exchange which were then current, that the proceeds of those sales paid for the importation of corn, and also increased the bullion in the coffers of the Bank of Eng land. I may also say with confidence that during the whole of the year 1836, the amount of export of foreign European funds, and remittances to this country for the dividends due on them, greatly exceeded the import of such securities, and thus assisted the exchanges at a most important and eventful period. evil. That some of the joint stock banks by misma- | took place at that period, it seems by the high rates of nagement, and the introduction of a loose system of credit in the provincial districts, have aggravated the adverse circumstances in which the country has been unfortunately plunged must be allowed, and trade must ever be subject to extraordinary fluctuations, until means be adopted to control and regulate those establishments. Measures must also be taken either within, or without the bank parlour, to improve the system of the Bank of England, by which the circulation may be more speedily acted on, in case of any adverse state of the exchanges. A better founded cause for the derangement of the currency than the issues of the joint stock banks may To attempt to limit the freedom of trade, by inter- be shown to be the transaction between the govern fering with the unrestricted transfer of foreign funds, ment, the public, and the Bank of England, connected seems to me most imprudent; and, notwithstanding with the West India Loan. This measure, which re the opinion of Mr. Horsley Palmer, whose sentiments quired very skilful treatment, was managed with a are entitled to very great attention,--I have no hesita- most reckless haste. At first, the bank seemed deter. tion in saying, that he is quite mistaken in his views mined not to interfere; but, either not proof against the regarding the effect which the foreign stock transac- solicitations of the government, or having unfortunately tions have on the country. I will not go into the question listened to evil advisers, they permitted themselves to of the policy either of the introduction of foreign stock lend money on all descriptions of securities, and thus into England, or of the investments that may have been themselves gave the impulse to those speculations of made in them, but I will venture to assert, and I speak which they and the public are now the victims. Joint advisedly, that the country has gained enormously by stock banks were multiplied all over the country; railthe investments, that have up to the present time been road and other schemes covered the land; the means made, in the debts of the various solvent European for setting these projects on foot, in many cases, came governments; nay, I go still further, and assert that from the proceeds of the West India Loan, and altheir transmission has on the whole been favourable to though it was not yet assigned to the various claimants, commerce, that they have tended to regulate the ex- the funds paid in for that loan on account of the gochanges, instead of having had an injurious effect on vernment, were poured out in masses from the coffers them; and many most important payments could not of the Bank of England, who advanced money to all have been made, without the powerful assistance de-applicants, both on the deposite of that loan and on all rived from the export of foreign stock, as the most ready other government securities. Whether the governmeans of payment. It will be, indeed, difficult to show, ment stimulated the bank to act thus, I do not enhow such descriptions of foreign funds, for which a quire; my business is with the facts of the case, and ready market exists on the continent as well as in Lon-with these I must deal. don, could at all injuriously affect the exchanges. Such funds are, in truth, a universal currency, and payments, either at home or abroad, can be made, by their transmission, and the balance of trade as readily adjusted, as by an import or export of the precious metals. An event of some importance, in connection with the derangement of the circulation of the country, and which appears to have escaped observation, is the death of the late Mr. N. M. Rothschild. It is well known with what dexterity that eminent individual managed It should be anticipated, that whenever the interest the exchanges: how he prided himself in distributing of money becomes reduced to a low rate in this coun- his immense resources, so that no operation of his own try, some individuals will then look to foreign funds, should abstract for a lengthened period, the bullion from as a mode of investment paying a higher rate of interest, the Bank of England; and although it may be urged than can be obtained at home; and an export of bullion that he kept the exchanges in an artificial state, and may in consequence take place to pay for such foreign therefore produced no ultimate good, yet the sudden funds. But after all this ought to be regarded only a withdrawal of this artificial aid at an inopportune mosymptom of an overflowing currency, and should also ment, has tended to aggravate evils which his energy exhibit an excess of bullion in the coffers of the Bank and promptitude might have checked. The difficulties of England. Whenever an opposite state of things which have been experienced since his death induce arises, and money becomes more valuable in this coun- me to think, that no one ever displayed greater ability try than abroad, an export of foreign funds usually than he did in equalising the exchanges; and I attri takes place, and essentially contributes to set the ex-bute much of the late embarrassment, to the loss of changes right. that activity, zeal, and enterprise, which he always dis played in times of financial difficulty; and although the operations of his important house are still continued, it is impossible at once to replace that moral influence, which the acknowledged good judgment of the head of that opulent firm had established for himself, not only in Great Britain, but throughout the whole of the commercial world. How was the large importation of corn in the years 1829 and 1830 paid for, except by the means provided by the export of foreign funds? During those years the sales of French stock by English holders amounted to a most enormous sum. The unfortunate events that preceded the change of government in France were in progress; they had, however, no bad effect upon the price of the public funds of the European states. Whether the English holders of French stock, were alarmed at the pertinacity of the Polignac administration, or whether they were contented with the great advance in the price of the French funds, which in those years had attained their maximum, sales of securities were made to an extensive amount; and notwithstanding the very large importation of corn which ↑ Portugal is of course an exception; its payments, once suspended, although since resumed, are well known to have been furnished by loans raised in this country. Believing, as I do, that the first impulse to specula tion came from London, and not from the country, I am inclined to assert, that if the joint stock banks had not been in existence throughout the country, and by the instrumentality of the shareholders dispersed in all directions, who were both individually and collectively interested in the support of public and private credit, we should have had as severe a bank and commercial crisis in 1836 as we had in 1825, and in both instances produced by excessive speculations fostered by the im provident conduct of the Bank of England. A DEFENCE OF THE JOINT STOCK BANKS. 263 The important advantage of a system of banking, Whether there can be suggested any system of founded on the broad basis of an extended proprietary, limitation of the issue of country banks, that shall not may be shown by adverting to the fact that the Report be subject to occasional irregularities, and perhaps of the Committee of the House of Commons on Joint- bring on disadvantages even to the banks themselves, Stock Banks, published at the close of the last session more than equal to any gain that can be obtained by of parliament, exhibited one of these banks engaged in their exercising the privilege of issue, may be quesa most pernicious and extended system of over-trading tionable. On the other hand, it must be admitted, that in every department of banking, yet that very bank the joint-stock system has not yet been fairly tried, and existed and carried on business several months after undoubtedly the existing institutions in all parts of the this exposure, and when at last forced to seek assist. country ought to have a trial, under such limitation ance of the Bank of England, it has stood alone in its as parliament shall determine, in regard to the amount misfortune, and did not affect injuriously the credit of of shares, the sum to pe paid on them, and the propor any other establishment of the same kind, either in its tion that that sum should bear, to the nominal amount of own immediate neighbourhood, or in any other part of the capital of each joint-stock bank, before any hasty the country. Could any system of private country conclusions are adopted. Whenever these important ob. banking have sustained a similar shock? I believe not; jects shall be determined by act of parliament on a -and no stronger case need be produced, to show the definite and well-arranged basis, the action of the banks confidence of the population of the country districts, in on the circulation will be improved, and their usefulness the solidity and security of the joint-stock system. promoted, by the confidence they will have in them. The existence of this confidence is of the utmost im-selves, and in the stability of their own resources. portance in a national point of view, as supporting I am firmly convinced that no principle of banking, commercial credit in times of difficulty, and thereby can provide such protection to the public as a wellcontaining the very essence of national prosperity. regulated system of joint-stock banks. Security against The system affords also great advantages as a means loss must ever be the primary object, both of banking of payment at home and abroad; a joint-stock bill of and of any other important commercial undertaking; exchange is a negotiable instrument, carrying on its and whatever adds to the undoubted solvency of such face without enquiry the security that enables it to be- banks, by wise legislative enactments, must tend to come immediately discountable, and it thus serves strengthen the system on which they are founded, and as an important agent in commercial transactions. to make them more useful to the wants of the commuMerchants engaged in foreign commerce daily receive nity at large. from the Continent, joint-stock bills of exchange, drawn by the various banking establishments in Great Britain on their agents in London. These bills are remitted to all parts, to pay for commodities purchased in many cases by the humbler class of merchants, who have thus in their possession a mode of payment of a most convenient nature, negotiated entirely on the credit of the joint-stock bank that originally issued it. I venture to throw out the following suggestions for the future regulations of joint-stock banks. 1. That no joint-stock bank of issue have a less nominal capital than £500,000. 2. That no share be of less value than £50, and that at least 25 per cent. be paid up before the bank issue any notes, and within two years it be increased to 50 per cent. 3. That no bank issue more than the amount of its paid-up capital. 4. That no joint-stock bank of issue be allowed to lend money on mortgage. 5. That every bank not of issue may commence business with 10 per cent. of their nominal capital, and must within two years increase the same to 20 per cent. 6. That the proceeds of any premium received on shares either sold or issued be carried to a "premium fund," and never form any part of the dividend payable out of the current "profit and loss" of the bank. 7. That no joint-stock bank be permitted to carry on business of any kind until the amount of capital and the names of directors be advertised in the London Gazette, and put up also in a conspicuous part of the bank. 8. That within three months of a bank commencing business the proprietors be registered, and a copy of the register kept in a book open to inspection on demand. 9. That a report of the issue of every bank be transmitted weekly to the chancellor of the exchequer for periodical publication. 10. That a ready means be afforded to the public for the recovery of debts against the bank and its partners. It may hereafter become a very proper subject of enquiry, whether the legislature cannot by some salutary enactments aid the bank in the most delicate and difficult task of providing a healthy paper circulation. If it can be proved, that the very power of the jointstock banks enables them, by issue of notes payable on demand, to continue a system of accommodation, at such times when the actual state of the country would require a diminution of the currency, it may become a matter for consideration whether it shall not be pru. dent to prohibit the issuing of paper altogether except by the Bank of England. There seems to be no national or important object to be gained, in allowing to banking companies the right of issuing notes payable on demand, if it can be shown that the public safety is thereby endangered. The right of issue is at best but an abstract right, of which, even allowing this power to be well exercised, its policy may well be doubted, and in 1825 most disastrous results were produced by the imprudent issues of the private country banks. Admitting, therefore, that some mismanagement at the Bank of England did originate the present difficul ties, they became necessarily much aggravated by the errors of the head establishment being multiplied throughout the country by the various issuing joint. stock and other banks. Besides, it appears to me that the issue of notes is not of so much importance to the joint-stock banks, as to be of great consequence to them whether they give up issuing or not: if at times this privilege be profitable to them, it subjects them at others to difficulty and loss, by compelling them to press, in times of adversity, for the repayment of those loans, that may have been too readily and too liberally afforded in more prosperous seasons; and above all, the banks will be relieved from the responsibility of watching the foreign exchanges and regulating their conduct according to the influx or efflux of bullion, as well as providing for their issues either in gold or Bank of England notes. What is of more importance to them is that the Bank of England should not interfere with them as a banker in their own district, and thus enter into a direct competition in carrying on their own business, and dividing with them the profit derived from the trade of their own neighbourhood. The advantage of local banks, must be in the knowledge the directors possess of the district, and the persons carrying on trade therein; and the superior knowledge they must be in possession of, enables them to supply the wants of trade in those parts of the country in which they are established. The branches of the Bank of England are, as regards the local banks, merely interlopers, carrying on business which, in my opinion, could be more advantageouly conducted by the joint-stock banks. It may be worth while to consider whether a voluntary agreement might not be made between the joint-stock banks and the Bank of England, that the former give up the right of issue, and the latter refrain from transacting any business that interferes with the business of the joint-stock banks;-that the branches of the Bank of England should merely exist in the provinces as banks of discount and transmission, and to facilitate the circulation of the Bank of England, giving up every other description of business whatever. An arrangement of this kind might be easily made without any legislative enactment, and would produce amity and concord between parties who ought to be on the most friendly terms. The writer of these observations, impressed with the parallel that exists between the period of 1825 and 1836 is inclined to attribute the difficulties of both periods to the same causes, viz. the derangement of the currency caused by the assistance given by the bank to the government in order to enable them more easily to carry into effect financial measures. At the former period they aided the government to pay off the four per cents. and at the latter they advanced money on the West India loan, and on other government securities. Although it may be asserted that no great permanent addition to the circulation took place since the bank did contrive to keep its securities even, yet the ordinary channels of the circulation being changed, a derangement of the currency must be produced; and the consequences that have followed the interference of the bank on several occasions, might be quoted to prove the correctness of these remarks, were not the faets themselves sufficiently obvious. It concerns the public as much that the channels through which the circulation is supplied, should not be suddenly and frequently changed, as that its amount should not be frequently and hastily augmented. Let us suppose the Bank of England suddenly to change the channels through which its notes circulate, and instead of a definite part of its issue representing an advance in the ordinary course of public business, as the fountain from which the circulation of the country is supplied, the bank should change the nature of its investments by issuing a similar amount upon government stock; although the securities may remain even, yet the change of them must have an immediate effect on the circulation of the country, by supplying in masses to a more active class of persons, that money which was formerly distributed throughout the com. munity, and performing the duties of a necessary and healthy circulation. If the Bank of England, as the chief circulator of paper, were to augment its issues to any great extent in the country, through their branches, and were to diminish, in the same proportion, their circulation in London, although the total amount of circulation would be the same and the amount of securities representing that circulation, and held by the bank, be also the same, would not the effect be, at least for a time, to make money plentiful in the country and scarce in London? If we suppose the converse proposition, money would become scarce in the country, and plentiful in London. An operation, producing equally important results, may be carried on in London itself, without any great variation either in the amount of nominal circulation, or in the amount of securities. For let us suppose that an agreement be made with the government, in reference to some pending loan-transaction, that the bank shall either lend or issue on some particular class of securities, a part of its circulation, which would otherwise be employed in the ordinary course of their transactions. Would not that also, "pro tanto," have its effect upon the price of money, by changing the channel through which the circulation of the bank flows for the supply of public wants? It then appears evident that the public are interested as much in preventing the changes which affect the channel as those which affect the quantity. Whenever the bank lends money to the government out of the usual course, it affects the channel of the circulation. The assistance afforded by the bank in the West India loan, must have affected the channels of the circulation as well as the quantity. As regards the quantity, perhaps the bank may have been enabled, after a time, to reduce the quantity so as to keep their securities and the circulation to their ordinary level. But the bad effects resulting from a change in the channel are not so easily remedied. It must be here observed, that the transactions such as those to which I have alluded seldom take place, except in times of great confidence and security: at such periods, too, a smaller quantity of circulation may suffice than at periods of distrust and insecurity. On the latter occasions, much of the active circulation of the country is locked up ready to meet contingencies, which may never arrive, but for which prudent men must be prepared. On the other hand, in quiet times, no reserve of capital whatever takes place, but is kept available for all the demands of regular business. Advances, therefore, made to government on these occasions, derange the circulation, by bringing suddenly into action, a quantity of circulation more than the ordinary wants of the community require, and however dexterously the bank may try to counteract the effect of these advances, that produced on the money market is of a very serious nature. Let us carry the subject still further. To whom are these advances usually made? To the most active class of persons, to those who either have already made engagements, or who would enter into some for the purpose of employ ing the new money thus brought into circulation. Great circumspection is therefore necessary to coun teract the bad effect of even a temporary addition to the circulation of the country, and the amount of secu rities held by the bank should be reduced before these payments are made, by which any evil attending the new issue would be either entirely avoided or very much mitigated. These alterations in the circulation invariably affect the exchanges, by reducing the rate of money, which has a tendency to encourage speculation, create an advance in prices, a consequent import of commodities, and an export of the precious metals. In tracing the effect of the action of the Bank of England on the currency, viz. that of aiding the government to carry some favourite financial scheme into operation, the writer always supposes that the measure could not have been attempted, unless the exchanges were favourable, and the circulation full. The sum issued to the public is therefore presumed to be in excess, and must either return to the Bank of England, be employed in new enterprises, or be sent abroad. In general, however, this money does not return to the bank, unless no other means for its ef fectual employment be presented; but as the issue of England to the public on account of the West India this money is always anticipated, there are persons | abundantly supplied by the advances of the Bank of Almost all the speculations are so timed, as to absorb a part of the new issues which are brought into existence, whenever the bank makes a large payment to the public on account of the government, and an abundance of projects, either of domestic or foreign growth, are prepared, according to the prevailing taste, to intercept the money after it has passed into the new channels, and before it has time to find its way back to the Bank of England. It should be remembered that the speculations of the year 1825 followed the reduction of the four per cents to three and a half per cent., and the payment to the dissentients in the autumn of 1824. exchequer bills cannot be made without injuring the national credit by depressing them to a discount, for these bills being held as a mere temporary investment, and bearing also a lower rate of interest than the current value of money, all persons would be inclined to buy sparingly, when the Bank of England appears in the market as a seller of such securities. Other means must, therefore, be provided to enable the bank to act decisively, by bringing into the market securities of a more current description, and the readiest means of effecting this appears, for the Bank of England to exchange with the commissioners of the Savings' Banks, a portion of their annuity for an equivalent amount of government stock. The stock to be replaced by the bank whenever the commissioners require it: neither the stock nor annuity to change owners, but to continue respectively the property of the commissioners and of the Bank of England. By this means the Bank of England will have a security always marketable and available for the correction of the currency, much more efficient for their purposes than exchequer bills. The Commissioners of the Savings' Banks will still have the stock under their control, and in safe custody, demandable at pleasure, and for which they are secured by the transfer to them of an equivalent amount of annuity by the Bank of England. Materials also were prepared for employing the money of the dissentients from the four per cents, reduced to three and a half per cent in the spring of the year 1830, and paid off in the month of October of that year. But the change of government in France, the revolution in Belgium, and the prospect of a continental war, made all persons cautious, and one foreign loan made in that year, to be in readiness to employ some part of the money issued by the bank into new This arrangement would give the bank much more channels, was unsuccessful. The change in political freedom of action, and a more decided and active affairs depressed all funded securities, and disappointed power over the circulation of the country; and if unexthe expectation of those who were prepared to inter-pected circumstances should ever require the bank cept the new circulation before it returned to the Bank of England. These political occurrences were of great service to British commerce: large orders for merchandise were received, money was lodged in this country, for security, and investments made in our funds. The uncertain state of France and other European countries, pushed trade into British channels, and accumulated an abundance of treasure in the Bank of England, until this state of full currency produced again its reaction, and consequent export of the precious metals. The violent speculation in Spanish and Portuguese bonds during the latter part of 1834, and at the beginning of the year 1835, which abstracted such large sums of bullion from the bank, was in great measure produced by the payment in October, 1834, of the dissentients to the reduction of the four per cents, which had been reduced to three and a half per cent. in the spring of that year. The means for all the mischief of the last year, were directors to apply a quick remedy, they will be able to do so on a larger scale than they could by any sale of exchequer bills. The further probable abstraction of gold from Europe to the United States of America, is a subject that requires great circumspection on the part of the Bank of England, and it will become a matter for consideration, whether some change in our currency may not be required, to meet a change of so much importance, in a country with with which we are so intimately connected. I have great hesitation, in touching upon a subject of so much delicacy and difficulty, as an alteration in our currency, by the introduction of silver conjointly with gold, as a measure of value at some fixed proportion, that may assimilate it more nearly to the coinage of France and other countries. But in commenting on the various circumstances that have led to the derangement of the circulation, it is impossible not to have introduced at least a passing observation on the change of the currency of the United States, by the alteration of the proportion between silver and gold in that country. knowing that my observations are not intended to injure the system, but to fortify and protect it against future attacks from whatever quarter they may pro ceed. A good system of legislative enactments for the regulation of the joint stock banks, will strengthen and em-establish them in public opinion, and they have friends enough in the house of commons to protect their inte rests, and to guard them from the imposition of any improper or impolitic limitations. But the transactions between the government and the bank, appear more than any thing else, at all times, to have had the greatest influence, in effecting changes in the circulation of the country, and periodical barrassments" have invariably followed every government operation, where the aid of the bank has been required. These operations have in general added suddenly to the circulation of the country, and lowered the value of money, have given an impulse to speculations, and have caused an export of the precious metals; this again produces a reaction, by which many individuals become great sufferers. The assistance to the government is the true cause of all the subsequent mischief, and although the joint stock and country banks have aggravated it on the present occasion, the original sin must be divided between the government and the Bank of England. In the remarks I have ventured to make on the conduct of some of the joint stock banks, I hope that I shall not be thought to have pressed too severely upon them. I have not allowed my position as director of a joint stock bank to blind me to the defects of a system which, good in itself, nevertheless requires some regulation to enable it to maintain the high character claimed for it by its advocates. It may be that jealous of the reputation of my favourite institutions, I have been too lavish of my censure, and somewhat uncharitable in my observations, but no one should forget the duty imposed on him as a member of society, and all private feelings should merge into the consideration of what is due to the general good. The principles upon which joint stock banks are founded are so excellent, that he who points out the defects in the existing establishments, and the means of avoiding past errors, should be regarded as a friend, and whatever may be the sentiments of those to whom these remarks do apply, I have the satisfaction of In conclusion, I venture to hope that no single remark of mine, will be considered as leveled against any existing establishment. Having seen in print the opinions of others upon this very important subject, which seemed to me to fall short of the question, I have, with all humility, ventured to lay the preceding observations before the public. I have been principally anxious to remove from the joint stock banks the obloquy it has been attempted fix on them, in placing at their door the origin of the present difficulties. Many of them have been improdent, and the rude check they have received will, I trust, have a good effect on their future conduct. The projected parliamentary regulations, will also tend to establish them in a more firm and independent posi tion. It is hoped also, that a more friendly feeling will grow up between them and the Bank of England, for it must be confessed that hitherto there has not ex. isted that cordiality which should prevail between par. ties in whose friendly co-operation the public are so deeply interested. If the suggestion I have made could be carried into effect-that the joint stock banks should give up issuing, and the Bank of England branches confine their business to discount and trans mission, the chief cause of difficulty and collision would be avoided, and thus one step taken to promote between two most useful and important bodies, a har mony which seems essential to the prosperity of the contry. London, Feb. 22d, 1837. APPENDIX. Average Quarterly Account of the Liabilities and Assets of the Bank of England. January 15, . 18,012,000 12,585,000 30,597,000 26,390,000 6,741,000 33,131,000 18,099,000 12,535,000 30,634,000 26,482,000 6,693,000 33,175,000 18,311,000 12,281,000 30,592,000 26,657,000 6,536,000 33,193,000 26,228,000 6,329,000 32,557,000 25,764,000 6,197,000 31,961,000 18,460,000 10,568,000 29,028,000 25,562,000 6,150,000 31,712,000 18,315,000 10,954,000 29,269,000 25,678,000 6,219,000 31,897,000 18,322,000 11,561,000 29,883,000 26,244,000 6,283,000 32,527,000 18,340,000 12,308,000 30,648,000 18,240,000 13,230,000 31,470,000 17,930,000 14,227,000 | 32,157,000 26,964,000 6,236,000 33,290,000 27,888,000 6,261,000 34,149,000 28,661,000 6,186,000 34,847,000 |