The Sun.
London, England, 1857-12-09 00:00:00

would now in a very few words proceed to state the !
nature of his case, and the proposition which he meant to
ground on it. He contended that in periods of state pro- I
sperity, when there was no "pressure on the money mar-
ket, the mismanagement of joint-stock banes sowed the
seeds of futare commotion, for these banks, possessing
unbounded command of capital, were enabled to footer
idle speculations, only to be overthrown by the first
moment of pressure en the mangy market. The second
objectioa was, that unlimited liability en
banks to incur an unlimited amount of debt,
these
\v thereby
r
precipitating their fall when the panic can
unfavourable ex-
.
cam
a panic or pressure came, either from u
changes or bad harvests, then the
tihneflastteadte
corfedthitinogfs the
e-
joint-stock banks collapsed, an
curred which was described inthaeStanekGdoirveecrtnomrse'artecdenidt
letter. On receipt of that letter the
what they had previously done in 1847, and the result
was the same io both cases, namely, that the country,
after severe disaster, at last righted itself. The remedy
was only temporary, but at neither period was anything
permanent done to prevent evil in future. Having ex-
plained the .
manner which capital accumulated in
joint-stock banks, first by calls, and secondly by deposits
at high interest, the hon. member said that their machi-
nery gave them the power of mortgaging the whole
property of a district, and thus of acquiring unlimited
credit in the money market. From this it followed that
however great might be the mismanagement of the
bank, it was always able to borrow money under the
principle of limited liability. In fact, a course was fol-
lowed by the corporation which no shareholder dared
attempt in his individual capacity. One of the most
injurious of the practises of these banks was that of re-
discount. The profits on such transactions was the
difference of discount between the local and London
money market, and therefore there was al ways a
temptation to take in speculative paper. But this was,
in short, nothing but selling the credit of the general
shareholders. The bank thus became largely indebted
to the money market, and was in consequence in a
thoroughly false and unsound position. A bank in such
a position was always liable to have its advances stopped,
and when they were stopped there was then nothing for
it but to close the doors and suspend payment. He must
admit his conviction that this practice of re-discount had
not prevailed in the London joint stock banks. It would
be found that wheneve; a failure occurred the paid-up
capital had been squandered, and this generally from
something more than a 'mere error of judgment. When
a bank found itself in such circumstances the law should
enable the shareholders at once to wind up, or, if they
wished, to renew their capital ; but as the law stood it
was perfectly possible for a bank to go on after all its
capital had been squandered, on this abused credit of the
shareholders. From year to year it would go on from
bad to worse, paying larger sums every time for accom-
modation, and in verities other ways it was compelled to
carry on its business in an un-economical manner until
at length the time came when failure was immediately in
sight, and then if the wealthy shareholders held on for
a few years they got rid of their shares, and left the
burthen of the loss on the poor and helplese. With such
temptations it was no wonder that business was carried
on until the occurrence of a panic in the money market,
when closure was inevitable and whole districts were
ruined. It was unlimited liability that led to all this, by
encouraging mismanagement, and permitting unbounded
credit. It was generally believed that this unlimited
liability was first established for the benefit of the public.
No such thing. It was forced upon the Government of
the day by the Bank of England, with a view of
preventing joint stock banks from becoming formidable
rivals. Previous to 1826 joint stock banks were not
lawful, and the private hanks were on the principle
of unlimited liability. The Bank of England was the
only establishment whose liability was limited. The
private banks all failed in 1826, and the government esta-
blished joint stock banks in order to give greater security
to the public. Great sagacity and jedgment were shown
by Mr. Hueltistion and Lord Liverpool at that time,
and their object was to establish limited liability ; and
they would have done so but for the opposition of the
Bank of England. The lion. member here quoted the
opinions of Lords Liverpool and Althorp and Air. Has-
kisson, all of whom were, he said, for limited liability,
but were obliged to abandon the cause in consequence of
the opposition of the Bank of England. He hoped now,
however, better things, as the recant conduct of the Bank
directors had evinced a much more enlightened spirit.
Some of the evils which had occurred in the case of some
of the joint-stock banks had happened in reference to the
chartered banks of this country, and if they turned to
Scotland they found the Bank of Scotland, which was
based on the limited liability principle, not only main-
taining its position but assisting ether banking establish-
ments in tiding over a period of difficulty, while the
Western Bank of Scotland and the Glasgow Bank,
wherein the liability was unlimited, were failing, and
bringing loss and ruin both upon the shareholders and
depositors. a When in 1849 he brought forward the sub-
ject, unlimited habilitywas the general principle recog-
nised by the law in reference to joint-stock partnerships
—the task he undertook in urging upon the house to
make an exception in favour of joint-stock banks was
therefore then the more difficulty. Now, the principle of
limited liability was the rule, and unlimited liability the
exception ; and Lord 0 eerstone, who was at one time
one of the strongest advocates for upholding that prin-
ciple as respected joint-stock banks, now admitted that
there was no necessity for maintaining it. It appeared
to him that the time bad arrived when the House of
Commons ought to grapple with the suliect, and decide
upon it finally ; for anything like doubt in respect to
the law ot banking was almost as dangerous as the
adoption of a wrong principle. There was a pre-
cedent for the course be recommended. It was not
long since the house adopted a resolution in favour of
the limited liability principle in regard to general partner
ships, and the result was that a measure to carry that reso.
lu.ion into effect was introduced by the governmen% If
they possed thisresolution, he had no doubt that ministers
would deal with it in the same way, and introduce a bill
embodying its principle. There was every reason to believe
therefore, that, if carried, it would be speedily made
the foundation of substantive legislation even during the
present session. In conclusion, he called upon the
house, by affirming his motion, to prove that they had
gathered wisdom from the recent disasters.
Mr. COWAN, who had given notice of an amend-
ment to the effect "that as, from recent disclosures
affecting the management of certain banks and other
joint stock companies, the interests of large bodies of
shareholders have been seriously damaged in consequence
of delusive representations and protracted mismanage.
ment, it is the opinion of this house that a searching
inquiry should be instituted into the correctness of the
allegations referred to, with a view to consider whether
more efficient means may not be provided in future for
securing the interests of shareholders in joint stock com-
panies," seated that he was utterly unconvinced by the
arguments of his hon, friend the mover of the resolu-
tion. His hon. and learned friend had referred to the
Bank of Scotland ; but of all the banks of Scotland
there was scarcely one besides that in which limited
liability was the rule. The unlimited liability of the
shareholders afford a necessary, and the best, security
that the liabilities of the bank would be met. He was
aware that in the Scotch banks that had failed, as well
as in the English banks, the shareholders—many of
them being persons in humble circumstance, who in-
herited the shares as legacies—had suffered mainly, but
it was some satisfaction to know that the creditors had
been paid. He looked upon the principle of limited
liability, especially when applied to banks, as fraught
with danger to the commercial world ; arid he was glad
to find that Mr, Marshall and Lord Curriehill, the com-
missioners appointed to inquire into the law of part-
nerships in Scotland, took the same view. He was
sorry to say that the public of this country displayed a
considerable amount of ignorance in regard to the
Scotch banks. For himself, he believed that the
banking institutions and the parochial schools of
Scotland had done more to elevate the moral and
intellectual character of the people and t develop
the resources of. that Country than anything else.
He would like to know how his hon. and learnedfrier.d.
would, under his principle of limited liability, protect the I
interests of the poorer class of depositories - the working
classes—who made the banks the depositors of their
strings, and who were certainly entitled to some consi•
deration at the hands of the Legislature. The Ind ince-
sheet of the Western Bank of Scotland showed that there
were 26,193 depositors in that institution whose deposits
were under 501, and whose average deposits amounted
to only 191. 12)s. 81. each. By the operation of that
principle which he held to be so valuable in Scotland
these persons-would all be pail, but it limited liability
were the ruln; all their money woul I probably be 1,.;t.
To the valtnrof the principle of unlimited liability he was
happy to say that the Government had during the
recent disaster borne emphatic testimony. The hotr,e
was probably aware that the noblemen and merchant
princes of Scotland, when the failure of the Western
Bank took place—relying upon the security which the
unlimited babiality of every shareholder gave, that all
its liabilities would be paid in full —came forward arid
offered to take the notes of that bank in payment of rent
and in discharge of commercial obligations. But perhaps
some boa. gentlemen were not a ware that the Comptroller
General of Inland Revenue issued a circular, offering to
accept those dishonoured notes in payment of taxes.
(Hear.) This was a circumstance ho wished particularly
to impress upon the Chancellor of the Exchequer, as
proving the confidence which was felt in the existing
imirteureegiple, and he miehtadd that nothing had contributed
thou: the abatement of the panic. (Hear.) He
aninle inquiry ought to take place int ) the mal
practices,t °ust, otWhicTit!ng in some instances to treads of
with j they
hail heard so much of late, as con-
nected,itock companie9. In some banks, for
instance, there wta4.
for a series of yearet:bra..ei:ei to believe that. dividends had,
declared of Bor 9 r cent.
per annum, being
ed, and that." ,obtimes as much as had
been fairly earn
ed
enn,yivideceause other competing
meleendesi. Ie some, too,
establiehenents
the whol of the available
business had been diverted to large ; tracdaiiT,Yiug on
t. 'e
lative objects foreign to bank.ur.l "Peratiot,a" c!-
trusted to the hands of two oh- three individnals.au'(ri• ell-
'natters were fl t etfej. eta forhnvestigation with a view to
the application of a legi,lativer remedy. (hear,)
other evil practice was wti that of getting up spurious
bills of exchange—ace immodation bills issued without
value. He looked .upon the issuing of such Lille as akin
to the crime of fore ry, and he thought it ought to be
made an indietab o Gffence, fin trusted that Govern-
ment would adopt the suggestion ef the right Lon.
member for Oxford Univer.ity to institute an inquiry,
and in that hope, understanding that his amendment,
which did not point out how the inquiry
should take
place, was sornewhatout of form, he would withdraw it,
and content himself with opposing
his hon. and learned
friend's resolution with a
simple negative. (Hear.) He
considered the house would fall in its duty if—after the
sad experience we had recently had, and the lamentable
catastrophes that had occurred—it did not take some
top even before this short preliminary session tenni-