependent for their stability on the stability of 
 our Indian Empire,— there are seven banks in- 
 timately connected with our Eastern trade, and 
 with head offices or branches in London. These 
 seven banks have a paid-up capital amounting to 
 about ^6,000,000, and reserve funds aggregat- 
 ing nearly ^1,000,000 more. They are also 
 liable, according to their balance-sheets, for 
 about ^28,000,000 on deposit and other ac- 
 counts, and in all have thus about ^35,000,000 
 of English capital at command. Now, the
 
 I/O BANK ACCEPTANCES AND 
 
 most natural question to ask is, How have 
 these banks met the enormous depreciation to 
 which the fall in the exchanges has subjected 
 this mass of money ? Much, if not most 
 of it, was sent to the East when rates of ex- 
 change were far higher than they are now ; 
 some of it may have been remitted thither 
 when rates were far above par, as in the 
 flourishing days of the Indian and China 
 trade they often were. There is therefore 
 an enormous depreciation to face, and the 
 question is, Have these banks faced it ? In 
 their half-yearly or yearly balance-sheets, has it 
 been their habit to write down the loss which 
 this depreciation indicated before declaring 
 profits ? Clearly it was their bounden duty to 
 do this, if they were to proceed on a sound 
 footing, for they might be called on any day to 
 refund the money deposited with them, and 
 could have no surety that the exchanges would 
 recover so as to enable them to do so without 
 loss. I am afraid there is no bank in the 
 Eastern trade which has done this to the fullest 
 extent. The utmost that has been done has 
 been to write off the losses on such capital as 
 they had to bring home, whether in the shape 
 of deposits drawn out, or of adjustment balances, 
 and some of them have not, it is to be feared, 
 done even that. Men are so sanofuine in the
 
 LOSSES IN THE ASIAN TRADE. 1 71 
 
 face of heavy losses, especially when the money 
 lost is not their own, that the inclination to go 
 on and trust to the chapter of accidents is rarely 
 or ever resisted. Events may justify the hope. 
 Exchanges may rise and capital recover its 
 normal value as between England and the 
 East, why then should severe virtue be incul- 
 cated ? It is far better to make things pleasant. 
 No doubt ; but supposing the worst, what then ? 
 Would not these banks be in a most awkward 
 position if called upon to bring back intact the 
 capital lent to them before the exchanges fell ? 
 The manager of the City of Glasgow Bank was 
 not without hope even to the very last that those 
 New Zealand and Australian land properties 
 would yet pull the bank out of the slough of 
 debt into which it had fallen ; and had he been 
 able to keep its acceptances afloat for another 
 twenty years, some of the loss might have been 
 made up. But everything went against him, 
 down to the very climate of the colonies, and his 
 acceptances would no longer * float' They had 
 become suspected in the market, because the 
 glut of them had grown too great for even the 
 hardy receptive power of the London banks 
 and bill-brokers. Can the Eastern banks hope 
 to be more favoured ? They have no right to 
 hope so ; and their shareholders ought to see 
 that they are not living in a fool's paradise. I
 
 172 BANK ACCEPTANCES AND 
 
 am fully convinced that this also is a most 
 important element of danger in the present 
 state of English banking, and the longer that it 
 is shirked, the greater the danger may become, 
 A weak institution may one day succumb, and 
 drag with it institutions not in themselves 
 weak, but merely embarrassed. Looked at in 
 the light of the depressed exchanges, the whole 
 of the English capital now confided to banks in 
 India and China must be regarded as locked 
 up capital, unless these banks have put aside 
 each year an amount equivalent to the depre- 
 ciation. Some tables are subjoined which will 
 show how the matter stands. The fissures indi- 
 cate that on the deposits alone of those banks 
 there is a depreciation of nearly four and three- 
 quarter millions sterling, assuming that these 
 deposits originally stood in the books at par. 
 
 Deposits At the Exchange Showing a 
 at Date of of is. 8d. this depreciation 
 last Report, represents about of about 
 
 Agra ; Chartered of "^ 
 India, Australia, 
 and China ; Char- 
 tered Mercantile 
 of India, London, )■ ^2 3, 5 8 1,000*;^ 19,6 5 1,000 ^3,930,000 
 and China ; Delhi 
 and London ; Na- 
 tional of India ; 
 Oriental, 
 
 ""shingilr . ""! I 4^425,ooot 3,687,ooot 738,000 
 
 Total, . ^28,006,000 ^23,338,000 ^4,668,000 
 
 * Assuming that the figures in all cases have been taken at 2S. per rupee, 
 t Counted at the sterling exchange of 4s. 6d., at which rate the capital of this 
 bank is set down in its balance-sheets. 
 
 I Calculated at 3s. S^ad-, which is about the current rate of exchange now ruling.
 
 LOSSES IN THE ASIAN TRADE. 1 73 
 
 These banks ought to be compelled to state 
 how they have met this depreciation, which 
 amounts to practically one-sixth on their 
 total liabilities to the public. Supposing they 
 have met it fully, their profits in the years of 
 bad trade must have been greater than those 
 of any home bank in existence. If they have 
 not met it, what shall we say of their policy ? 
 
 This depreciation serves, however, another 
 purpose than the mere exhibition of bank weak- 
 nesses and locks-up. It gives us some feeble 
 light upon the losses of capital which must 
 have fallen upon those engaged in trade with 
 the East, whether as buyers or sellers, of late 
 years. And as the banks more and more hold 
 the threads of that trade in their own hands, 
 are more and more the controllers of it, the 
 capitalists engaged in it, how can they have 
 escaped their share in these losses ? 
 
 That is a question which I must leave those 
 responsible for their management to answer ; 
 but to any dispassionate observer the outlook 
 it presents is not of a pleasant or reassuring 
 kind.
 
 CHAPTER VII. 
 
 THE CONFUSED STATE OF THE PAPER CURRENCY, 
 
 There is but one other subject on which I 
 wish to say a few words. Like so many of 
 those already touched on, it has risen into 
 immediate notice through the City of Glas- 
 gow Bank failure ; but it is not, strictly speak- 
 ing, a mere banking question, for it affects 
 many people beyond those connected with 
 banks. The users of bank notes are the 
 people at large, and when a bank with a note 
 issue fails, many people, who never dealt 
 directly with a bank in their lives, too often 
 suffer loss. There may be reasons why we 
 should bestow little pity on some classes of 
 bank creditors, but the holder of the note of 
 a bankrupt bank deserves our utmost com- 
 miseration, and ought to be rigorously pro- 
 tected by law from loss. The disclosures 
 which first the investigators, and subsequently 
 the officials of the City of Glasgow Bank, 
 examined at the trial of the directors, made 
 regarding that bank's dealings with its gold, 
 have brought into startling relief the inade-
 
 STATE OF THE PAPER CURRENCY. 1 75 
 
 quacy of Sir Robert Peel's legislation for the 
 protection of note holders, or in other words, 
 for securing the convertibility of the note. 
 The machinery was elaborate and ingenious, 
 but it has been an entire failure — a failure 
 which constantly embarrasses commerce, and 
 now and then subjects many innocent indivi- 
 duals of the poorer sort to losses they are ill 
 able to bear. It is easy to be seen how this 
 failure has come about. Sir Robert Peel's 
 standpoint was too narrow to permit him to 
 comprehend the true causes of banking insol- 
 vency. The able writer in the Fortnightly Re- 
 view for December last says on this point : — 
 
 * Without entering upon the long and intri- 
 cate history of what is known in banking 
 economics as the " currency principle," upon 
 which Sir Robert Peel proceeded implicitly in 
 all his banking legislation, it must suffice to 
 say that the consistent object of all his measures 
 was to limit, and as soon as possible suppress, 
 the circulation of country bank notes, and 
 replace them in the first instance by notes of 
 the issue department of the Bank of England, 
 in the expectation that at no distant period the 
 exclusive function of providing a circulation 
 of notes for the whole of the United Kingdom 
 would be transferred to a single central eovern- 
 ment office. In common with the authors
 
 176 THE CONFUSED STATE OF 
 
 and expounders of the currency principle, Sir 
 Robert Peel believed that it was almost entirely 
 by the agency of bank notes, metropolitan and 
 provincial, that credit was deranged, prices 
 affected, and the foreign exchanges controlled ; 
 and believing this, his animosity to English, 
 Scotch, and Irish notes, and more especially the 
 £1 species, was intelligible. The lapse of time, 
 and the enlarged experience which lapse of 
 time has brought, aided by persistent discussion 
 of the evidence of daily facts, has shown con- 
 clusively that Sir Robert Peel was wrong, and 
 that the small party who opposed him were 
 right. It would be very difficult, if not impos- 
 sible, to find now any person of repute to deny 
 that it is variations in the rate of interest, and 
 not any changes in the mere volume of the 
 circulation with the public of convertible bank 
 notes, large or small, which affects credit, 
 influences prices, and acts on the foreign ex- 
 change. .In directing, therefore, the whole 
 force of the famous measures of 1844-5 against 
 the function of issue. Sir Robert Peel com- 
 mitted an error totally without justification in 
 sound principle, and practically full of mischief 
 and injustice, both at that time and ever since. 
 Sir Robert Peel would have liked to suppress 
 the £\ notes in Scotland and Ireland, but the 
 local opposition was too much for him. But if
 
 THE PAPER CURRENCY. I 77 
 
 he could not suppress he could limit, and as 
 regards Scotland the Act of 1845 (8 and 9 
 Vict., c. 38) did limit the future note issues of 
 the then existing Scotch banks to the average 
 of the year ended on ist May 1845. That 
 average was found to be two and three-quarter 
 millions, and for all notes issued in excess of that 
 sum the Scotch banks were required to have 
 in hand gold coin. And it will be convenient to 
 say here that the trade and transactions of 
 Scotland have gone on increasing, so that for 
 several years past the volume of notes with the 
 public has been six and a quarter millions, the 
 fund of gold coin held by the banks has been 
 and is about three and a half millions. With a 
 view to the same end, any new bank formed in 
 Scotland could not be a bank of issue ; and in 
 the event of the failure of any bank then exist- 
 ing, its right of issue became annulled. In 
 1857 this annulment was enforced in the case 
 of the Western Bank of Scotland, and will now 
 be again enforced in the case of the City of 
 Glasgow Bank.' 
 
 This extract puts the purposes of Sir Robert 
 Peel's legislation very clearly and fully before 
 the mind. He wished to aim at what may be 
 called a scientific national currency, emanating 
 from one source, and took the usual English 
 way of attaining his end. A ' compromise ' 
 
 M
 
 178 THE CONFUSED STATE OF 
 
 was effected with local interests which could 
 not then be offended, but safeguards and 
 a compensating force were devised, which 
 it was hoped might make the compromise 
 work towards the real end in view. As often 
 happens with compromises, this arrangement 
 worked altogether differently from Sir Robert 
 Peel's expectations, and the anomaly of a 
 large provincial paper currency, based on no 
 tangible security, grew, so far as Scotland and 
 Ireland were concerned, greater instead of less 
 as time went on. Not the least absurd result 
 of this currency expansion was the practical 
 working of the gold check on which Sir Robert 
 Peel appears to have relied as a means of 
 gradually forcing provincial bank notes out of 
 existence. Up to a certain point all provincial 
 banks were allowed to issue notes secured by 
 nothing at all. They were found possessed of 
 a certain credit circulation at the time of 
 the Act of 1844 and 1845, and this they 
 were left to enjoy. No inquiry worth speak- 
 ing of was made into the solvency of the 
 banks possessed of this privilege. There was 
 merely a line drawn at a given date, and the 
 banks were told — ' Within that line do as 
 you like, but you must not go beyond it with- 
 out holding five sovereigns in gold for every 
 five-pound note you issue.' Sir Robert Peel
 
 THE PAPER CURRENCY. I 79 
 
 may have hoped that this stipulation would 
 kill off these note issues, but even if he did 
 so, that affords no justification for the ex- 
 tremely slovenly provisions of this law. No 
 provision was made by it for setting apart 
 the gold held as specially a security against the 
 notes issued. It was merely a portion of 
 the general assets of the bank. The result, 
 therefore, of this absurd regulation has been 
 to clog the Scotch and Irish banks without 
 securing the note holder, and but for the fact 
 that, when the City of Glasgow Bank failed, 
 the other banks took up its notes, there would 
 have been a great deal of loss endured by thou- 
 sands who had no more connection with the 
 bankrupt concern than a man would have with 
 the Government because he carried sovereigns 
 in his pocket. The other Scotch banks may 
 lose money by thus taking up the City of Glas- 
 gow Bank notes, and saving the holders of them 
 from loss, but even if they do not, this is a 
 state of things which surely cannot be allowed 
 to continue. It not only gives some banks an 
 unfair advantage over others in business — the 
 amount of uncovered circulation being arbi- 
 trarily fixed by mere chance — but it disarranges 
 all business. Twice a year at least the 
 money market in London is disturbed by the 
 large efflux of gold to the provinces to meet
 
 l8o THE CONFUSED STATE OF 
 
 the term demands for note currency, and yet 
 that gold does nothing to secure these notes. 
 It may even be used as a means of propping 
 a rotten concern for a few months longer, as 
 was the case with the City of Glasgow Bank. 
 
 The true remedy for the existing chaos of the 
 paper currency is one that we can hardly expect 
 to see put in force, if we may judge by past ex- 
 perience. There will be again a tinkering, and 
 again compromises, if the matter be touched at 
 all. Yet that remedy is, it is my firm belief, 
 simple enough, and its application should inflict 
 no permanent injury upon any sound institu- 
 tion. In embryo it exists now. The note cir- 
 culation of the Bank of Enorland has in it the 
 elements of a national paper currency, which 
 might easily be developed to meet all fair re- 
 quirements. It simply wants expansion and 
 reform. The issue department of the Bank of 
 Engrland ouo-ht to be made the Government 
 paper currency department, placed say under 
 the control of the Bank of England, subject to 
 the supervision of the authorities of the Mint. 
 All provincial note issues should be abolished, 
 and notes of this currency department given 
 instead to London banks and provincial banks 
 as they required them. To a certain extent 
 these notes would have to be given to replace 
 existing issues, and as many country banks in
 
 THE PAPER CURRENCY. l8l 
 
 England almost live upon their note issue, it 
 might perhaps be a hardship to demand com- 
 plete and immediate ' cover ' for all the notes 
 required by these banks. To be fair, logical, 
 and safe, they ought to be made to give such 
 cover, but in lieu of that, a small tax might be 
 for a time imposed ; and in the case of private 
 and joint-stock country banks, a rigorous investi- 
 gation of their condition should be enforced, as 
 preliminary to any continuance of their issue 
 privileges. Should notes be issued beyond the 
 limit allowed by the new settlement, the issu- 
 ing office ought to be empowered to demand 
 either Government stocks (consols) or gold, 
 as security for every such issue. Without such 
 security specially assigned to the Government, 
 no excess ought to be allowed. 
 
 And although makino^ some concession to 
 
 o o 
 
 the weakness and existing privileges of banks 
 with note circulations of their own, a strong 
 step ought to be taken towards rendering all 
 note issues secured, by reducing the free limit 
 of every bank, as well as by providing for its 
 gradual extinction, with the view to ultimately 
 bring the paper currency of the country entirely 
 under Government control. It is a currency 
 that should be made to rest on the national 
 stability, just as fully as the national debt. 
 The City of Glasgow Bank failure brought to
 
 1 82 THE CONFUSED STATE OF 
 
 light a most curious and interesting example of 
 the value of a well-secured note circulation, 
 as compared with one which has practically no 
 security. It had a branch in the Isle of Man, 
 called the Bank of Mona, and, under its own 
 charter, that branch issued notes current in the 
 Island. No one lost by that circulation when 
 the parent bank failed, nor did any other bank 
 need to come to the rescue, because the notes 
 were fully secured. The following interesting 
 account of the nature of this secured note 
 circulation, sent to the Times by Mr. John 
 Kinloch Greig, the able manager of the Bank 
 of Mona, is well worth quoting : — 
 
 ' The paper currency of the Isle of Man 
 affords, I believe, the only illustration in the 
 Empire of a note circulation fully protected 
 by security. The Bank of Mona (a branch of 
 the City of Glasgow Bank), that carried on 
 business there, and had a local note issue, has, 
 owing to the stoppage of the parent establish- 
 ment, suspended payment, but its notes continue 
 still to be readily received as cash, and are even 
 sought after as an investment. This con- 
 fidence arises from the knowledge that there 
 are ample securities in the hands of the Manx 
 Government to pay them, and that until these 
 securities are realised for this purpose the 
 notes will bear the legal rate of interest —
 
 THE PAPER CURRENCY. 1 83 
 
 6 per cent. — from the date of their present- 
 ment. They doubtless will all shortly be 
 retired ; and thus, on a small scale, at least, 
 the system may be said to have proved itself 
 satisfactory, and therefore deserving of con- 
 sideration. 
 
 ' It is instituted under an Act of the Manx 
 Legislature, and the Governor and Council 
 are empowered to grant licences to banks or 
 bankers to issue notes on the assignment in 
 trust of approved securities to an extent 
 sufficient to cover the amount of the licence, 
 with the expenses of realisation in case of de- 
 fault ; and the practice is to require securities 
 10 per cent, in excess of the licensed issue. 
 The word ' issue,' however, does not there 
 mean the notes actually in the hands of the 
 public, but includes every note signed by 
 the officers of the bank, so that every note 
 the bank has in existence is covered by the 
 securities. To provide against evasion, a 
 weekly return of the notes, distinguishing 
 those in the hands of the public from those 
 in the coffers of the bank, has to be made 
 on affidavit to the Government, and notes can 
 only be destroyed and replaced by others 
 at the sight of an officer appointed by the 
 Governor. 
 
 * The securities assigned for the notes are
 
 184 THE CONFUSED STATE OF 
 
 usually first mortages on land in the Island. 
 These bear interest at from 4^ to 4^ per cent., 
 and in addition to this return for their invest- 
 ment, they of course receive the current rates 
 for loans on the sum they are able to keep out 
 in the hands of the public, which is there 
 generally 6 per cent. The land in the island 
 is mostly owned by the men who farm it, and 
 is divided into comparatively small properties, 
 seldom exceeding 300 or 400 acres. Such 
 properties are readily marketable, so that the 
 mortgages can speedily be realised or readily 
 transferred. 
 
 *An important element, however, in the 
 working of the system is the very simple 
 methods of conveyance and registration applic- 
 able to real estate, and the absence of burden- 
 some stamp duties and heavy legal fees. This 
 renders securities of this sort convenient and 
 reliable, and it will hardly be believed that the 
 whole legal expenses attending a mortgage 
 — say, of ^100,000, can be carried through 
 in the most complete and satisfactory manner 
 by the most eminent counsel there for a sum 
 under ^5. 
 
 ' These matters, I think, are deserving of 
 serious consideration at the hands of our 
 statesmen. There is one anomaly, however, 
 in these otherwise apparently excellent currency
 
 THE PAPER CURRENCY. 1 85 
 
 arrangements to which I should Hke to draw 
 attention. In the statute reo-ulatinof the note 
 issue there exists a proviso allowing the banks 
 the option of paying their notes by drafts on 
 London at twenty-one days' date. Such drafts 
 when issued cancel notes for a like amount, and 
 take their place under protection of the secu- 
 rities assigned for them to the Government. 
 Though this is not taken advantage of under 
 ordinary circumstances so far as the public 
 are concerned, it is constandy acted upon in 
 the exchanges between the banks themselves. 
 This manifesdy might be productive of great 
 injustice to an individual bank, as, assuming 
 that its connections led to its having generally 
 balances to receive, it would be subjected to 
 the loss of twenty-four days' interest, the stamp 
 duty, and the risk and expense of negotiation. 
 On an emergency it might also be resorted to 
 in dealing with the public, and the bank might, 
 so long as it remained a going concern, decline 
 to pay its notes in any other way than by twenty- 
 one day bills on London — protected, no doubt, 
 by security, but inconvertible except at a 
 sacrifice. In this way the notes of the stopped 
 bank have a positive advantage over those of 
 a going concern, as they bear interest till paid, 
 and must be paid in cash. This is a blot 
 which ought at once to be removed, and the
 
 1 86 THE CONFUSED STATE OF 
 
 whole of the notes declared to be payable 
 on demand in gold or Bank of England notes, 
 and I trust that the people of this Island may- 
 take advantage of the present favourable 
 opportunity for remedying this palpable blunder 
 in their paper currency system.' 
 
 Here we have, in many respects, exactly 
 what is wanted, if our paper currency is to be 
 secured, and it is in this direction reform must 
 run. The present defective and useless method 
 of providing for the currency wants of the com- 
 munity cannot be allowed to exist much longer. 
 They manage those things much better in other 
 countries, let alone the Isle of Man. In France 
 the note circulation is practically an affair of the 
 State, regulated by the State bank, and abun- 
 dantly secured by the large metallic reserve. 
 In Germany an approach is being made to the 
 same uniformity and the same security by a 
 more drastic application of Sir Robert Peel's 
 principles than he was permitted to try ; and in 
 the United States the failure of a national bank 
 never disturbs the currency, or causes note 
 holders loss, because the notes which the 
 national bank create and issue must all be 
 covered by security lodged with the Comp- 
 troller of the Currency. 
 
 A most interesting report upon the history 
 and present position of the National Banks of
 
 THE PAPER CURRENCY. 1 87 
 
 the United States has lately been drawn up by 
 Mr. Knox, the Comptroller of the Currency, and 
 it is well worth perusal by currency reformers 
 here. The primary origin of the National 
 Bank system of the United States was, accord- 
 ing to this, the financial difficulties incident to 
 the civil war. A means was required whereby 
 the successive and heavy issues of national 
 bonds might be taken up, and it was considered 
 that this means might be found in the creation 
 of national banks, with power to issue notes 
 covered by these bonds as security. These 
 banks, with their secured note issues, were 
 expected, at the same time, to prove a 
 corrective of many evils existing under the 
 State bank system, not the least of which was 
 the absence of security for their note issues, 
 and their consequent restriction to very narrow 
 areas. One bad effect of this restriction, and 
 the banking unsoundness it implied, was to be 
 seen in the heavy rates of exchange which 
 prevailed as between one part of the country 
 and another. Business, in short, did not flow 
 as freely as it ought to have done between 
 north and south and east and wet. 
 
 Some of the hoped-for results of the estab- 
 lishment of the national bank system have 
 undoubtedly been realised, although it has by no 
 means driven the older banks out of existence.
 
 1 88 THE CONFUSED STATE OF 
 
 There are still 4400 private and State banks 
 doing business in the Union, as compared with 
 about 2000 national banks ; and in some re- 
 spects they may be doing even more profitable 
 business, for the national banks are overloaded 
 with taxes and safeguards, till they often fail 
 to make any profit at all. Sometimes, indeed, 
 they become bankrupt. 
 
 But on the one point of the note circulation, 
 the success appears to have been complete, 
 notwithstanding the danger of inflation which 
 the system might have been supposed to in- 
 volve. The national banks had, at the date 
 of Mr. Knox's report, a total active note issue 
 of 302,000,000 dollars, and this circulation was 
 secured on deposits of Government bonds of 
 the gold value of 349,000,000 dollars. On 
 these bonds the banks, of course, draw interest, 
 subject to special taxes, as long as they remain 
 solvent ; but directly they fail, the bonds be- 
 come hypothecated to the redemption of the 
 notes in the hands of the public. This gives 
 perfect security to the note holder ; and ac- 
 cordingly, although 69 national banks have 
 suspended payment since the system was 
 established in 1863, no one has lost a dollar 
 by their notes. It is on some such basis 
 that the paper currency of this country ought 
 to be established, although more stringent
 
 THE PAPER CURRENCY. 1 89 
 
 provisions for maintaining an adequate gold 
 reserve would be required here than seems to 
 have been thought necessary in the American 
 Union. In fact, the convertibility of the bank 
 note there is a kind of fiction, so far as specie 
 is concerned. The national bank notes are re- 
 deemable in national paper currency or green- 
 backs, not necessarily in gold ; and the reserves 
 which the banks are by law compelled to hold, 
 are consequently to a great extent 'legal tender,' 
 and not specie reserves. We could never per- 
 mit our currency to be based upon so preca- 
 rious a foundation. Our currency must be in 
 future as in the past a metallic currency, for 
 which paper is a mere economising adjunct — 
 not a substitute. Hence were we to adopt the 
 United States' plan of securing the notes 
 issued to the banks by the deposit of securities, 
 we must at the same time carefully limit the 
 extent to which such issues should be allowed 
 to go. Consols might secure the ultimate pay- 
 ment of notes, but they could not always 
 secure their immediate convertibility, and 
 practically it would probably be found neces- 
 sary to keep the same amount of reserve in 
 gold, which the New York banks, say, are 
 compelled to keep in ' legal tender ' and specie 
 together, viz., 25 per cent. That would reduce, 
 of course, the profits made by the banks on
 
 IQO STATE OF THE PAPER CURRENCY. 
 
 their notes, but it would insure the stability of 
 the national currency — a quality worth a very 
 good price. 
 
 Whatever be the actual arrangement or 
 ' compromise ' ultimately decided upon by the 
 Legislature, it is obvious that the present un- 
 satisfactory arrangement cannot be allowed to 
 continue. The holder of a bank note is en- 
 titled to protection in a peculiar manner, and 
 to an extent which no ordinary bank creditor 
 can claim. To give him that protection, the 
 present clumsy, defective, and confused ar- 
 rangfements must be remodelled. The cur- 
 rency will have to cease to be in any sense 
 a private affair, and, whether it consist of 
 metal or paper, become entirely national.
 
 APPENDIX. 
 
 The following is the Abstract of the Branch 
 Accounts of the Caledonian Bank, alluded to in Note 
 I, Chapter II, 
 
 Statement of Money Lodged on Accounts Current and 
 Deposit, as at 4TH December 1878. 
 
 
 Accounts Current. 
 
 Deposit Receipts. 
 
 Total. 
 
 No. 
 
 Amount 
 
 
 No. 
 
 Amount 
 
 
 of Ac- 
 
 (with 
 
 
 of Ac- 
 
 (with 
 
 
 
 
 counts. 
 
 Interest). 
 
 
 counts. 
 
 Interest). 
 
 
 
 
 £ 
 
 s. 
 
 d. 
 
 
 £ 
 
 s. d. 
 
 £ 
 
 s. d. 
 
 Bonar-Bridge, 
 
 62 
 
 2,572 
 
 15 
 
 7 
 
 489 
 
 34,729 
 
 15 9 
 
 11,2^-^ 
 
 II 4 
 
 Burghead, 
 
 47 
 
 1,628 
 
 14 
 
 8 
 
 192 
 
 16,549 
 
 6 3 
 
 18,178 
 
 II 
 
 Cromarty, 
 
 52 
 
 1,299 
 
 13 
 
 3 
 
 195 
 
 19,535 
 
 19 6 
 
 20,835 
 
 12 9 
 
 Dingwall, 
 
 118 
 
 28,873 
 
 13 
 
 I 
 
 431 
 
 38,614 
 
 2 7 
 
 67,487 
 
 15 8 
 
 Dornoch, 
 
 40 
 
 4,963 
 
 6 
 
 II 
 
 272 
 
 20,307 
 
 19 8 
 
 25,271 
 
 6 7 
 
 Elgin, 
 
 1 02 
 
 6,889 
 
 12 
 
 5 
 
 202 
 
 17,338 
 
 12 
 
 24,228 
 
 4 5 
 
 Forres, - 
 
 123 
 
 8,769 
 
 10 
 
 
 
 415 
 
 41,494 
 
 II 7 
 
 50,264 
 
 I 7 
 
 Fortrose, 
 
 62 
 
 3,225 
 
 19 
 
 I 
 
 381 
 
 30,139 
 
 19 3 
 
 33,365 
 
 18 4 
 
 Gairloch, 
 
 49 
 
 1,577 
 
 8 
 
 10 
 
 269 
 
 18,620 
 
 9 4 
 
 20,197 
 
 18 2 
 
 Garmouth, 
 
 31 
 
 2,415 
 
 8 
 
 
 
 156 
 
 14,066 
 
 II 4 
 
 16,481 
 
 19 4 
 
 Glenlivet, 
 
 22 
 
 1,108 
 
 14 
 
 II 
 
 106 
 
 13,780 
 
 6 10 
 
 14,889 
 
 I 9 
 
 Glen-Urquhart, 
 
 36 
 
 2,381 
 
 3 
 
 4 
 
 97 
 
 4,622 
 
 18 7 
 
 7,004 
 
 I II 
 
 Grantown, 
 
 69 
 
 2,716 
 
 II 
 
 I 
 
 476 
 
 35,562 
 
 15 6 
 
 38,279 
 
 6 7 
 
 Invergarry, 
 
 18 
 
 2,061 
 
 I 
 
 II 
 
 91 
 
 15,824 
 
 5 II 
 
 17,885 
 
 7 10 
 
 Kingussie, 
 
 95 
 
 4,564 
 
 10 
 
 3 
 
 253 
 
 18,473 
 
 II 10 
 
 23,038 
 
 2 I 
 
 Lairg, - 
 
 57 
 
 4,080 
 
 2 
 
 10 
 
 394 
 
 25,836 
 
 2 
 
 29,916 
 
 3 
 
 Lochcarron, 
 
 41 
 
 4,581 
 
 
 
 II 
 
 336 
 
 17,547 
 
 2 9 
 
 22,128 
 
 3 8 
 
 Lochmaddy, - 
 
 41 
 
 1,161 
 
 6 
 
 4 
 
 218 
 
 13,570 
 
 10 4 
 
 14,731 
 
 16 8 
 
 Nairn, 
 
 162 
 
 7,707 
 
 17 
 
 8 
 
 419 
 
 46,051 
 
 10 I 
 
 53,759 
 
 7 9 
 
 Portree, - 
 
 62 
 
 2.544 
 
 18 
 
 3 
 
 243 
 
 12,862 
 
 7 7 
 
 15,407 
 
 5 10 
 
 Rothes, - 
 
 89 
 
 2,904 
 
 19 
 
 3 
 
 267 
 
 20,808 
 
 6 10 
 
 23713 
 
 6 I 
 
 Stornoway, 
 
 84 
 
 3,290 
 
 10 
 
 II 
 
 333 
 
 12,760 
 
 4 
 
 16,050 
 
 II 3 
 
 Ullapool, 
 
 32 
 1494 
 
 1,871 
 
 16 
 
 II 
 
 241 
 6476 
 
 13,136 
 
 9 
 
 1 5,007 
 
 17 8 
 
 103,190 
 
 16 
 
 5 
 
 502,233 
 
 4 9 
 
 605,424 
 
 I 2 
 
 Inverness, 
 
 465 
 1959 
 
 62,828 
 
 II 
 
 5 
 
 943 
 7419 
 
 96,831 
 599,064 
 
 8 
 12 9 
 
 159,659 
 765,084 
 
 19 5 
 7 
 
 166,019 
 
 7 
 
 10
 
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 By the same Author. 
 BRITISH TRADE PROSPECTS. 
 
 In 2 vols. 8vo, price 24s., cloth, 
 
 THE RESOURCES OF MODERN COUNTRIES: 
 
 ESSAYS TOWARDS AN ESTIMATE OF THE ECONOMIC POSITION OF 
 NATIONS AND BRITISH TRADE PROSPECTS. 
 
 By ALEXANDER JOHNSTONE WILSON. 
 
 Reprinted, with Emendations and Additions, from ' Frasbr's Magazine,' 
 
 LONDON : LONGMANS & CO. 
 
 OPINIONS OP THE PRESS. 
 
 The Times. 
 
 ' Mr. Wilson hardly does himself justice by the title and professed aim of his book. He 
 examines the economic position of foreign countries as a means of throwing light on the prospect^ 
 of English trade, but his examination is so thorough that we cannot help regretting the narrow- 
 ness of his point of view, which prevents him doing full justice to what is really his main sub- 
 ject. . . . But though Mr. Wilson has, perhaps, just missed giving the right impression of 
 the importance of this subject, no one can read the book as it stands without being struck by the 
 information it contains, the wide reach and suggestiveness of the writing, which touches very pro- 
 perly on purely political as well as economic subjects, and the Carlylean vigour of the style, which 
 is at times of an unusual heat and vehemence for a merely economic treatise, though not without 
 Its place in a popular and literary work. It is a merely negative criticism that the point of view 
 of such a book is narrow. There are not too many clever and suggestive books, and when we 
 find one we must be only too glad to have our minds rou.sed and stimulated, although the writer, 
 we may imagine, might have been more artistic and complete. . . . But while we are thus of 
 opinion that the discussion of the book is in some respects defective economically, we do not wish 
 in any way to qualify the view already expressed that the book is most deserving of study. As a 
 comprehensive political and economic survey of foreign countries, it supplies a much-felt want, 
 and the style and treatment are such as to deserve high praise, however we may dissent from 
 much of the reasoning and conclusions.' 
 
 The Saturday Review {Second Notice). 
 
 ' Mr. Wilson's book is a valuable contribution to the very scanty literature which the important 
 topic of the prospects of British trade has as yet called forth.' 
 
 The Scotsman. 
 
 'The question which Mr. Wilson sets himself to solve is, "What are the prospects of our 
 future trade?" . . . Before mentioning the results of this inquiry, it maybe said that Mr. 
 Wilson, in dealing with the question, does not speak in any half-hearted fashion. He has strong 
 opinions, and he does not hesitate to express them. It would not be wise to endorse all his 
 opinions, and, unquestionably, if some^of them are admitted to be wrong, then a good deal of 
 his argument will fall to the ground. But a careful perusal of the work will perhaps lead to 
 the conclusion that some of his opinions are not so wrong in themselves as wrong in the manner 
 in which they are stated. ... It would be wrong not to point to the fact that the chapter on 
 British India is one of surpassing interest. Mr. Wilson asserts, and apparently proves, that British 
 India at this time is actually bankrupt, and that instead of carrj^ing to the inhabitants of that 
 country good government and those advantages which will ensure to them the enjoyment of the 
 fruits of their labour, we have taken, and are fast taking, to a much greater extent the position of a 
 Government which wrings from its subjects the last farthing of their means and keeps them 
 always on the verge of starvation. It is not easy to controvert the figures he brings forward, and 
 it is certain that the remedy for the state of things he describes involves an entire change in our 
 manner of dealing with India, not only as to her government, but particulaj;Iy as to her finance 
 administration. . . . This is only a brief sketch of a book which, interesting as it is, is rather 
 melancholy in its conclusions. Nor does Mr. Wilson's dark outlook extend only to the resources 
 of modern countries. More than once in the course of his work he hints at probable great crashes 
 at home. Without speaking very directly, he tells us th.at the bankers of Great Britain have heaped 
 up securities to an enormous extent, many of which may, and probablj- will, in certain circum- 
 stances, be valueless. . . .'
 
 OPINIONS OF THE PRESS. 
 
 The Saturday Review {First Notice). 
 
 ' We know no book of the kind in which so much readable matter is collected in a moderate com- 
 pass. _ The chief questions, too. on which Mr. Wilson fi.ves the attenticn ot the reader are the right 
 questions to study carefully. He asks what in each case are the causes of stagnation ; what have 
 been the effects of foreign, and especially English, loans on the trade of each country which has 
 borrowed largely abroad; what have been the effects of Free Trade or Protection ; and what 
 are the advantages and disadvantages which in each case England will have in competing for trade 
 when and if trade revives. Mr. Wilson has much to say on all these points which deserves con- 
 sideration.' 
 
 The Economist. 
 
 ' These volumes contain a series of cleverly-written descriptions of the present economic condi- 
 tion of the principal countries of the world, and of the most important British colonies, which now 
 form some of the most powerful communities in existence.' 
 
 The Daily News. 
 
 'Traders, investors, holders of foreign stocks, will all do well to read these volumes.' 
 
 The Dundee Advertiser (First Xotice). 
 
 ' Uncompromising vigour is the characteristic of Mr. Wilson's mode of writing. He does not 
 merely take figures from blue-books and reproduce them as bare figures, he always determines 
 what the figures represent. This plain mode of dealing with them many a time shows how falla- 
 cious figures of themselves may often be, and elicits results which certainly are not looked for. 
 The author is not by any means a statistical writer. His information is invariably taken from 
 those who are on the spot, and in dealing with statistics his aim is to elucidate their signification 
 and the manner by which the facts or results they stand for are brought about.' 
 
 The Examiner. 
 
 ' There can be no doubt that Mr. Wilson is a careful and cautious writer, posse.ssing a firm and 
 masterful grasp of his subject, gifted not only with a marvellous talent for thorough economic 
 research, but also with a shrewd capacity for clearly drawing correct inferences from the most com- 
 plex statistical premises. He writes in a bright, crisp, vivid fashion, and hence his essays are 
 never dull. If political economists, as a rule, had the same knack of clear e.xpression and popular 
 presentment of dry facts, economic treatises would rarely be voted revolting reading even by sub- 
 scribers to circulating libraries. Whether Mr. Wilson's views are accepted or not, his work, rich 
 with the garnered results of patient investigation, full to overflowing with striking statistical 
 " points " and valuable but not easily accessible information upon cosmopolitan finance, must be 
 accepted as the most complete and compressed popular epitome in our language of all that is most 
 trustworthy concerning the economic resources of the great nations of the earth. Had such a 
 book as this been in existence some years ago, when the gullible investing class went madly into 
 transactions in foreign loans without knowing anything more about the concerns into which they 
 put their money than that they promised to yield from 8 to 15 per cent, of interest, a vast deal of 
 misery would have been avoided, and hundreds of happy homes probably guarded from ruin.' 
 
 The Spectator. 
 
 ' The chapter on India is the boldest chapter in the book ; some readers will call it ra.sh, or per- 
 haps by a worse name ; hardly a sin-^jle point connected with the financial or political management 
 of our Indian Empire but rouses Mr. Wilson's indignation and scorn. We are wholly unable to 
 agree with it, but it is a forcible statement of the pessimist side of the case. Vast sums of money 
 have been expended with the view of opening up and developing the resources of the country, but 
 the re.sults have been most seriously disappointing. . . . After all, we have taken up but 
 a few points, which may, however, serve as samples of this very remarkable book, and com- 
 mend it to the study of such as are interested in trade or in politics. We could have wished 
 to add a line or two on the political bearing of economic facts, and especially on the singular 
 earne.stness of political conviction that runs through Mr. Wilson's work. There is something, we 
 think, of a different fibre from sentiment in the pleasure of meeting with a financier who never 
 loses sight of the fact that all this manipulation of money and what stands for money is, in the last 
 resort, manipulation of the lives and fortune and happiness of millions of human beings.' 
 
 The Athenaeum. 
 
 ' We shall indeed see that, wide as Mr. Wilson's survey is, it is incomplete. It looks only to the 
 foreign trade of this country, and overlooks the home trade. He starts, in his own words, with the 
 assumption that " the present trade depression leads to the inference that the real source of it lies 
 outside ourselves," whereas there is sufficient reason for holding that its source lies in part not out- 
 side, but, i( we so express it, within ourselves, in our ways of doing business at home as well as 
 abroad, and in both .special causes affecting our home trade, and general causes affecting it and 
 our foreign trade together. Nevertheless the breadth, importance, and interest of the inquiry 
 which Mr. Wilson follows entitle his work to careful attention, whatever may be thought of the 
 adequacy of the induction from which his general conclusions are drawn, or of the correctness of 
 some of his views on particular points. . . . On the whole, a book of great value, not only for 
 the end the author has in ■. iew, but as an example of the sort of inquiry that ought to take the
 
 OPIXIOXS OF THE FA'£SS. 
 
 place of much barren deduction in English political economy. And if, as we hope, the solid 
 merits of the work should carr>- it into a second edition, we may also hope that the author will 
 mend some of his sentences and phrases.' 
 
 M. de Fontpertuis in ' L'Economiste Fransais.' 
 
 ' C'est la crise sous laquelle le moude industriel et commercial se dobat depuis plusieurs annees 
 qui a mis la plume dans la main de M. Alexander Johnstone Wilson ; c'est elle qui lui a inspire 
 I'idee d'une etude des forces productives el de la puissance economique de son propre pays, com- 
 parees a celles des autres grandes nations industrielles du globe. Et cette idee, il I'a poursuivie 
 dans une se'rie d'£ssays, qu'il a publics d'abord, en partie du moins, dans les Revues anglaises, 
 mais qu'il vient de reunir, en les completant, revoyant et coordonnant, en deu.\ gros volumes d'une 
 lecture fort instractive et meme fort attachante, disons-le tout d'abord.' 
 
 The Iron and Coal Trades Review. 
 
 ' Such a work as Mr. Wilson's will materially assist one to elucidate matters, as his examination 
 of the question is very thorough, and one cannot, alter a perusal of the work, but acknowledge 
 not only the large amount of information it contains, but also the suggestiveness of the author's 
 diction. He has the subject fully under command, and touches not only on political but on economic 
 matters in a very impressive manner. 
 
 The Daily Telegraph. 
 
 ' A valuable and interesting book.' 
 
 The Statist. 
 
 ' With Mr. Wilson's views on India we substantially agree. His indictment of our Indian policy 
 is, with one or two exceptions, well drawn up. We have over-engineered the country, and in- 
 volved it in debt to an extent which will seriously injure its prosperity for some time to come. Mr. 
 Wilson does his best to be fair in speaking of what has been effected in India. He is willing to 
 admit that a good deal of the works executed will eventually pay better than they do now. In the 
 main, however, he thinks he is justified in condemning the extensive scale of these works. It 
 should be remembered, however, that great pressure has been put on the Government of India to 
 "develope" India, and that by the very party to whom Mr. Wilson to all appearance belongs, 
 though on this point he disagrees with them, the " philanthropic" Liberals. . . . Mr. Wilson's 
 conclusion is, then, that we have arrived at a cr/se definitive, as M. Georges de Laveleye calls it. 
 His reasons for adopting this opinion are, we need hardly say, ver>- different from those of the able 
 Belgian economist. Mr. Wilson's analysis of the present state of nations is more searching than 
 M. de Laveleye's, and hence his conclusions are, in our opinion, the less questionable of the two. 
 . . . Altogether, the book is in our view most able and suggestive." 
 
 The Standard. 
 
 ' In the nature of things, it is impossible for an individual to conduct satisfactorily an inquiry so 
 limitless. A single country's industrial, manufacturing, and commercial condition and prospects 
 one man may conceivably understand thoroughly, but no mind, however capacious, can master 
 the inexhaustible problems which all the countries of the earth present for solution. Even if Mr. 
 Wilson had devoted aliietime to his subject, he must necessarily have failed, but the conditions under 
 which he wrote precluded the possibility of even a comparative success. . . . It is no reflection 
 upon Mr. Wilson, therefore, to say that his work is unequal, superficial, and inconclusive. Unfor- 
 tunately, it is as dogmatic as it is shallow, and ver>' irreverently controversial. The hobbies of 
 the author are trotted out whenever opportunity offers, and not seldom when it does not. This 
 is a fault for which there is no excuse. Superficiality was a necessary condition of his task, but a 
 little self-restraint would have avoided self-opinionated arrogance. Mr. Wilson is a violent 
 political partisan, and full of crotchets ; but crotchety partisanship is an unpromising frame of 
 mind in which to approach the study of economic problems.' 
 
 Mr. John Morley's Address to the Trades' Union Congress at Bristol. 
 
 ' Mr. A.J. Wilson, the author of two well-informed and comprehensive volumes on the " Re- 
 sources of 5lodern Countries," decides that the backward wave which has swept the trade of the 
 whole world downwards has been due to causes too universal to lead us to suppose that any 
 special decrease in the producing and monopolising capacities of England has occurred.' 
 
 PaU Mall Gazette. 
 
 ' It is impossible to conceive a more important subject than that which is dealt with in these 
 vcjlumes. This is nothing less than to examine into the causes of the present wide-spread depres- 
 sion, to determine what the prospect of recovery may be, and what effect the whole range of cir- 
 cumstances will have upon the future prosperity of this country. . _. . Mr. Wilson seems to 
 have done the work he set himself thoroughly ; and the conclusion which he comes to is certainly 
 as uncomfortable as can well be. From first to last he takes a gloomy view of the situation. . . . 
 So far, we must admit, the course of trade has to a great degree followed M r. Wilson's drearj' fore- 
 cast. . . . But grave as are the facts which Mr. Wilson has arranged in separate batches, and 
 still graver as thev appear when they are all summed up together, we cannot but think that he has 
 been too careful to eliminate favourable chances from his calculations. During this whole period 
 of stagnation people in general have been practising economy. Much of the capital sunk in 
 unremunerative and not immediately remunerative enterprises has been of some service to the
 
 OPINIONS OF THE PRESS. 
 
 countries in which it was spent. Bad harvests in England and droughts in India are not liltely 
 to be continuous, and a good harvest at home or a series of favourable years in India would pro- 
 duce a marked effect. The omission of these and similar considerations is a fault, for the dark 
 side of the picture is in all conscience dark enough. Another mistake is the vehemence with 
 which Mr. Wilson puts forward political views of a peculiarly shallow and uninformed character. 
 In spite of these drawbacks, however, the book is valuable at the present time." 
 
 The Englisli Independent. 
 
 ' All who are interested in the questions may study with profit the ample store of details which 
 he has grouped together on a ver>- intelligible and useful plan.' 
 
 The Birmingham Daily Post. 
 
 ' From whatever cause, our commercial supremacy appears to be menaced, and to those who are 
 disposed to investigate the facts which have a bearing on the present situation we cannot suggest 
 any more profitable reading than Mr. Wilson's able and thoughtful volumes. . . .' 
 
 The Manchester Guardian. 
 
 ' Mr. Wilson has produced a very readable book, and although we think he takes too gloomy a 
 view of the future of British trade, we acknowledge that there is much in his warnings which has 
 substantial foundation. It is mainly by giving heed to such warnings that we shall avoid the 
 dangers to which they point.' 
 
 The Nottingham DaUy Guardian. 
 
 ' To those anxious to realise the position financially of foreign countries we can heartily recom- 
 mend Mr. Wilson's work. Whether they adopt his views or not, they will find in these two 
 volumes an amount of carefully-arranged information hardly to be obtained elsewhere, and a mass 
 of shrewd comment on the causes of commercial difficulties almost more valuable.' 
 
 The Liverpool Daily Courier. 
 
 ' Whatever differences of opinion there may be about the cause of depressed trade and about the 
 prospects of improvement, the essays of Mr. Wilson will repay perusal by thoughtful men, and a> 
 the arguments are effectively arranged, and boldly and clearly stated, the book will not be found 
 dry reading by commercial men.' 
 
 The Financial and Mercantile Gazette (a Lisbon Paper). 
 
 ' By comparing the above extracts with our views on the matter which have been more than once 
 exposed in our articles on the situation of the countr>', our readers will see that, apart from some 
 inevitable exceptions, we are in perfect harmony with the ideas entertained by Mr. Johnstone 
 Wilson as to the general system followed here respecting financial and economical matters. . . .' 
 
 The Leeds Mercury. 
 
 ' There is not one of his chapters, so far as we have been able to examine them, that will not 
 repay careful reading, although he is perhaps inclined to the pessimist point of view.' 
 
 The Literary World. 
 
 ' These articles form a book demanding serious consideration from the statesman and the philan- 
 thropist. What, for instance, can be more startling than the indictment Mr. Wilson draws up 
 against British rule in India?' 
 
 The Shefaeld Daily Telegraph. 
 
 ' In fact, we know no book dealing with the science of Political Economy which is so well 
 worthy a careful study.' 
 
 The Glasgow Herald. 
 
 ' Mr. Wilson himself deprecates the idea that his work could be exhaustive, We will venture to 
 say that no individual writer could have gone deeper into the subject than he has.' 
 
 The Liverpool Albion. 
 
 ' In dealing with our foreign trade, Mr. Wilson has shown a familiarity with the history of all 
 nations, a knowledge of foreign politics, a grasp of the economic condition of foreign countries 
 in all quarters of the globe, and a power of taking a broad, practical, unimpassioned, and unpre- 
 judiced view of things which give to his opinions and conclusions a weight and significance 
 which few commercial writers can command. On the whole he takes a gloomy view of the future 
 — too gloomy we think ; and yet on one point on which the majority of people feel some alarm, 
 namely, foreign competition, he preserves perfect equanimity." 
 
 Aberdeen DaUy Free Press (Second Notice). 
 
 These volumes form one of the most valuable books on trade and finance ever published.'
 
 39 Taternostek Row, E.C. 
 London, Scpknibcr 187b. 
 
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 INDEX. 
 
 Abney's Photography 11 
 
 Acton's Modern Cookery 21 
 
 Alpine Club Map of Switzerland 17 
 
 Alpine Guide (The) 17 
 
 Amos' s Jurisprudence 5 
 
 Primer of the Constitution 5 
 
 Anderson's Strength of Materials n 
 
 Annitage s Childhood of the English 
 
 Nation 3 
 
 ./Jrwi-Zrci^/o-'j Organic Chemistry 11 
 
 Arnold's (Dr. ) Lectures on Modern History 2 
 
 Miscellaneous Works 7 
 
 Sermons 15 
 
 ■ (T.) Manual of English Litera- 
 ture 6 
 
 Arnott's Elements of Physics 10 
 
 Atelier (The) du Lys 18 
 
 Atherstone Priory 18 
 
 Autumn Holidays of a Country Parson ... 7 
 
 /ijy-^' J- Treasury of Bible Knowledge 20 
 
 Bacon's'EjSsa.ys.hY Abbott 6 
 
 ■ by Whately 6 
 
 Life and Letters, by .S/^i/rf/z/^o- ... 5 
 
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 Bailey's Festus, a Poem 19 
 
 Bain's Mental and Moral Science 6 
 
 on the Senses and Intellect 6 
 
 Emotions and Will 6 
 
 Baker's Two Works on Ceylon 18 
 
 Bairs Guide to the Central Alps 17 
 
 Guide to the Western Alps 17 
 
 Guide to the Eastern Alps 17 
 
 /?i//-ri/ on Railway Appliances ir 
 
 Barry ir" Bramwell's Lectures on Railways 
 
 and Locomotives 14 
 
 i?i:<Z6W/.(/ft'/(;?'j (Lord) Novels and Tales ... 18 
 
 Beesly's Gracchi, Marius, and Sulla 3 
 
 .S/irc^'j' Treatise on Brewing so 
 
 Blackky's German- English Dictionary 8 
 
 Blaine's Rural Sports 19 
 
 Bloxam's Metals n 
 
 Bolland and Lang's Aristotle's Politics 6 
 
 Boultbee on 39 Articles 15 
 
 Bourne s Catechism of the Steam Engine . 14 
 
 Handbook of Steam Engine 14 
 
 Treatise on the Steam Engine ... 14 
 
 Improvements in the same 14 
 
 Bowdler'sYzmWy Shakespeare 19 
 
 Bramley-Moore s Six Sisters of the Valleys , 18 
 Brande's Dictionary of Science, Literature, 
 
 and Art 12 
 
 Brassey's Voyage of the Sunbeam 17 
 
 Browne's Exposition of the 39 Articles 15 
 
 /?/-t>ri7^/;/^^'.f Modern England 3 
 
 Buckle's History of Civilisation 2 
 
 Posthumous Remains 7 
 
 Buckton's HeaUh in the House 13 
 
 Bull's Hints to Mothers 21
 
 WORKS published by LONGMANS 6^ CO. 
 
 Bull's Maternal Management of Children . 21 
 
 Bullingcrs Lexicon to the Greek Testament 8 
 
 Burgomaster's Family (The) 18 
 
 Burke s Vicissitudes of Families 4 
 
 Cabinet Lawyer 20 
 
 Campbell's Nor\vay 17 
 
 Capes' s Age of the Antonines 3 
 
 Early Roman Empire 3 
 
 Carpenter on^lQsmmswi, Spiritualism, &c. 6 
 
 Cates's Biographical Dictionary 4 
 
 Cayley's\\\a.Aoi Homer 19 
 
 Changed Aspects of Unchanged Truths ... 7 
 
 Ches7ieys Indian Polity 2 
 
 C/^t'j«tM''j Waterloo Campaign 2 
 
 C/unrh's Beginning of the Middle Ages ... 3 
 
 Co/^«jo on Moabite Stone &c 17 
 
 's Pentateuch and Book of Joshua. 17 
 
 Commonplace Philosopher in 1o\wn and 
 
 Country 7 
 
 Cotnte's Positive Pohty 5 
 
 C(;«_f;rt'£'^ Pohtics of Aristotle 6 
 
 Coningtons Translation of Virgil's ^neid 19 
 
 Miscellaneous Writings 6 
 
 Contanseaiis Two French Dictionaries ... 8 
 Co7iybeare and Howsoii's Life and Epistles 
 
 of St. Paul 15 
 
 Cordery's Struggle against Absolute Mon- 
 archy '. 3 
 
 Cotia on Rocks, by Lawrence 12 
 
 Counsel and Comfort from a City Pulpit... 7 
 
 C<?;t:" J (G. W.) Athenian Empire 3 
 
 Crusades 3 
 
 j.^ Greeks and Persians 3 
 
 Creighfo7is Age of Elizabeth 3 
 
 England a Contmental Power 3 
 
 Tudors and the Reformation 3 
 
 Cresy's Encyclopaedia of Civil Engineering 14 
 
 Critical Essays of a Country Parson 7 
 
 Crookes's Anthracen 14 
 
 Chemical Analyses 13 
 
 Dyeing and Calico-printing 15 
 
 <?/7/w/V :Manual of Banking 21 
 
 C alley's Handbook of Telegraphy 14 
 
 Curteis's Macedonian Empire 3 
 
 D'Auhignes Reformation 16 
 
 De Caisne and Le Maout's Botany 12 
 
 DeTocqueville's Democracy in America... 5 
 
 Z?/]^/')'' J Indian Famine Campaign 2 
 
 Dobson on the Ox 20 
 
 Dove's Law of Storms 9 
 
 Z>(7«;^//'j History of Taxes S 
 
 Doyle's (R.) Fairyland 13 
 
 Z)rz/;«;;w«<i'j Jewish Messiah 15 
 
 Eastlake's Hints on Household Taste 14 
 
 Edwards's Nile 17 
 
 Year in Western France 17 
 
 Ellicott's Scripture Commentaries 15 
 
 Lectures on Life of Christ 15 
 
 Elsa and her Vulture 18 
 
 Epochs of Ancient History 3 
 
 English History 3 
 
 Modern History 3 
 
 Evans' (J.) Ancient Stone Implements ... 12 
 
 (A. J.) Bosnia & Illyrian Letters ... 17 
 
 is wij'/i/.f History of Israel 16 
 
 Antiquities of Israel 16 
 
 /l^/r^zzVw'i Applications of Iron 14 
 
 Information for Engineers 14 
 
 Life 4 
 
 Fairbairiis Mills and Millvvork 14 
 
 Farrar's Language and Languages 7 
 
 Fiizwygram on Horses and Stables 19 
 
 Frampton's (Bishop) Life' 4 
 
 Francis's Fisliing Book 19 
 
 Frebisher s Life by Jones 4 
 
 /^/■t;«^£'^ English in Ireland i 
 
 History of England i 
 
 Short Studies 6 
 
 Gairdner s Houses of Lancaster and York 3 
 
 ; Richard 1 1 1 . & Perkin Warbeck 3 
 
 Ganot's Elementary Physics 10 
 
 Natural PhilosopTiy 10 
 
 Gardiner s Buckingham and Charles 2 
 
 Personal Government of Charles I. 2 
 
 First Two Stuarts 3 
 
 • Thirty Years' War 3 
 
 Geffckeu on Church and State 7 
 
 German Home Life 7 
 
 Goldziher s Hebrew Mythology 16 
 
 Goodeve s Mechanics 11 
 
 Mechanism 11 
 
 Goi-e's Art of Scientific Discovery 13 
 
 Electro-Metallurgy 11 
 
 Grant's Ethics of Aristotle 6 
 
 Graver Thoughts of a Country Parson 7 
 
 Greville' s'^QVLxraX i 
 
 Griffin s Algebra and Trigonometry 11 
 
 Grove (Sir W. R.) on Correlation of Physi- 
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 Gwili's Encyclopaedia of Architecture 14 
 
 Hale's Fall of the Stuarts 3 
 
 Handbook on Gold and Silver 21 
 
 //ar//(?)' on the Air 9 
 
 Hart-wig's Aerial World 11 
 
 Polar World 11 
 
 Sea and its Living Wonders ... 11 
 
 Subterranean World 11 
 
 Tropical World 11 
 
 //.7/^^/z/(?«'5 Animal Mechanics 10 
 
 Hcer's Primeval World of Switzerland 12 
 
 Heine's Life and Works, by Stigand 4 
 
 Helmlwlts on Tone 10 
 
 Hclmhollz s Scientific Lectures 10 
 
 Hemsley s Trees and Shrubs 12 
 
 /^^rjr/z^/' J Outlines of Astronomy 9 
 
 Hinchliff' s Over the Sea and Far Away ... 17 
 
 Hqbson's Amateur Mechanic 13 
 
 Hodgson's VhilosoYthy oi Reflection 5 
 
 //(5j-^^/(/'j- Engineer's Valuing Assistant ... 14 
 
 How'ortk's Mongols 2 
 
 Hiillalis Llistory of Modern Music 12 
 
 Transition Period 12 
 
 Hu>ne' sKssays 6 
 
 Treatise on Human Nature 6 
 
 lime's Rome to its Capture 3 
 
 History of Rome 2 
 
 Indian Alps 17 
 
 Ingelow's Poems 19 
 
 Jameson s Legends of the Saints & Martyrs 13 
 
 Legends of the Madonna 13 
 
 Legends of the Monastic Orders 13 
 
 Legends of the Saviour 13 
 
 Memoirs 4 
 
 Jenkins Electricity and Magnetism 11 
 
 Jerrold's Life of Napoleon I 
 
 Joh-ii son's Normans in Europe 3 
 
 Johnston's Geographical Dictionary 8 
 
 Jonson's (Ben) Every iVIan in his Humour 6
 
 WORKS published by LONGMANS d- CO. 
 
 y,?//i«'i Types of Genesis i6 
 
 on Second Death i6 
 
 Kaliscli s Bible Studies i6 
 
 Commentary on the Bible i6 
 
 A7v7A'5 Evidence of Prophecy 15 
 
 Ae/Zt'/j Lake Dwellings of Switzerland.... 12 
 
 Kerfs Metallurgy, by Crookes and Rohrig. 14 
 
 Kingzctt's Alkali Trade 13 
 
 Animal Chemistry 12 
 
 Kirby and Spcnce's Entomology 11 
 
 Knatchbull-IIugesscii s Fairy-Land 18 
 
 Higgledy-Piggledy 18 
 
 Kuencns Prophets and Prophecy in Israel 15 
 
 Landscapes, Churches, &c 7 
 
 Zi2^/ziz;«' J' English Dictionaries 7 
 
 Handbook of English Language 8 
 
 Lccky's History of England i 
 
 Eui-opean Morals 3 
 
 Rationalism 3 
 
 Leaders of Public Opinion 4 
 
 Lefroy's Bermudas 18 
 
 Leisure Hours in Town 7 
 
 Lessons of Middle Age 7 
 
 Lewes' s Biographical History of Philosophy 3 
 
 Z«ii/j on Authority 6 
 
 Liddell ■scad. Scott's Greek-English Lexicons 8 
 
 Lindley and Moore' s Treasury of Botany ... 20 
 
 Z/oya?' J Magnetism 10 
 
 Wave-Theory of Light 10 
 
 London Series of English Classics 6 
 
 Longman s (F. W.) Chess Openings 20 
 
 German Dictionary ... 8 
 
 (W.) Edward the Third 2 
 
 Lectures on History of 
 
 England 2 
 
 ■ Old and New St. Paul's 13 
 
 Loudo7is Encyclopaedia of Agriculture ... 15 
 
 Gardening 15 
 
 Plants 12 
 
 Lubbock's Origin of Civilisation 12 
 
 Ludlorj}' s P^Vi\ttx\zdCi\ War 3 
 
 L)Ta Germanica 17 
 
 Macaulay's (Lord) Clive, hy Boweii 6 
 
 Essays i 
 
 History of England ... i 
 
 Lays of Ancient Rome 13 
 
 Life and Letters 4 
 
 Miscellaneous Writings 7 
 
 . Speeches 7 
 
 Works I 
 
 . Writings, Selections from 7 
 
 McCullocK s Dictionary of Commerce 8 
 
 Macfarrcn on Musical Harmony 13 
 
 Macleod's Economical Philosophy 5 
 
 Economics for Beginners 21: 
 
 Theory and Practice of Banking 21 
 
 Elements of Banking 21 
 
 Mademoiselle Mori 18 
 
 Maguire's Pope Pius IX 4 
 
 .(l/a/f/ .5 Annals of the Road 19 
 
 Mannings Mission of the Holy Spirit 17 
 
 Marlozue's Doctor Faustus, by Wagner ... 6 
 
 A/■^;-J/^;;^a;/'J Life of Havelock 4 
 
 Martineau s Christian Life 17 
 
 Hours of Thought 17 
 
 Hymns 16 
 
 .^/i7?/«(/t,r'i Biographical Treasury 20 
 
 Geographical Treasury 20 
 
 Historical Treasury 20 
 
 Maunder s Scientific and Literary Treasury 20 
 
 Treasury of Knowledge 20 
 
 Treasury of Xatural History ... 20 
 
 Maxwell's Theory of Heat n 
 
 May's History of Democracy i 
 
 History of England i 
 
 Melville's Digby Grand 18 
 
 General Bounce 18 
 
 Gladiators 18 
 
 Good for Nothing 18 
 
 Holmby House 18 
 
 Interpreter 18 
 
 Kate Coventry 18 
 
 Queen's Maries 18 
 
 Memorials of Ch.irlotle Williams- Wynn 4 
 
 Mendelssohn s Letters 4 
 
 Merivale's Fall of the Roman Republic ... 2 
 
 General History of Rome 2 
 
 Roman Triumvirates 3 
 
 Romans under the Empire 2 
 
 MerrlHeld s Arithmetic and Mensuration. , 11 
 
 Miles on Horse's Foot and Horse Shoeing 20 
 
 on Horse's Teeth and Stables 20 
 
 Mill (J.) on the Mind 5 
 
 MlUsi^. S.) Autobiography 4 
 
 Dissertations & Discussions 5 
 
 Essays on Rehgion 15 
 
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