The Sun.
London, England, 1847-05-11 00:00:00

LOAN DISCOUNT SCHEME.

(From the Times City Article.)

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ot
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allow
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rate
.fdiscount (originally refused) fovareoitr:pn) prom pt
eidonpuccayonymdmbptieihrnieseth.meosnefs)rivtohhenese.
On the payment of the seemsael
taea
Government
koqi dividends the balances of the
compellediEnxstcahlenq instalments
trstoboefbionBr:°roiln7odf:itilu.i
necessity fur this advance to Government limited to a pro-
portionate degree the power of the Bank to advance upon
discounts ( because, the Bank had indiscreetly suffered its re-
serve to fall so low that it was impossible for it to accord
even a temporary assistance without calling its resources
from other quarters), and hence arose an amount of pressure
and inconvenience in the discauut market, which, on ac-
count of its suddenness, was a cause of general reproach.
Moved by this cause, and almost as if fancying that the re-
proach is in some measure levelled at the Government
(although timely notice had been given that the advance
would be required, and it was the business of the Bank to
have prepared for it), it would seem that the Chancellor has
now an idea in his mind of attempting to prevent the possi-
bility of a recurrence of such circumstances; but if this
really be his object, it is plain that his new proposition,
while it: nvolves a considerable expense to the country, will
not carry him a single step towards its, attainment. He pro-
poses by the payment of a heavy rate of interest (for the rate
must be heavy to cause the contemplated payments to be
made in advance) to put himself in possession of funds which
he is not likely to want for some time, in order So insure
that when the period arrives at which he will need them
he may be independent of the Bank, and that no with.
drawal shall be requisite from that establishment
such as to render necessary another violent contraction
of its ordinary accommodation to the public. But the ques-
tion is, what does he intend to do with these funds pending
the time when he will require them ? It is tot to be as-
sumed that he will lock them up in a strong box in imita•
tion of the American sub-treasury plan, which would be
simply creating a pressure now by withdrawing the money
at once from the market in, order that he should not have to
create the pressure in July, and we must, therefore, infer,
that it will find its way to the Bank, there to swell the
" public deposits," and to be used according to the discretion
of the directors. Of course the use they will make of it will
be to lend it to the public, and it will be upon the discretion
with which these loans may take place, that the simple
question of whethera sudden contraction may not again be ren-
dered necesssary will wholly depend. Under present circum-
stance=, therefore, bad banking may effect just the same results
next July as were effected by bad banking last April. All that
the present operation can do will be to cause a withdrawal
from the banking balances of private individuals to increase
the banking balances of the Government—in either case they
are alike liable to find their way to the public in the shape
of discounts or of advances, and also to be withdrawn from
that mode of employment when the wants of the Government
render a call for them necessary, so that the real result of the
affair is that the country will pay some five or six per cent.
for a month or two for funds which it does not require in
order that these funds (which must be withdrawn from pri-
vate bankers and other parties) may be deposited in the
Bank of England for that establishment to employ them for
its own especial profit. Whether the general circumstances
which have recently occurred have been such as to render
the public desirous of thus liberally contributing at this time
of pressure to the future dividends of the proprietors of Bank
Stock is a question that seems not to have been considered.
(From the Chronicle City Article.)
The statement made by the Chancellor of the Exehequer
last night has had a very depressing effect on all classes of
public securities, except Exchequer-bills. This depression
has, no doubt, arisen from the tact that in the course of
yesterday, and even on Thursday, rumours, stated to be
"on the best authority," prevailed in the City, that the Right
Hon. Baronet would make a statement which would be
calculated very much to allay all further apprehension, and
to make money much easier. These statements produced an
exaggerated expectation of what the Government was
likely to propose, and transactions were entered into in con-
sequence of them. It now appears evident that the state-
ment of the Chancellor, although calculated to allay anxiety
with respect to the Government finances, has no such direct
tendency on any other interest. It has indeed been said
to-day, that the object of the Chancellor in offering
a discount upon the instalments of the loan has it in
view to induce larger sums of money to be paid
into the Bank on account of the Government, in order
that they may have more which they again can advance
to the public. It is, however, difficult to see how any such
effect could be produced. If the Bank receive more notes in
payment of these instalments at an earlier period, and so in-
crease their reserve, as it is stated, thou the quantity of notes
held by other bankers must be correspondingly diminished.
Indeed, the probability is, that no notes whatever would pass
in such a payment, but that the payments would be made
either by a cheque upon themselves, or by notes drawn out
of the private deposits. At best, then, such an anticipation
of a payment could only be an earlier transfer of the money
in all probability, from the " private deposits" to the
" public deposits!' The only object which we believe tho
Chanceller has in view is, to secure an early payment of
these instalments, in order to place him in as good a position
as possible for the payment of the July dividends, in order
that he may not be dependent upon the Bank for so large
a portion of the means to discharge as he otherwise would be.
This is an intelligible reason ; and if such an effect is pro-
duced, and the Chancellor is relieved of the necessity of
issuing " deficiency bills" at that time, or at least only for
a small amount, the Bank directors would no doubt in the
meantime feel more at liberty in giving accommodation to
the public.

(From the Post City Article.)
The proposition of the Chancellor ot the Exchequer to
allow a certain advantage in the shape of discount to scrip-
holders for anticipated payments of the instalments of the
8,000,0001. Irish loan, as a means of recruiting his coffers,
has, it will be seen by the quotations, done nothing
for the stock market. The hands of Government may be a
little strengthened by such payments, and, indirectly, those
of• the Bank directors also; but they cannot, viewed ab-
stractedly, add to the general supply of money. The value
of stock was in some measure affected by the apprehension
of such further disturbance as might be crested by a sudden
dissolution of Parliament, an event to which the result of the
Irish Poor•law Bill debate; as foreseen from the discussion
on that question now in progress in the Upper House, seems
to be tending. The advance ot the rate of interest on Ex-
chequer-bills to 3d. per diem is unfavourable to stock, Consols,
at the price of 86, yielding only 31. 9s. 9d. per annum, against
41. Ils. 3d.

(From the Herald City Article.)
The comparative view of the Bank returns for the week
ending on the Ist instant justifies the course adopted by
the Chancellor of the Exchequer last night, as far as the
Government finances are concerned. As we expected and
announced, the Ministers have taken their stand on main-
taining the present banking and currency laws in their in-
tegrity ; and, therefore, under existing circumstances, it has
become imperative on the Government to require no ad-
vances from the Bank at the end of the quarter. It only re-
quires a glance at the state of the reserve to see that the
Bank has not the means of making any advance whatever
but by reducing her securities, which, in other words, means
that it can only be done at the expense of restricting the ac-
commodation to the trade of the country. The Chancellor
must, therefore, hold out an inducement sufficient to com-
mand payments on the loan to a considerable amount in ad-
vance, but it is not very easy to determine, in the present
state of the market, what amount of discount will be suffi-
cient. The more the measures adopted by the Bank Directors to
make advances on Exchequer-bills is considered in all its
bearings, the more is the wisdom of the course called in
question, on the assumption that in proportion to the amount
lent it shackles the directors from accommodating trade to
support the Government stock. The reasoning on this sub-
ject is, we think, clear and conclusive. Whilst the British
Stocks continue the highest in Europe, it is not likely that
the Russian Government or any other persons able to make
investments, will select them for the purpose, and yet above
all other modes that is the most desirable for us to liquidate
the foreign balances against the country.
We have received the following case and opinion from a
respectable solicitor in town, involving a question of perma-
nent interest, at the present moment, to an immense amount
of trust and other property. The cases cited appear to be
conclusive, and it is self-evident that if the funds locked up
in stock can be so rendered available, it would afford a vast
relief to the money market, and at the same time greatly
increase the income of trust property.
"COPY OF A CA•E AWD ONION.
"CASE. _ _

"A B agrees to lend C D 2,0004 Consols, upon th• se-
curity of two leasehold houses. The said C D to re-transfer
on a particular day the said 2,000/. Consols at whatever price
they may be, and in the meantime to pay os the several
dividend days, July and January, the rate of 5 per cent. on
the Consols, instead of 3 per cent. (not on the value, but on
the gross amount). The dividend at the rate of 5 per cent.
to cease on the day the re-transfer takes place.
ig Q. Whether such a transaction is legal or illegal, as re-
gards the usury laws?

" OPINION.
"The various authorities I have perused wherein a greater
interest than 5 per cent. has been allowed by the Court, turn
upon this point—that the capital lent was in danger of being
depreciated in value. In those cases where the capital was
certain, the Court invariably disallowed the amount of per-
centage over and above the legal interest, namely 5 per sent.
"The above case appears to me to fall within those cases
where the Court has allowed more than 5 per cent. For let
us suppose that A 13 were to lend C D 2,000/. Consols to-day
which are 87, to be re-transferred to A B on the sth of May,
1850. It is very probable that the Consols on the sth of
May, 1850, would be depreciated to 60, 50, or even lower.
A war with France would undoubtedly make them fall to a
very great depreciation; and as such an event, or. other
equally great, might occur, A B's chance of
of it
of rieceyo,vleBrlsong. his
87/. from C D is very precarious on the

" The authorities confirming me in my opinion that the
above case (submilted to me) is perfectly legal, are the fol-
lowing :
" Mastin v. Abdee,' 1 Shomer, p. B.—lt was agreed by the
Court that where there is a hazard that the lender may have
less than his principal, it is no usury, although the interest
do exceed the allowed rates.
" Tate v. IVellings,' 3 Term Reports, p. 53].—On the de-
fendant applying to the testator (of whom the plaintiff was
executor) to advance the money, he agreed to let him have
it, but told him that he should expect the same interest
which he received in the Short Annuities—namely, 8k per
cent.; and, which being assented to, it was agreed that the
money should be raised by a sale of Short Annuities, to the
amount of 9121. I2s. 6d., which the defendant was to replace
in the same stock by the Ist September, 1785.
"Lord Kenyon.—A mere loan of stock is not usurious, nor
the payment of the dividends in the mean time, though they
exceed the legal rate of interest. .
" Ashurst J.—ln giving the same opinion, added that the
lender ran the risk of the fall of the stocks.
"Buller J., said this has been assimilated to an action on
the Statute for Usury, but I think it is different. This is
not like the case cited from p. 508, Croke, James, where the
principal was, at all events, secure, fur here the testator might
have been a loser, in the event of his stock rising after the
first veir.
"Grose, J.—Declared himself of the same opinion.
" Pike v. Ledinell and slonprivat, 5 Espitias,se,
164.
The defendant Monprivat, being desirous of advancing her
son, agreed to sell and dispose of 400/, stock totrrcdhheasEpileladeinnlb:oiati.:
for 1601. The said stock to be transferred when her son was
of age—namely, the 11th February, 1804. L
rough said that contingency in the thing pt;
incompatible with the idea of usury, in whichTthheedperfeinnediapnatl
must be always certain. —Verdict for the plaintiff. -
was
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