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to meet the public wants, and allay the general apprehension. It is to be observed that the mode of payment by way of bills and drafts on London, is resorted to so extensively in times of pressure, that in 1857 probably sixty per cent. more debt was paid in this way than is the case in the ordinary normal state of trade;1 and there is, connected with this, another fact, which accounts for a considerable amount of hoarding of Bank of England notes and gold in the hands of the country banks of issue; and explains why such hoarding begins at an earlier point on occasions of apprehended pressure than it otherwise would do, thereby accelerating the crisis. It is this:-The Bank of England absolutely refuses all discounts to a note-issuing banker upon any terms whatever. Rothschilds' bill, even at seven days, presented for discount by a country banker who issues his own notes, is refused discount. The prohibition extends even to advances upon exchequer bills. The banks of issue, of course, feeling that they have no one to look to but themselves in moments of pressure, commence strengthening their reserve by hoarding gold and Bank of England notes, upon the first symptoms of danger becoming discernible in the commercial horizon. That the immediate effect of commercial anxiety, incident upon the rise of discount at the Bank of England, is to swell the number and amount of the bills of exchange which come up to London for discount, is apparently quite certain; 3 and it also appears to be well made out, as one of the ultimate effects of a crisis, that even first class paper becomes practically inconvertible. These matters become of immensely more importance and significance in the eyes of those who are aware how largely bills of exchange enter into and form a part of that wonderful mechanism, the circulation of this country. There are also some

1 See Evid., pp. 192, 194.

2 See Evid., pp. 193, 194, 376, Q. 5631.

See Evid., pp. 331, 333, 335, 340, 341, 382, 383.

3

See Evid., pp. 150, 151, 152, 153, 161, 174, 193, 194, 331; Q. 4978, pp. 333, 336; Q. 5062, p. 341.

minor points of objection to the operation of the act, which we will not now consider.1

2

With respect to the Joint Stock Banks Act, a great deal of invective has been indulged in, betokening that excited state of the passions in which it becomes unsafe to rely implicitly on the statements advanced; but, apart from that, there can be no question, vast benefits, together with some evils, have followed from the establishments which have sprung up under that legislation. Next to locomotion, and before insurance, the joint stock principle has probably been most largely applied to banking of any species of commercial enterprise. The general success of these banks hitherto is marvellous. The London joint stock banks are considered to hold in deposits at call, or at a few days' notice, upwards of forty millions sterling; the London and Westminster Joint Stock Bank holds upwards of thirteen millions sterling. It is stated that these enormous amounts are formed by the aggregating of small sums, which were never deposited in banks before, belonging to small shopkeepers, farmers, servants, &c., who, for the first time, have been tempted to keep a banker by the interest which these banks pay upon their deposits. The whole forms a phenomenon most striking, and most attractive for examination. But at present let us see what are the objections which the mercantile world allege against the joint stock banking legislation. Now, the main complaint is this-The absence of adequate fulness in the periodical statements of the accounts, it is alleged, leads to great evils. The law has left this matter, it is said, too much at large. Every one ought to be enabled to tell from the published accounts exactly what is the real state of the bank in each year, and what is their course of trading, by a comparison of the accounts year by year. For instance, the accounts ought to state every half-year the amount of the overdue bills on hand, and the probable amount which

1 See Logic of Banking, pp. 335, 448, 454, 475, 476–486.

In all probability the sums at present insured in the United Kingdom amount to, if they do not exceed, £200,000,000 sterling.-Edinburgh Review, January, 1859, p. 37.

they would realize; so that, if it were found that the bank had £200,000 of overdue bills as its usual sum under this head, but that in some one half-year's account the sum stood at £500,000, the circumstance would attract attention, and lead to inquiries being made by the proprietary, who might thus, by means of an improved form of account, be enabled to exercise a real and beneficial check upon the management of the business. As the existing law stands, these periodical statements of the affairs of joint stock banks, though they may be framed entirely in conformity with it, are not only, it is considered, not sure guides to the public as to the real state of the banks, but are absolutely fallacious. Now, there seems to be no adequate reason why this defect should not be altered without delay, provided it could be effected, as the plans suggested seem to show, without disclosing the state of particular accounts, and so violating the confidence which must and ought to subsist between banker and customer. So long as this cardinal object was secured in full integrity, there could be no valid ground on which the banks could object to a full statement of their transactions being communicated at short periods to their shareholders. The existing enactment on this matter, it will be remembered, is 7 and 8 Vict., c. 113, s. 4, providing that every deed of partnership or settlement shall contain provisions for the publication, once at least in every month, of the assets and liabilities, and for the yearly communication to every shareholder of the auditor's report of a balance-sheet and profit and loss account. But what are assets? what are liabilities? and what is the value of the auditor's report as the law at present stands? All these points are, in fact, far from settled; and some legislation seems to be indispensable, either to explain what shall be taken as assets and what as liabilities, or altogether to alter the requirements in respect of these accounts, by insisting on such a degree of fulness in them as would enable persons, by reference to first

1 See Evidence of Mr. Kirkman Hodgson, M.P., Evidence, p. 250; and see pp. 134, 135, 316, as to this, and as to modes proposed for improving the published accounts, so as to convey more specific information.

principles, to form a judgment for themselves of the transactions of the company, that had resulted, or were in the process of resulting, in assets on the one hand, or liabilities on the other. As to the audit, we shall have a word to say by and by. In the mean time, one observation must strike every one. If the accounts rendered by this class of banks, in strict accordance with the provisions of an act of Parliament, fail to convey any practical quantity of information to the proprietors or the general public, assuredly they cannot be supposed at present to carry into effect the intentions of Parliament. The annual report, it must be remembered, though in form the report of the directors to the general meeting or to the company, is in fact, and in legal effect, the statement of the company as a body, and the company as a body is responsible for the truth or falsehood of the allegations contained in it—a principle from which very grave consequences may follow. Nor are instances wanting in the courts in exemplification of this, particularly as regards questions of contribution from shareholders on winding-up.1

Another reason why it seems to be imperative on Parliament to make provision for the publication of accounts in such a form as shall be effectual to let light into the real state of the company's affairs is this:-By the Joint Banking Companies' Act, 1857 (20 & 21 Vict., c. 49. s. 3, 14), the provisions of the Joint Stock Companies' Act, 1856, for the appointment of inspectors by the Board of Trade to examine into the affairs and report thereon, &c., is made to extend to joint stock banking companies, but only upon the application to that department of one-third, at the least, in number and value of the shareholders in the company. Now, in the first place, it is next to impossible, with the present accounts rendered to him, for a shareholder to form any judgment as to whether a case has arisen for a government inspection or not; and it must be remembered that any such proposal, except on the most ample and pressing reasons, would

1

1Ex parte Brockwell, 26 L. J. Chanc. 859-863, where see the previous decisions examined; also Ex parte Duranty, 28 L. J. Chanc. 37 ; Ex parte Bigge, id. 50.

probably meet with discouragement amongst the proprietary, as obviously tending to shake public confidence in the concern, to cause the shares to fall in the market, and depositors to withdraw their accounts, &c. Secondly, working with nothing more explanatory than the present forms of accounts before him, a government inspector would probably be much embarrassed in prosecuting his inquiries to a satisfactory issue. Will it aid him much to have all officers and agents of the company bound, under a penalty of £5, to produce any book or document in their custody or power, and to answer any question relating to the affairs of the company? The primary difficulty still remains, for he has no clue to guide him through the mass of transactions to the unsound spots. The same objection applies to the general meeting's inspector. Audits, as at present conducted, strongly exemplify what is advanced above; in practice they are found to amount to little more than nothing; at all events they cannot be said to impart more than the slightest degree of security. Nor is it difficult to see how this is the case. For, in order to afford a real result available for the purpose of ascertaining the actual state of the bank, what is the task of the inspector or auditor? He must ascertain the status of every account, he must know where to write off each debt as paid, he must value every security on which the bank has advanced, he must estimate every overdue bill, and tell whether it is likely to be paid by any of the persons whose names are on it—a most tedious and necessarily lengthy series of operations, even supposing that the bank inspected had embarked in none but legitimate banking business; but capable of being indefinitely extended in duration and difficulty, in cases where the business was of a speculative character, or even in the case of bills rediscounted, and therefore out of the hands of the bank. In fact, no inspection or audit can be of much value, unless it be conducted by a person having a knowledge of the concerns of the establishment equal to, or perhaps greater than, that of the directors and manager themselves. In any other circumstances, the report could be little more than that the system of book-keeping was correct;

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