The Sun.
London, England, 1857-12-05 00:00:00

THE ADDRESS.

Mr. W. MARTIN brought up the report on the
address.
After a few remarks from Mr. PAOKE,
The report was unanimously agreed to.
THE INDEMNITY BILL.

On the motion of tbe Chancellor of the Exchequer the
house resolved itself into a Committee to consider the
Bank Charter Act (7th and Bth Vic. cap. 32).
Mr. FITZROY in the Chair.
This Act and the Royal Speech having been previously
referred to the Committee, the Chairman read the pas.
sage in the Royal Speech relating to tbe subject.
The CHANCELLOR of the EXCHEQUER then
said—l rise for the purpose of bringing under the atten•
tion of the house the queation which, as has been stated
in the extract from the gracious Speech from the Throne,
has led to the assembling of Parliament before the usual
Ire order that the Committee may fully understand
the nature of the act of her Majesty's Government which
has induced the directors of the Bank of England to in-
fringe the provisions of the statute, and thus renderad it
obligatory upon me to ask the house to give its consent
to a Bill of Indemnity, it will be my duty to call their
attention to the existing state of the law. Sir R. Peel, in
the course of his long political career, induced the Le-
gislature to agree to two important Acts relating to the
currency, which were in point of time separated from
each other by a quarter of a century. The first of these
Acts, as is well known to the Committee, was passed. in
1819: It restored the currency to its proper nietaic
basis, put an end to the state of things existing during the
war—a state of suspension of specie payments, and
established the convertibility of a bank note. After that
Act bad been passed the power of the Bank cf England
to issue notes was unlimited in point of s xtent. They
were only subject to the condition of being payable in
gold on demand, and the power of establishing country

banks was also unlimited, subject to the privilege which
then existed in favour of the Bank of England from the
practice in reference to 6 partners. These banks when es-
tablished could create any quantity of bank notes. The
same power existed both in Ireland and Scotland. Any
person could under that law establish a bank and issue
notes payable to bearer on demand, provided only that
those notes were paid in specie on presentation at the
bank. That was the state of the law from 1819 to 1844,
the date of Sir R. Peel's second important Act on the
currency. That second act, he stated to the house, was
to be considered as a complement of the first ; he in-
tended it to secure, in fact, that convertibility of the
note which was made legal only by the Act of 1819; and
the provisions which he introduced were to the following
effect :—ln the first place, he enabled the Bank of Eng-
land
to issue notes on securities to the extent of
14,000,0001. together with any further sum which might
aecrue from the lapsed circulation of the English coun-
try banks, as to which some detailed provisions were in-
troduced into the Act. An order in Council under those
provisions was passed about two years ago, authorising
the Bank to add to that portion of its tissue which rests
upon securities the aura of 475,0001. Therefore at pre-
sent the issues which the Bank of England can make
upon securities—and it is not allowed to make any issues
except upon Government securities—is 14,475,0001. In
addition, the law allows the Bank of England to make
an amount of issue equivalent to the bullion which may
be in its coffers. The Act of 1844 further introduced a
provision which seems to me, although in some manner
connected with them, yet to be essentially different in
its character from the other provisions—l mean that for
dividing the Bank of England into two dspartments, the
issue and the banking department. Gentlemen who are
familiar with the mode in which the weekly returns of
the Bank are published, are aware that the *Facts and
liabilities are always classed under those two divisions.
I shall presently have to call the attention of the Com-
mittee to the practical working of that system with
reference to the measure to which I am about to ask
their assent. I should add that with regard to
English country banks the Act of 1844 contained
this important provision,—it prohibited any bank
which might after the passing of that Act be established
in England from issuing bank-notes. It limited, also,
the note issues of the existing banks to the amount
which was then in circulation. It contained no pro-
vision requiring them to issue notes on securities,
nor did it allow them to exceed the fixed limit by
issuing notes against bullion. Therefore, under the Act
of 1844, the condition of the English country banks is
this :—No new country banks can issue bank-notes at
all, and the country banks existing at the time of the
passing of that Act are limited in their issue to the cir-
culation which they then possessed. In the following
year was passed an Act with respect to Scotland and
Ireland, which was intended as a part of the same mea-
sure. Its effect was to limit the existing banks of
Ireland and Scotland to their then issues, as in the case
of the country banks of England. It did not require
that those issues should be guarded by securities of any
kind, but it authorised them to make issues in excess of
their certified circulation against a deposit of bullion.
Therefore, in Ireland and Scotland there is a certain
amount of paper which is limited under the Act, in
addition to which the banks issue a certain portion
against sovereigns. The committee ought to bear in
mind the practical result of this compound system upon
the circulation as it exists at the present moment. On
the 11th of April last the notes of the Bank of England
in the hands of the public amounted to 19,752,0151. At
the same date the note circuiation of

The English country banks was ........... £6,920,000
The Scotch banki 3,832,000
The Bank of Ireland
dud other banks in Ireland

Total £17,905,000
Adding that amount to the circulation of the Bank of
England, we may take the paper circulation of the
Unites Kingdom to be in round numbers about
38,000,0001. Of that 33,000,0001. the only portion
which is strictly covered by bullion is that which is
issued by the Bank of England in addition to the
14,475,0001. which they issued upon securities. The
whole of the circulation of the English country banks
and the chief part of the circulation of the Bank of Ire-
land and the Scotch and Irish country banks is, so far
as the law is c,oncerned, not represented by bullion.
The security whizh the law takes fcr that portion of the
circulation is the legal convertibility of toe note—the
liability of the banker to pay in specie when the note is
presented. That is the existing state of the circulation
nnder the different Acts which regulate our currency ;
aid it is essential to bear in mind, with reference to the
solvency of the Bank of England and the importance of
keeping a large bullion reserve in that centr ol establish-
rner.t, the c:meiderable amount of the provincial issue.
When Sir R. Peel introduced the measure of 1844, he
stated one of the main objects which he had in view was
to provide security against the excessive issue of paper,
and thereby to guard against the recurrence froia time
to time of those commercial panics under which the coun-
try had at different intervals suffered previously to 1844.
At the same time be stated that he did not propound his
measure as a panacea, or as an infallible guard against
such panic, because he said that the issue of bank paper
was only one of their causes, and he recognised the fact
that cimmercial panics might arise from causes which
did not lie within the scope of his legislatioa. But in
1847, after the commercial crisis of that year, when it
became requisite for the Government to authorise the
Bank, if the necessity should arise, to exceed the limit&
fixed by the Act of 1841, Sir R Peel, in the discussion
which arose, delivered his opinions more fully on the
subject than be bad previously done, and he gave a
definition, corrected by experience, of hid own views as
to the objects of the Act of 1844, which, as it contains
an authentic ex?osaion of his opinions, I trust the Com-
mittee will permit me to read. Sir R. Peel, upon the
3d of December, 1847, said :

" I say, then, that the Bill of 1844 had a triple object.
Its first object was that i❑ which I admit it le +s failed,
viz., to prevent., by early and gradual, severe and sudden
contraction, and the panic and confusion inseparable
from it ; but the Bill had two other objects, of at least
equal importanle—the ono to maintain andf, guarantee
the convertibility of the paper currency into gold, the
other to prevent the difficulties whica arise at all
times from undue speculation being aggravated by the
abuse of paper credit iu the form of promissory notes.
In these two objects my belief is that the Bill has
completely succeeded. My belief is that you have
had a guarantee for the maintenance of the principle of
convertibility such as you never had before ; my belief
also is, that whatever difficulties you are now suffering,
from a combination of various causes, those difficulties
would have been greatly aggravated if you had not wisely
taken the precaution of checking the unlimited issue of the
notes of the Bank of England, of joint-stock banks, and
private banks."

That was Sir 11,,bert Peel's definition of the act after he
had become aware of the events of 1847. I may also call
attention to the rernarits that my right hon. friend near
me (Sir C. Woed), wh, then held the office which I now
hold, made upon the measure then brought before the
house, as showiug that in his view the act was never
considered as a specific against commercial panics. Ho
said :

" A complaint has been made that this act has not pre-
served us from commercial convulsion. I think that those
who expected such an effect from it much miscalculated
the motives by which persons engaged in commercial trans-
actions are eotuated. Certainly, for one, I never hold out
any such expectations to the country. I stated most dis-
tinctly that I did not contemplate that such would be the
effect of the act. . . The same effects precisely might
have occurred under a metallic circulation as have occurred
under our mixed currency, and the advocates of the act of
1844 never professed that its operation would produce any
other result than that which might have happened nn ler a
metallic circulation."

I think that thin reference will satisfy the committee that
the authors of the act of 1844 did not contemplate its
proving a panacea or a complete guarantee against the
occurrence of commercial crisis, which are produced by a
variety of onuses oe which no legislation,and certainly no
legislation confined to the currency, could operate. I w.ll
now briefly advert to the peculiar crisis of 1847. It was
described by my right hon. friend in moving for a coin- '
mittee on the subject as being caused by the abeerp-
tion of available capital for the purchase of corn and the
construction of railways acting upon a very unsound
state of commercial affairs. It arose from internal causes,
from an internal demand flr a large and extraordinary
amount of capital, and had no cmnection, as in the
case which we are now considering, with our foreign
trade. In 1847, as in the present year, her Majesty's
Government, considering the urgency of the commercial
crisis, came to the conclusion to issue a letter to the
directors of the Bank, authorising them in certain cme-
ttngencies to exceed the limits fix-d by the law. The
cause of issuing that letter was stated to be the want of
confidence in the commercial classes which then existed,
and its object was also defined to put an end to the
present alarm. Although the cause of the panic in 1847
was different from that rif the panic of this year, yet the
object aimed at by the issuing of the Government letter
in those two years was identicaly the same. The Bank
directors, however, did not find themselves under the
necessity of overstepping the law of 1647. Confidence
was re-established by the issuing of the letter. Its in-
fluence upon the commercial classes was immediate, and
the Bank directors were enabled to navigate their ships
through their difficult'e3 without exc?eding the limits of
the law. Neverthe'e3s, Parliament was assembled before
the usual time. Tbe.attention of Parliament was called
to the matter by her Majesty's Spet di, lir as no Indern
n'ty Bill was required the d'rect event of Parliament
to a bill was not obtained. Nevert hetes., a committee
of inquiry into the Act was appointed upon the motion
of my right hon. friend. That motion gave ri,e to a
debate, but I believe it was unanimously assented to by
the House. Sir Robert Peel, who was the author of
the Act, expressed himself in terms the most unarn-
, itignens, in approbation of the sanction which hail been
•
giveen by the Government to the suspension for a t me of
tb
werlpaits fixed by the Ac'. I sha 1 quote smile of his
a nn that o,:cagier and I think • is (, im f •p or' a, ce
that the cnutnittee shouh hear them in mina, inasmuch
as the distinctness
batter
which he spoke proves that be,
either in or cut of
who Was certainly
thistteliquualified than any other pi r on
upon the policy of the Aco
tiiewas
se, to speak with authority
'was satisfied of the propriety
p ovine aloinstPbnile—
of the step then taken,
y
—the Government must assume a
" But when there occurs a staat:e7 a ' a state which
aw—which cAs-
ncaontnbote breeaf roenseede n
wori
power to prevent tho consequences which may occur.
Thera is the necessity for a dlscration which I think was
properly ex.2relsed in the present instance. It was better
to authorise a violation of the law than to run the risk of

the consequences which might have ensued if no interven-
tion on the part of the Government bad taken place. . .
Sir, I think that the Government were justified in issuing
that letter. I think that, having issued it, they acted
with the strictest regard to constitutional principle in
forthwith summoning Parliament."

That was the judgment, if I moray so, that Sir R. Peel
pronounced upon that question. But the matter did not
rest mere'y with the appointment of a committee, and
the approbation by individual members of Parliament of
the step taken by the Government. On the 17th of Feb.
1848, Mr. Harries, who was then a member of this house,
moved two resolutions in a committee of the whole
house, the first of twhich confirmed in a most distinct
manner, the policy of the step. It was in these terms :
" That looking to the state of distress which has for
some time prevailed among the commercial classes, and to
the general feeling of distrust and alarm by which the em•
barrassments of trade have been aggravated, it is the opi-
nion of this house that her Majesty's Ministers were justi-
fied, during the recess of Parliament, in 'frecommending to
the Bank of England (for the purpose of restoring confi-
dence) a course of proceeding at variance with the restric-
tions imposed by the Act of the 7th and Bth Vic., cap. 52.
" That this house will resolve itself into a committee
upon the said act."

That resolution was put and carried without a division,
from which it is manifest that the house, upon a consi-
deration of the subject, explicitly approved the act of
the Government. ;But a select committee was appointed
to inquire into the act of Parliament, and several most
able aid competent witnesses gave evidence before them.
In their first report, dated the Bth of Joni, 1843, they
said :

" The issue of that letter was no doubt an extraordinary
exercise of power on the part of the Government, bat the
House has decided that in the peculiar circumstances of
the period they were justified in taking that step."
' Therefore the committee—perhaps, it is a solecism to say
so—adopted the resolution of the House ; at all events,
the committee, after great consideration and inquiry,
referred to the previous resolution of the House as em-
bodying their own opinion. Having thus, I fear at too
great length, but with a minuteness which I thought the
importance of the subject required, stated what took
place in 1347, I will now, with the permission of the
House, call their attention to the events which are now
immediately under our consideration. With regard to
the commercial crisis into which we have lately entered,
and from which I think we can scarcely be said yet to
have emerged, it may be observed that no symptom of
an alarming or even of a threatening character (if we
compare the bullion and reserve notes of 1856 and 1857)
manifeeted itselfiuntil about the 18th of October. From
that day a perceptible deterioration began. The bullion
in the Bank fell between the 10th and the 18th of Nov,
from 10,110,0001. to 6,434,0001. ; while the reserve
notes fell during that period from about 4 500,000/, to
about 1,400,000/. Bat before that time it cannot be
said that anything occurred which would create uneasi-
ness in the course of affairs at the Bank. The immediate
cause of the crisis was, as must be within the knowledge
of most of the hon. gentlemen who are now present, un-
connected either with the management of the Bank or
any issues of paper money in this country It
grew out of the derangement of the American trade,
supervening upon some previous inconveniences created
by the Indian revolt, the shipment of bullion, the dis-
turbance of the Indian trade, and, to a certain extent,
specelition upon the continent. However, it may be
said that the almost exclusive :cause of the commercial
distress was the derangement of the American trade.
For some months previously to November the foreign
drain of bullion was accompanied by an adverse %tete
of the exchanges and a high rate of di: count at
the Bank. On the 2d of April it was 61 per cent.,
on the 18th of June it was 6 per cent., on the 16:11
of July 51 per cent., on the Bth Oct. it was raised to 6
per cent , on the 13th Oct. to 7, on the 19th Oct. to 8,
on the sth Nov. to 9, and on the 9th Nov. to 10 per
cent. These figures show that high rates of discount had
prevailed, the natural consequence of an adverse state of
the exchanges ; but the operations of the Bank and of
the discount houses in this country had been successful
in reversing that state of thiege, and in pro:llacing a fa-
vourable state of the exchanges-before the issue of the
Government letter. At that time the foreign drain of
goli had been checked, and the exchanges were favour-
able. Well, although some uneasiness might still exist
as to the state of the Bank, nothing at that moment
seemed to indicate any immediate probabi ity of the
Government being called upon to exercise any extraor-
dinary powers; and as the right hon. gentleman (Ur.
Disraeli) referred yesterday to the state of our trade
during the month of October as a circumstance which
ought to have induced h.r Majesty's Government to
hesitate before they recommended the prorogation of
Parliament until the end of December, I would be: leave
to remind him that even if the state of trade had been
more unfavourable than it actually was there was no
symptom of commercial distress which woul I have
rendered is necessary for the G svernment to resort to
any t xtraerdieary act. It was oily in the event of their
being called open by any urgent and unforeseen necer-
sity to authorise a suspension of the law tat it was
likely to be necessary that, upon merely commercial
grounds, they shoul I advise her Majesty immediately to
assemble Parliament. In the event of that improbable
contingency—as we thought it—arising, a constitational
power existed, which could be exercised at any moment,
of summoning Parliament by proclamation to meet in
14 days. That is an explanation of the charge of want
of caution and foresight on the part of the Government
brought forward by the right hon. gentleman. Well,
the first event which procipitAted matters in the late
enme-cial crisis was the lailure of the Borough Baak
of Liverpool. I wish to call the attention of the
co nmittee to the fact that ifFsvae not a joint-stock
bank, and that it was not 'it bank of issue. I
believe that there is not a single bank of issue in that
town, but the Borough Bank was not a bank of i,sue ;
it was a ci rperation of a general character, and the
amount of its liabilities was very considerable. As far,
therefore, as that establishment was concerned the con-
sequences produced by its Metre cannot in any way be
traced to an excess in the issue of bank paper. That
failure took plac, about the 27th of October, and the
next event of itnportance was the failure of Messrs. Den•
nietoun on the 7th of November. Teat heuse was ex-
tensively engaged in the American trade. I believe that
it was a house conducted with prudenoe, and possessed
of large capital, but it wag suddenly forced to suspend
payment b: the misfortunes arising out of the cenvul-
siens that hail taken place in America, which were at
tended with much greater distress than had occurred in
this (reentry, and accompanied by a general suepenei sn
of cash payments. The hens° of Meesrs. Dennistoun
failed, as I have said, on the 7th of November for up-
wards of 2,000,0001.. About two days afterwards, I
believe on the 9th of November, a lsrge joint-stock bank
in Scotland failed—the Western Bank, which had
numerous branches. Within a day or two aitecwarde
another large j Int-steck bank—the City of Glasgow
Bank—also fehed. The joint circulation of there banks
was about 800,0001, of which about one-half was the
certified circulation they were authorised to make open
securities, and the remaining halt upon bullion. Their
deposits were about 9,000,0001., showing that it was not
tht it note circulation, but the magnitude of their other
transactions and liabilities which led t, their unfortunate
failure. (Hear, hear ) I may mention with regard to
the Western Bank of Scotland that there had been no
run at all upon it previous to its failure, and that when
its doors were closed not a single note had been presented
for p tyment out of the usual course, thus sho Nino that
it was not the discredit of the notes of the bank, but
a failure to meet its large engagements of other
descriptions which led to its unfortunate fall. The
first sign of pressure more immediately afftcting
the mercantile classes in London, and approach-
ing nearer to the Bank of England, was the failure
of the house of Messrs. Sanderson and Co., bill-brokers,
which took pl ice on the 10th of November. Such
an event could not occur without exercising a e(rrous in-
flueuce upon the credit of other similar establishments
in this city. The publication of the Bank returns for
the week endost; Wednesday, Nov. 4, which chewed
considerable reduction of the Bank reserve, was a cir-
cumstance which, combined with the other facts I have
mentioned, could not but create uneasiness and alarm
and call attention to the diminishing resources of the
Bank. The alarm increased in London, and I think I
cannot adduce a clearer or more compendious proof of
the existence and extent of that alarm than by referring
to the increase of the binkere' deposits at the Bank of
England in the week from the 4th to the 12th of Nov.
1 It may at first sight seem somewhat paradoxical to
the committee to refer to t'se increase of bankers depesii,s
in the Bank of England as a proof of alarm—(hear)—
but it must be borne in mind that the Batik of Eogland
is the bank in which the London and other bankers keep
their deposits, and therefore when they increase thoee
deposits suddenly and extensively it is a proof that they
are guarding themselves against a run upon their fund!,
that they expect demands from their customers, and are,
in fact, if I may so say, boarding their resources. The
increase of bankers' deposits at the Ban.k of England is,
therefore, a recognised test of the existence of alarm. In
the week from Nov. 4 to Nov. 12 these deposits increased
by no lees than 1,970,0001. But there was another
decisive proof of the exestence of alarm in this city—
namely, the general cessation of all discounting except
by the Bank of E igland. At that time it was scarcely
possible to obtain an advance, even upon bills o filets
were undoubtedly good, either from bill brokers or
bankers; their operations were for the moment univer-
sally suspended, and the Bulk of England was the only
establiehinent io London at which discounts ceuld take
place. That circumstance may be referred to ae a tolerably
conclusive proof of thegeneral prevalence of alarm. I may
mention that at that time a single discounting house
paid in one day 800,0001., 700,0001. to depositors, and
100,000/. to discounters—a sum, I apple bend, almost un-
paralleled in operations of that kind. I will now call the
attention of the committee to the state of the Bank on
tbe.day before the recent Government letter was issued,
and to its state on this day previous to the issue of a
similar letter in 1847, and I think the committee will
ceo that with regard to every point indicative of tee
strength of its resources the position of the Beni( in
1857 was less favourable than its position in 1847. Tne
inference to which I wish to lead the committee is that,
if the Government were justified by the opinion of Pat.
liament, of the public, and of competent judges, in issu-
ing the letter in 1847, then a fortiori they were justified
this year in issuing a similer letter. Toe following is a
statement of the position of the Bank of England it
Oct. 1817, and Nov. 1857 :

Oct. 23, Nov. 11,
1847. 1857.
Million
Reserve of notes in Banking
Department 1,517,000.., 957,000
Reserve of coin 447,000 ... 501,000
Deposits (Private) 8,580,000 ... 1'.1,9 il,OO
Private Securities
Tberef re 1 think the committee will see that whatevt,
were the grounds for the interf rence of the Governtre ,t
in 1847 the grounds were still stronger in the preset,t
year. There is another most material point of difFerenc'
between the two cases, which perhaps eleZl still more