BANK CHARTER AND BANKING REGULATIONS.
In the speech at the opening of parliament, her majesty had alluded to measures about to be brought forward for the regulation of the Bank of England, and the administration of banking concerns in general. On the 6 th of May, in accordance with this announcement, the house having resolved itself into a committee upon the Bank charter, Sir Robert Peel explained these measures. The act of 1833, he said, had empowered the government to notify to the Bank, before August, 1844, that parliament meant to deal anew with the subject; and government now proposed that parliament should exercise that power of notification. The right honourable baronet went on to consider the principle of value. What, he asked, was a pound, and what the engagement to pay a pound? He contended that the word meant more than an abstraction—that it meant a certain weight of precious metal; and the engagement of a maker of a promissory note was to pay on demand a definite amount of that metal and fineness. A real measure of value in this just sense had existed till the year 1797, when bank paper became issuable without being convertible into metal. For some years the subject attracted little attention, until the bullion committee of 1810 propounded a sounder theory. This theory, however, was unsatisfactory to the people at large, and a notion became general that a pound was merely an abstraction. Some writers had argued, he continued, that gold was unfit to be a particular medium, because it was an article of commerce. There were several theories upon this subject. For instance, Mr. Ricardo conceived that paper should be convertible only when the notes tendered for specie should reach to upwards of a certain high amount; but he preferred, to adhere to the present system of a single gold standard, and a five pound note convertible into gold. The right honourable baronet next proceeded to state his views respecting the principle for the regulation of a paper currency, making a distinction between bills of exchange and those promissory notes, which, being payable to bearer, served the direct purposes of money. He next stated the outline of the practical measures he was prepared to recommend. He remarked: “I propose, with respect to the Bank of England, that there should be an actual separation of the two departments of issue and banking—that there should be different offices to each, and a different system of account. I likewise propose that to the issue department should be transferred the whole amount of bullion now in the possession of the Bank, and that the issue of bank-notes should hereafter take place on two foundations: first, on a definite amount of securities, and, after that, exclusively upon that of bullion; so that the action of the public would, in this latter respect, govern the amount of the circulation. There will be no power in the Bank to issue notes on deposits and discount of bills; and the issue department will have to place to the credit of the banking department the amount of notes which the issue department by law will be entitled to issue. With respect to the banking business of the Bank, I propose that it should be governed on precisely the same principles as would regulate any other body dealing with Bank of England notes. The fixed amount of securities on which I propose that the Bank of England should issue notes is £14,000,000; and the whole of the remainder of the circulation is to be issued exclusively on the foundation of bullion. I propose that there should be a complete and periodical publication of the accounts of the Bank of England, both of the banking and issue departments, as tending to increase the credit of the Bank, and to prevent panic and needless alarm. I would, therefore, enact by law that there should be returned to the government a weekly account of the issue of notes by the Bank of England; of the amount of bullion; of the fluctuations of the bullion; of the amount of the deposits; and, in short, an account of every transaction, both in the issue department and the banking department of the Bank of England; and that the government should forthwith publish, unreservedly and weekly, a full account of the circulation of the Bank.” Sir Robert Peel next explained the regulations proposed by him for private banks. The general rule, he said, would be to draw a distinction between the privilege of issue, and the conduct of banking business: the object being to limit competition, but to make the great change with as little detriment as possible to private interests. From this time no new bank of issue would be constituted; but all those existing would be allowed to retain the privilege, upon condition that they do not exceed the present amount, to be calculated upon the average of a term of years. This would enable the Bank of England to know the extent of issue with which it would have to compete. While the issues would be restricted, banking business would be facilitated; the privilege of suing and being sued, at present withheld from joint-stock banks, would be accorded; the law of partnership would be so altered, that while the acts of an individual director, or otherwise authorized partner, would bind the whole, the acts of an unauthorized partner would not do so; and joint-stock banks in London, at present forbidden to accept bills for a date of less than six months, would be placed on an equality with other banks, and allowed to accept bills of any amount and any date. If the last privilege were abused by the circulation of small bills, he would then appeal to parliament to correct the evil. All joint-stock banks would be required to publish a full and complete periodical list of all partners and directors, and banks of issue to publish an account of their issues. Joint-stock banks would also be prohibited from having shares of less than £100, £50, or some fixed amount; and no new joint-stock bank should be constituted except upon application to a government department, on registration of prospectuses, and probably registration of shares and paid-up capital. Reverting to the proposition respecting the Bank of England, Sir Robert Peel remarked:—“It is to be allowed issues to the extent of a fixed amount of securities, £14,000,000. The existing loan of £11,000,000 to government, at three per cent., will be continued, there appearing no advantage in change.
“The remaining £3,000,000 will be based upon exchequer bills and other securities, over which the Bank will have entire control; with the power, however, of limiting its issues on that portion of the securities, to restore the exchanges, and so forth: there could hardly be a case in which the securities could safely be diminished to less than £11,000,000. The Bank will also be allowed to extend its issues beyond the £14,000,000 on emergency, but only with the assent of three members of the government; and in such case the whole of the net profit on any amount beyond the £14,000,000 will revert to government. A case might arise such as the sudden extinction of £2,000,000 of the provincial currency, which would need an extension of the Bank currency to fill the gap. Without seeing any great advantage in the ‘legal tender’ clause, it is proposed to continue it, in order to facilitate the circulation of bank paper. The pecuniary arrangements between the Bank and government have to be explained, The Bank retains the privilege of issuing notes on securities to the amount of £14,000,000, at three per cent., which would yield £420,000. From this there are deductions to be made. The total cost of the Bank on an issue of £20,000,000, has been estimated at £117,000; but take it at about £113,000, which, taken from £420,000, leaves £307,000. There is then to be deducted about £60,000 composition with the Stamp-Office for the privilege of issuing notes. Then there is about £24,000 paid by the Bank to those bankers who undertake to issue Bank of England notes: taking-one per cent, on a payment of three per cent. The result, after subtracting these items, is £220,000 derived from the issuing of notes. Hitherto the Bank has paid £120,000 to government for its privileges: its privileges are now to be affected; but on the other hand increased stability is to be given to its banking business; and I propose that in future the Bank should still pay that sum, besides the £60,000 for the composition with the Stamp-Office, making in all about £180,000. Government pay to the Bank £240,000 for the management of the public debt; and the difference between the two last sums would be the balance that government would have to pay over to the Bank.” After stating that the present measure would not be extended to Ireland and Scotland, Sir Robert Peel concluded with moving a string of resolutions which embodied the above propositions. His scheme met with general approbation; and on the 20th of May, the house having gone into committee on the resolutions, Sir Robert Peel made some further explanations upon points in the detail of the measure. He would suppose, he said, that the circulation in the country was £8,000,000; that the country banks would desire, by agreement with the Bank of England, to reduce this by one-half; and that it might become necessary for that establishment to make fresh issues in order to supply the vacuum. The cases then in which he would allow the Bank to do so, would be those of a country bank failing, or closing, or commuting its own circulation for that of the Bank of England. With respect to the question, whether the bullion on which the Bank of England was to issue its notes should include silver, he proposed that it should; but without departing from the great principle that there must be but one standard, and that standard a gold one; all he meant was, that if a party brought silver to the Bank, the Bank might, within a certain limit, give its notes in exchange for it. If this were not permitted, the Bank having no interest in keeping a supply of silver, would probably cease to keep it; but it was important for the country to have access to such a supply, not only for domestic circulation, but with reference to foreign commerce. He proposed, therefore, to permit an issue of notes upon silver bullion, in the proportion of one-fifth of the whole, or one part in silver to four in gold. With respect to banks of issue, he would save them their circulation until parliament should make further order, and he would compute that circulation upon the average of its amount from the 6th May, 1842, to the 6th May, 1844, requiring henceforth a weekly publication of it. Where one bank took the business of another, the benefit of the averages of the extinguished bank should be given in the circulation of the surviving bank. If a bank should increase its branches, it would not be allowed to increase its total issues. If private banks should coalesce, the consolidated concern, being still a private bank, should be permitted to retain the benefit of the circulation of all the component banks, but a change of character would not be permitted: joint-stock banks would not be authorized to buy up the circulation of private banks. Sir Robert Peel next explained the way in which he intended that the new plan should operate with respect to those banks which had been issuing Bank of England notes, and announced that the Bank of England was prepared to enter into negociations with other banks for arrangements under which its notes should be circulated by them. He concluded by adverting to some exceptions which had been taken to some parts of his measure, in doing which he showed that they were founded upon safe and just principles. After a brief discussion, the resolutions were passed, and the second reading of the bill founded upon them was moved on the 13th of June. Mr. Hawes moved as an amendment:—“That no sufficient evidence has been laid before the house to justify the proposed interference with banks of issue in the management of their circulation.” This motion was supported by Messrs. Hastie, Woolehouse, C. Buller, Gisborne, and Williams; and opposed by the chancellor of the exchequer, Sirs R. Peel and W. Clay, and Messrs. Hume and Warburton. On a division it was negatived by a majority of one hundred and eighty-five against thirty; and after some further discussions in committee, in which some members attempted to introduce modifications in the bill, all the original propositions were carried, and, with the exception of a small section, with the general concurrence of the house. In the house of lords it received very little discussion. The first and second readings passed sub silentio; and it went through committee without any division: the Earl of Radnor and Lord Ashburton only expressing fears of its practical working.