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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 prose

outing his inquiries to a satisfactory issue. \Vill it aid him

much to have all ofiicers 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 difliculty 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 ofi" 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 difliculty, 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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that all the arithmetic‘ of the bank was accurate and properly vouched ; that the balances were right as compared with the entries in the ledger; that all the securities stated to be in the possession of the bank, were actually seen by him in the cashier’s box or case; but, about the value of the securities, the cardo rerum, he would not, without such degree of knowledge as is obviously unattainable by a stranger, be able to say any thing decisive.‘ In auditing a bank, and taking an account of the assets, every thing depends upon the judgment founded upon knowledge of the person taking the account. A bill of exchange, for instance, is either the very best banking asset or the very worst, and how is a stranger to know whether the bill is a good commercial bill or a kite? Yet on the judgment which he forms, that is to say, on the knowledge which he has of the dealings of the bank, and of the class of persons with whom they are used to deal, it depends whether he counts the bill as a good or

a bad asset. That such a form of account could be devised as would fully meet all the difficulties in the way of setting about an efficient audit or inspection, we do not say; because we know that a bad banking security, that is to say, a security which a. banker, acting on sound banking principles, would not look at, may, nevertheless, ultimately turn out to be productive and a good security; and it would be an extremely difficult task to value such a security for a balance sheet; but what we say is this: We are not yet convinced of the impossibility, without improper disclosures, of rendering such accounts to the shareholders as would give them the means of judging, in any case, whether the time was come when the onethird ought to apply to the Board of Trade for an inspection, with a view to see whether it would be prudent to wind up the concern, or whether they would be justified in going on in the actual state of their afiairs. We contend also, that accounts of a more particular and special character might and ought to be required by Parliament, to be furnished in ease of an inspectionlto the inspector, to be seen by him alone in such

I See Evid., pp. 252-256, 296, 316, 319, 310, 322

form as would facilitate and abbreviate his labours; and make the J oint-Stock Companies’ Act 1856, as applied to joint-stock banks, an operative enactment. At present, with the machinery supplied, it must needs be a mere dead letter fdr the purpose of discovering the actual state of one of these gigantic bodies. Except with the object of guarding against misapprehension, it would not be necessary to add what we are quite aware of, namely, that no form of account can ever be framed by any human ingenuity, which will effectually protect shareholders from the absence, in managers and acting directors, of the essential qualities of prudence, integrity, judgment, vigilance, and knowledge. But the admission that a perfect system cannot be devised, is no argument for not attempting the improvement of one which is materially imperfect.

There appear to be several evils arising out of the existing system of the directorate in joint-stock banks, which are not undeserving of consideration with a view to their amendment, assuming, for the present, that the system in itself has advantages sufficient to make it deserving of retention in any case. Mr. Gilbart observes, “ The constitution ofjoint-stock banks appears theoretically absurd. The 1nanager—the banker——who is presumed to have some knowledge and experience in banking, is placed under the command of a board of directors, whose knowledge and experience are supposed to be inferior to his own. These directors are again placed under the control and instruction of a body of proprietors, whose knowledge of banking is much less than that of the directors.” 1 If the system is found to work well, it is only so far as it departs from the theory, and abandons the principles on which it is based. How, then, is this effect produced? In the inception of the system of joint-stock banking, the forcible objection to them was this—“ Under these arrangements, every customer’s account is liable to be inspected by any one who may get into the direction, and who may be perhaps a rival or competitor in trade of the customer.” To meet this outcry, the invariable rule and practice in all joint

‘ Logic of Banking, p. 228.

stock banks has been, that the body of directors shall not be allowed to see the accounts of the bank; in general, the directors are not cognisant in detail of the operations of the bank, or of any individual transactions whatever.‘ In many cases there are appointed out of the body or board of directors, two or three who are called managing directors, who give a more continuous and close attention to the affairs of the house than the rest, and are more intimately conversant with the proceedings of the manager. But these persons, like the rest of the directors, are either men of business engaged principally, and giving their best attention to concerns of their own, and therefore, at the best, affording but a subordinate and incidental supervision to

the affairs of the bank ; or they are not men of business, and the _

attention they give to the bank is in consequence probably but of little value as regards the interests of the shareholders. Practically, every thing depends on the knowledge, and skill, and banking ability, the fidelity and integrity of the manager, who is usually a person who has been bred to the business; although it is believed that, in most cases, the rule above alluded to does not extend to exclude the managing directors from the power of obtaining a full knowledge of all that is done in the bank. Now, considering how much the existing theory requires of the directors, and the part in the actual conduct of affairs which it was the intention of Parliament, manifested by the responsibilities which it has cast upon them, that they should bontifide assume, it is certainly somewhat startling to find the practice to be such, that in many cases the directorate as a whole is of little or no assignable use, as far as government or control is concerned. Nevertheless, the law requires them to put forth to the world periodical statements authenticated by their signatures, of the real effect of which, as the practice is, they must oftentimes be ignorant. Such a position is not, to say the least of it, an enviable one to be placed in. The JointStock Companies’ Act, 1856, materially aggravates their respon

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sibility in those cases of banking companies to which it applies,‘ by enacting” that directors knowingly paying a dividend when the company is in an insolvent state, or any dividend which would to their knowledge render it insolvent, shall be liable for all the then debts of the company, and for all that shall be contracted thereafter during their continuance in oflice, with the proviso, however, that such liability shall not exceed the amount of such dividend; and with the further proviso, that if any of the directors shall be absent at the time of making the dividends,

. &c., or shall object thereto, and file their objection in writing, &c.,

they shall be exempted from liability. To conclude, however, from the above considerations, that a joint-stock bank cannot be as well managed as a private bank would be erroneous, because, practically, the administration devolves upon the manager, an officer required by the statute to be appointed in each jointstock bank, whose whole time is as constantly devoted to the business as that of private bankers. After all, the courts do not recognise the practice ofjoint-stock banks where it departs from the spirit of the act of Parliament. It has been laid down to be the duty of directors to know the real state of the company, and to take care that the real and actual position may be ascertained by the books. Therefore there is no excuse for them if the books shew a balance of assets over liabilities, when the fact is really otherwise.’

As to shareholders in joint-stock banks no complaints seem to be made of their actual position, of the quantum of responsibility which they incur, or even of the three years retrospective liability which the statute fixes on an outgoing shareholder. IF, however, the thing were matter of choice, one would desire to see a wealthier and more intelligent class of persons coming forward to take shares in joint-stock banks. At present, experience shews that there is among them a very

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5 Ex pm-te Ayre, 27 L. J ., Chane. 583. But compare carefully Ea: parts Bigge, 28 L. J., Chane. 50.

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