2 JUNE 1866, Page 7


1866 has kept its character to the last. A fortnight since we remarked that it had not been a panic among the public so much as among its leaders—bankers, dealers, brokers, and discounters,—and the final catastrophe was due to them exclusively. The Consolidated Bank went down in smooth water like a ship run on a rock by its own officers. It would scarcely be possible for a business man

with the Directory at disposal to frame an imaginary board better or more trustworthy than that which governed this ill- fated concern. It had not on it a half-pay General, or an East Indian Knight, or a pauper M.P., or one of the score of names which reappear on every doubtful list, and which warn men who know the City as fully as hectic warns phy- sicians that there is unsoundness somewhere. All were solid, responsible men, rich, and up to their eyes in large affairs, men, some of them, who, like Mr. Smith, had managed millions, or, like Mr. Pender, had built up first-class fortunes by their own skill and daring, or, like the Messrs. Hankey, had been bankers from their youth up. There is not in London a firm so solid that it would not have been glad of this Board's sup- port, or a merchant so keen that he would not have been moved by these men's collective opinion. Yet when the Bank of London went down the directors met in a sort of fidget, and, moved, we believe, partly by the danger which seemed to overhang one great constituent, agreed to a transaction which any practitioner in the Bankruptcy Court would have told them was of doubtful legality, namely, to take over part of the assets of the Bank of London and pay part of their creditors. The depositors were to be paid in full, holders of acceptances not at all. It does not matter a straw whether this proceeding was legal or not. The directors who arranged it say they had eminent counsels' opinion in its favour, and it may be that depositors having immediate claims, and holders of acceptances only contingent claims, and both being provided for, though in different ways, the eminent counsel were right, but it was absolutely certain that the transaction would be disputed. An appeal to the Court of Chancery from some irritated holder of acceptances was as sure as the Vice-Chancellor's ad interim order, and a bank which in a panic takes over a certain law-suit of that kind almost deserves the penalty it ought to foresee.

Of course the appeal was made, of course the assets of the Bank of London were protected in the interest of the holders of acceptances, and the Consolidated Bank stood liable to pay the depositors of the fallen concern without the aid of its remaining resources. There had been blunders, too, according to the published correspondence, as to the amount of those assets, blunders excused by "hurry," the market was in no state to lend the Bank specie pending a Chancery suit, and so a minority of the directors resolved, wisely or unwisely acc,ordiirg to the condition of accounts not yet made pub- lic, to close a concern whose last dividend, fairly earned, was 171 per cent., and whose shares were selling at 75 per cent. premium. Of course they went down with a crash, till in twenty-four hours the unhappy proprietary, half of whom are not business people at all, but ordinary investors attracted by the unusual solidity of the direction, had lost a million sterling. That is their fault, some director may reply, for being frightened, for the capital may be saved, or assets turn out unexpectedly well, or the Bank resume its business, but those pleasant anticipations are words. When a bank goes, if it is as solvent as the Bank of England, the premium on its shares is at all events lost, for the profitable business which justified the premium disappears in an hour. A woman might as well try to live down a decree of divorce and be con- sidered chaste again, as a bank not supported by State credit to live down a stoppage. Half the energy, time, and capital necessary to reopen a closed concern would make a new one successful. Their money is gone, and the shareholders must just make the best of their loss, consoling themselves with the thought that if the direction had been a Cabinet they would have heard of nothing for a month, except aristocratic imbecility and the marvellous capacity of the middle class,— which has so managed its railway monopoly that it yields about the average return on Consols,—for the management of great affairs.

The panic, we imagine, is over at last, for cash has arrived from America, and with the revival of confidence the hoards now in private hands will flow back to the banks again, and the only serious danger ahead, the reflex wave from India, cannot seriously affect a market like that of London. The losses incurred in Bombay must have been great, but the profits have been great too, and most of the loss must fall on those who have made the profit. Things will soon fall into their groove, and the Continental crisis, 1. e., the tremendous fall which a European war may produce in Continental securities, has been already discounted. Business in fact is stopping on the Continent until the Conference announces its decision, nobody buying if he can help it or giving orders if he can avoid them until something certain is known. The rains will be shovelled away by the legal dustmen, and the road will be open again, and the travellers, we greatly fear, will pass on, learning very little from the catastrophe which has checked their speed. Yet there are certainly two lessons to be learnt, and one of them a new one. It is, we suppose, of no use to repeat the song we have been singing for years, that government by a Board of Directors is not a divine institution, not necessarily the final outcome of administrative inventiveness and wisdom. The British mind loves a committee, and if a dozen committees were to lose their heads would only appoint a dozen more. It is useless to argue against an instinct so universal that from the Empire to the smallest village school every institution among us is governed by a committee almost self-elected, and very often not recognized by the law, but we may perhaps venture to remark that one variation on government by committee has proved occasionally successful. In politics we call it limited monarchy, and in business the election by the shareholders directly of a chairman without shares, with a casting vote, a right of veto, and the privilege in extreme cases of appealing to the constituency, would, we believe, be found to conduce materially to security. At present directors are very apt to consider every interest and every claim, even that of the general public, before that of their own employers. The second and newer lesson is the necessity of providing against a novel and 'most dangerous form of fraud. Without crediting altogether the wild stories afloat, it is diffidult to resist the conviction that organized conspiracies have been directed during this panic against particular institutions. The circulation of handbills with "Beware of Blank and Co." is a fact, and so is the forgery of telegrams, the last a danger which may yet require legislation. It is perhaps the most formidable of all, and the most difficult to deal with. Suppose, for example, a telegram is sent from Calcutta or Bombay to an Indian house in London, bearing the forged signature of one of its agents, or of one of Renter's agents, or of a newspaper correspondent, and announcing the failure of—say the Agra Bank, what could prevent a furious run, or where would be the remedy ? Firms with Indian business are peculiarly liable to risks of this sort, for though the telegraph exists, six days would pro- bably intervene before an inquiry could be received and answered, and a week's run is destruction. The Agra Bank, we perceive by an advertisement, believes itself the object of frauds of this kind, and the wild fluctuations in its shares, which during the fortnight have stood at 10 and 26 on the same day, cannot have been the result of mere fluctuations in opinion, still less of actual changes in its position. The highest skill and energy must be powerless against villany of this kind, yet that it can be practised is clear from the re- markable instance given by the Times. That journal received a telegram, apparently from its own correspondent, announc- ing that Italy could be held in no longer, and that war was an affair of hours. If that message had been published every holder of Italian stock in England would have been mulcted in 5 per cent. of his property, and the speculator for a fall have made perhaps a hundred thousand pounds. The Times, with a prudence which may redeem its carelessness about the forgery of Mr. Lister's signature, instituted inquiries, but suppose the message had been about a private firm, and addressed to a paper without the facilities which the Times enjoys for testing information? Unless this practice can be prohibited no firm can be safe, and speculation on the Stock Exchange, always gambling, will become gambling against opponents who play with loaded dice. In the present state of the law it is nearly impossible to punish a criminal of this kind except by an action for libel, which a bank, closed perhaps by the fraud, would be unwilling to bring, and which ordinary stockholders would never think of bringing. At the same time the newspapers, which might do something to protect the public, are paralyzed by the law. The faintest hint that such and such a bank is mismanaging its affairs is answered by an action for libel, in which the verdict is nearly certain and the damages ruinous. Honest comment is prohibited, while scoundrels cannot be prevented from spreading assertions a thousand times as dangerous and as costly. It is quite clear this difficulty must be dealt with, or the management of banks with foreign branches would become an impossibility, and we can see but one complete remedy. Let the telegraph companies be made responsible for forged messages as banks are for forged cheques, and they will very speedily take the precautions necessary to protect themselves, insist, for example, on a signature they know, or direct their agents not to transmit messages about failure without inquiry of those who have failed. This would secure the identifi- cation of the sender, and then punishment would be easy. Without some such scheme we may in the coming quarter find London flooded with telegrams of lost battles never fought and financial orders never issued, till every security except Consols will be discredited and banking advances be mere guesses at a future to be controlled by scoundrelism.