The Express.
London, England, 1858-07-20 00:00:00

1858.

IISPORT.fiIi nut Leis am.

Thin morning wu hued a report of twenty-five
Agee, from the select committee, who were appointed in
December last to inquire into the operation of the Bank
Acts and into the causes of the recent commercial distress,
end to investigate how far it had been affected by the laws
for regulating the issue of bank notes payable on demand.
Glancing at the commercial history of the ten years
which have elapsed since the last oommittee .at under
the same order of reference, the report observes that
since 1847 three important circumstances have arisen
affecting the question referred to the present com-
mittee—namely, en unprecedented aztenslun of our
foreign trade ; an importation of gold and silver on a
scale unknown in history since the period which immediately
succeeded the first discovery of America; and a most re-
markable development of the economy afforded by the
practice of banking for the nee and distribution of capital ;
but to the close of 1867 the Bank of England had continued
under the act of 1844 to conduct its business without diffi-
culty. In September the first tidings arrived of the bank
crisis In America, and in October there were numerous
failures here. The report then reviews the chief failures,
dwelling especially upon the stoppage of certain banks, and
attributing foresight and vigour to the proceedings of the
Bank of England, upon which everything depended. Messrs.
(Miller and Ball, the accountants, assign what appears to
the committee en adequate mum for the crisis. " Availing
themselves of their experience in 1847, the affairs of which
have now been finally closed, to illustrate the transactions
of 1867, which still appear in estimate, and are there-
fore liable to correction, they ascribe the calamities
of both periods to the mime principal muse, viz., the great
abuse of credit and consequent overtrading. They notice
also this difference between the two periods. Many of the
houses which fell in 1847, they say, had once been
wealthy, but had long maid to be so. Thom of 1857 had,
with few exceptions, never possessed adequate capital, bat
carried on extensive transactions by fictitious credit." Of
this the oommitteo proceed to give instances, " furnishing an
instructive example how readily misfortunes are at
the time attributed by the sufferers and others
sympathising with them to the operation of the statutory
enactments, which miafortunes, upon a full review of all the
circumstances attending them, it is obvious that no wisdom
of the legislature, no regulation of the currency, could
have prevented." The particulars of thirty houses
which failed in 1867 show their aggregate liability
to he 9,080,0001., of this sum the liabilities which other
parties ought, to provide for amount to 5,215,0001.,
and estimated siesta 2,317,0001. Boddie the failures
which arose from the suspension of American remittances,
another class of failures is disclosed:

" The nature of these transactions was the system of open
credits which were granted—that is, by granting to persons
abroad liberty to draw upon the house in England to such
an extent as had teen agreed upon between them ;
throe drafts were then negotiated upon the foreign exchanges,
and found their way to England, with the understanding
that they were to be provided for by maturity. They were
principally provided for, not by staple commodities, but by
other bills that were sent to take them up. There was no
real ends in the transaction, but the whole affair was a
means of ridging a temporary command of capital for the
convenience of the individuals concerned, merely a bare com-
mission hearing upon it ; a banker's commission 'was all that
the houses in England got upon those transaction'', with the
exception of receiving the consignments probably of
goods from certain parties, which brought a merchant's
commission upon them; but they formed a very small
amount in comparison with the amount of credit, which
were granted. One house, at the time of its suspension, was
ender obligations to the world to the extent of about
900,0001., its capital at the last time of taking stock was
ander 10,0001. Its businees was chiefly the granting of open
credits, i. a., the tones permitted itself to be drawn upon by
foreign houses without any remittance previously or con-
temporaneously made, but with an engagement that it
should be made before the acceptance arrived at maturity.
In these eases the inducement to Rive the acceptance I. a
commission, varying from to 1 per cent. The accept-
ances are rendered available by being discounted, as will
appear hereafter, whentheaffairs of the banks which' failed
come under our notice. The obvious effect of such • sys-
tem is first unduly to enhance, and then, whilst it continues,
to sustain the price of commodities. In 1857, that fall of
prices which, according to Mr. Nesse, far-seeing people had
anticipated, actually occurred. Tables have been put in by
more than one of the witnesses, exhibiting an average fall
of 20 or 30 per cent., in many instances much more, upon
the comparison of July, 1857, with January, 1358. It
MA/ no argument to prove what effect such a fall must
have upon hottest which had accepted bills, on the security
of produce consigned, to the extent of one hundred times
the amount of their own capital."
The Liverpool Borough Bank, the Western Bank of Scot-
land, the Northumberland and Durham Bank, and two bill
braking houses in London which suspended payment a
second time in 1857—" these five houses," say the committee,
after entering into details, "contributed more than any others
to the commercial disaster and discredit of 1857. It is impas-
sible for your committee to attribute the failure of inch estab-
lishments to any other cause than to their own inherent un-

soundness—thenatural, the Inevitable result of their own
misconduct. Thus we have traced a system under which
extensive fictitious credits have been created by means of ac-
commodation bills and open eredits, great facilities for which
have been afforded by the practice of foint•stock country
hanks discounting such bills and rediscounting them with
the bill brokers in the London market upon the credit of
the bank alone, without reference to the quality of the bills
otherwise. The rediseounter relies on the belief that if
the bank suspend and the bills are not met at maturity, he
will obtain from the Bank of England such immediate
assistance as will save him from the consequence." The

evidence which was taken by the committee relative to
the North of Europe is then referred to, and por-
tions are quoted to show that the real origin of the
disaster there sustained was the undue expansion
of commercial credit, and to confirm the proof that no system
of currency Can PeCUSO a commercial COMMllnity against the
consequences of its own improvidence. After stating their
belief that repeated discussion and increasing know-
ledge will satisfy the public of a fact so obvious
as that, without the interposition of the executive
government, the directors of the Bank of Baghdad
have no power whatever to exceed in their issues the limit
imposed by law—the committee proceed to analyse the evi-
dence given by the present bank directors, and other eminent
witnesses, in favour of maintaining the act of 1844, and to
state the chief complaints against that act. They mention
that, notwithstanding the greet increase of trade,
the whole amount of bank notes has actually diminished
since 1844, and under the present law, still continues gra-
dually to decline. It must be taken, therefore (says the
report), that in ordinary times there is no cognisable advan-
tage to be obtained by the commercial interest from the
power of increasing the amount of notes which may he
issued without the deposit of bullion. The report eon/anis:
It is here neoes.ary for your committee to advert to
the question, whether the law should be left, subject only to
that power which was contemplated by Sir R. Peel and Mr.
Hatkieson, and was atonally exercised by the two govern-
ments of 1847 and 1857; or whether, on the other hand,
provision should be made in advance for such conti
and the conditions expressly laid down on which the issue at
en increased number of bank notes may in the time of
pressure ha allowed. Your committee think that such a
provision could not be regarded as any violation of the
principle of the act of 1844. To have introduced such an
express provision. when the law itself was Bret sdopted by
parliament—or even when, as in 1848, it had only been a
few years In operation and was comparatively little under-
stood—was a far more enjoin question of policy and of pru-
dence than it can In fairness be regarded at the present tune.
Yet the interference of government in an extreme came must,
in fact, be taken to have been contemplated by the framers
of that act. Mr. Cotton stated to the committee of 1847-8,
that this subject was considered when the act was under
preparation in 1844, and that Sir Robert Peel's opinion was
thus cep...reed If it be necessary to maims a grave
responsibility, I dare say Mu will be found willing to
assume such a responsibility.' It sanely therefore consti-
tutes, of twit a sufficient ground for bringing this important
and difficult 'abject under the review of parliament, and
may probably await the decision of the legislature when
the other breeches of the subject shall be again dealt with.
They would, however, here take occasion to observe,
that if new provisions shall at any future time be made by
parliament, the great object of securing the maintenance at
the time of severest pressure of an adequate supply of bullion
should be guarded with the utmost caution. In considering
there new provisions, your committee assume that no hazard
will be incurred with regard to the foreign exchanges but that
the efficient action of the law in that respect will be firmly
maintained. The mischief your committee are now conaider-
tog le the domestic drab, occasiomed by panic, and evidenced
by hoarding, which in cases of commercial crisis supervenes
upon a foreirn than, end crates an abrupt interference
with the circulation, by withdrawing from it for a time, for
the retrieve of hoarding, a pert of the ordinary circulating
median."
Without entering into any question respecting an leriseet '
em dl n•tes on the credit of the Prate, the rommtttee derive it
should be understood as their opinion that the subject of the