Page images
PDF
EPUB
[ocr errors]
[ocr errors][ocr errors][ocr errors][ocr errors][ocr errors]

quarters an indisposition to admit the applicability of the jointstock principle to the purposes of banking. Sir G. C. Lewis (the late Chancellor of the Exchequer), and one or two of the witnesses, seem to be inclined to think the principle to be much less adapted for banking than for others of the great undertakings in which it has achieved such signal success. On this point it is curious to compare the settled opinon of the father of English political economy?_“ The only trades which,” he says, “it seems possible for a joint-stock company to carry on successfully without an exclusive privilege, are those of which all the operations are capable of being reduced to what is called a routine, or to such a uniformity of method as admits of little or no variation. Of this kind is—First, the banking trade ; secondly, the trade of insurance from fire, and from sea risk, and capture in time of war; thirdly, the trade of making and maintaining a navigable cut or canal; and, fourthly, the similar trade of bringing water for the supply of a great city.”

With respect to limited liability in banking, there is not as yet any thing of a useful character to be stated, in the absence of experience. Since the passing of the late act (21 & 22 Vict., c. 91), extending the principle of limitation of liability to banking, too short a time has elapsed to have discovered evidence of its workings. We may, however, observe that very discordant

, opinions were given by the practical men examined before the committee of last year, as to the merits and claims to public confidence of limited liability as applied to banking.

The system of open credits, or “foreign banking," as it is termed, deserves some brief notice before we close this article, with the subjects treated in which it has some connection. This system has been much extended of late years in this country, and has led to great abuses, and much loss and disaster. On the continent such business as the following is not considered objectionable, and the persons following it are called bankers. Thus A, having his house of business in Paris, draws upon B, his

i Wealth of Nations, 3rd Vol., 146. Edit. 1789.
2 See Evid., pp. 258, 262, 276, 279, 283, 284, 305.

[merged small][ocr errors]

a

[merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small]

agent in Hamburg (or wherever it may be), having no assets in B's hands to meet the bill when due, but on the understanding between them that the credit so opened shall be covered by the transmission of bills upon Hamburg, by obtaining the amounts of which, when due, B will be put in funds in time to enable him to provide for the bill drawn upon him. In such case, A is called, on the continent, a banker; when he draws such a bill for any one who wants a bill upon Hamburg, his profit consists in the difference between the price he pays for the bills he buys in the market to remit to the agent, and the sum which he charges on his own draft. The agency house, it will be seen, accepts solely on the faith that remittances of bills will be sent in time, so as to save it from the neces. sity of making cash advances out of its own funds. A commission is paid to them on the acceptance. Several houses in England were found in 1857, to have engaged largely in this system of open credits with houses in the north of Europe, chiefly in Sweden and Denmark; and those English houses fell in consequence of the remittances not being sent forward in due time. But these English houses were not banking establishments in our sense of the term, and there is no proof of any English bank having ever taken part in this description of business. It is material to observe that the system is not wholly new; exchange operations are as old as commerce—that is, the practice of drawing a bill upon London, and the remittance of a bill from abroad, at a lower rate of exchange than that at which the bill on London sells for, and which last meets the other when it becomes due. The difference between the two species of transactions is in the object of the latter, and the mode of remuneration of the operator. On the system, of which so many instances came to light in the failures of 1857, the acceptance is undertaken for the sake of the commission, and not with reference 'to any action upon the exchanges. The one transaction is looked upon by commercial men here as regular, long custom having established and sanctioned it—the other has, of late, grown up to be an abuse of

1 Seo Evid., pp. 112, 116, 119, 121, 130, 158.

ts in

ading

y the

ounts -nable

casc, such

proft or the

d the

house,

tances

neces.

com

uses in

in this , chiefly in con

e time?

great magnitude, until the instances of it have become so numerous as to constitute a public evil. There have been cases in which it was discovered that a certain circle of houses co-operated in this business—one remitting its neighbour's bills upon their agent in London, they, at the same time, drawing bills upon their own agents, and giving them as remittances to the other house, thus acting in a vicious circle, and raising money in the discount market in London. This mode of action is said to have been the principal cause of most, though not all, of the commercial failures of 1857.1

We must not omit some reference to the banking crisis and commercial panic which occurred in the United States of North America, and particularly among the banks of the State of New York, in 1857. There were in that State, in the beginning of the year, sixty-three banks established in business; of these sixty-two had suspended payment by December. Discounts rose to an unprecedented height; in some extreme cases realizing 20 per cent. Securities generally were much depreciated throughout the States. The prices of produce fell. Cotton fell from 16 cents to 92 cents. What is described as a general scramble for money took place in the State of New York. The cause assigned is, that the banks above-mentioned had made such large advances, and discounted so freely, that they became alarmed at their own

and in their struggles to strengthen that position, by curtailing their discounts and refusing the usual facilities to the merchants, and by demanding the repayment of the advances which they had made upon ships and different securities, they caused first great difficulties among the merchants, and later some failures ; and this was followed by a general collapse of confidence or panic, and then by a run on the banks. Now, in New York, the system of banking is by law (with the exception of the old corporations whose charters are unexpired) uniform in this respect. Every bank is allowed to issue any amount of notes

, provided it first deposits with a Government department State stocks at least to the same amount. Avoiding details, this

[blocks in formation]

position;

on sells

[blocks in formation]

1 Seo Wealth of Nations, Vol. i. p. 465, 471.

puse of

is the outline of the plan in use : all the banks are obliged by law to have published weekly (which is done by a Government department) accounts showing the circulation of notes, the quantity of specie held by each bank, the amount of advances, the amount of securities held by each; all the items being stated with great particularity. Moreover, during the previous three or four years the amount of the capital subscribed (as it is termed there) to the banks, had very greatly increased as well as the deposits. Also, what is curious, the panic ceased as soon as the banks suspended payments in cash, yet their notes continued in circulation after the suspension, and were freely taken, notwithstanding the suspension, at little or no discount, and so continued to be taken during the whole period of the suspension ; the public being aware, of course, that every note was covered by at least an equal value of Government security, deposited against it in the banking department of the State; so that, although gold was no longer obtainable for the notes when presented for payment at the banks, the value in currency was maintained at par, or very nearly at par, by the general confidence that the means existed for their ultimate realization in the form of gold. It should be mentioned, however, that by an express provision of the law, a priority and preference is given to the note-holder over all the assets, before any other creditor, and that, as it seems, independently of the securities lodged with the Government. These banks were all what are there termed “Subscription Banks;” being, in fact, joint-stock banks, with a paid-up capital, the shareholders' liability being, it seems (but we are not in a position to speak with confidence on this point), limited to the amount of their shares. What we have been enabled to state will suffice to show how far the history of this remarkable panic may be worthy of investigation, with reference to the much-mooted question in this country of how far it is desirable, in reference to our currency, that the banks of issue should be obliged to deposit with the government securities equivalent to their note issues.

There is yet a number of points in and connected with this

[ocr errors][merged small]

topic which, for the present, we must leave untouched, inasmuch as it is impossible to embrace them within the bounds of a single article. Our desire has been rather to endeavour to put before the reader a few of the principal points in the practice and law of banking, than to attempt to frame a compendium of the entire subject.

[merged small][merged small][merged small][merged small][merged small][merged small][ocr errors]

ART. VIII.-JUDICIAL ANTICIPATION.

OD;

ered

Gted

hat, Chen

was

onin the

by an giren editor,

odged

THERE
THERE are two courses pursued by judges, and even the most

eminent have differed in their choice between them. One is, never to interfere during the progress of the cause, unless where it becomes necessary to interpose, either from an appeal made by the counsel, or from some irregularity requiring to be checked. The other is occasionally to state difficulties that may require to be got over, or doubts to be removed; in short, to bring the mind of the judge in contact, possibly in conflict, with that of the advocate, sometimes by starting objections requiring an answer, sometimes by a call for explanations, sometimes by ascertaining the precise drift of the argument or meaning of the narrative. Of the former class of judges, Sir William Grant was the most remarkable instance; and, with all the deference which so high an authority—perhaps of all judicial authorities the highestnaturally commands, we venture to doubt the expediency of the course he pursued, and to prefer the other, provided it be guided and controlled by sound discretion. Manifestly, Sir W. Grant's mode was wholly inapplicable to trials at Common Law, even to arguments in Banc, touching what had passed at Nisi Prius; and, in a court of the last resort, it would have occasioned great risk of miscarriage, where no error or oversight even could be corrected. But even in the ordinary case of arguments, whether in law or equity, it is manifest that the other is the better, and,

there banks

[ocr errors]

seems

on this 7e have story of 1, with

a

of how anks at ecurities

vith this

« PreviousContinue »