REPORT ON JOINT STOCK BANKS.

THE Secret Committee appointed to inquire into the operation of flue 7th of George the Fouith, for permitting the establishment of Jam Stock Bunks, have published their Report. It appears that-thug:00w

riuniber of the banks readily furnished the information required ; and that although some objected at first, all eventually, to whom application was made, answered the questions contained in the circular addressed

to them by the Committee, and %vhich was drawn up with a view to elicit a complete exposure of their concerns. The evidence was sub- mitted to the witnesses for correction, and in order to ascertain whe- ther it might be published without inconvenience. There was one ex- ception, however,—namely, ill the case of the Norwich and Norfolk Bank ; which having ceased to exist, could not be injured by the un- reserved publication of the evidence respecting it. The proceedings of this bank, the Report states, "illustrate most forcibly the evils con- sequent upon a misapplication of the principles of joint-stock banking, and the danger resulting from mismanagement and irregularity." This remark does not apply to the management of joint-stuck banks gene- rally; for the Committee state, that " Many of the establishments apeear to Le prudently conducted ; and though an inattention to the sound principtee on which banking operations should be conducted is exhibited in several cases, the ultimate solvency of the banks, and their power of fully meeting their engagements, must not be brought into doubt."

The system is rapidly extending-

" The evidence taken before your Committee, and the returns from the Stamp-office, established the fact that these banks are rapidly extending in all directions ; that new companies are daily funning, and flirt an increased num- ber of branches and agencies are spreading throughout England, even in small towns and villages ; that a principle of competition exists, which leads to the extinction of all private banks, and to their conversion into banking companies. The mode in which this is effected, and the principle on %Odell the issue of trans- ferable shares acts at once on private bauke, and generally on commercial credit, is fully developed in the evidence."

Having the deeds of settlement of the greafee number of the Joint Stock Banks before them, the Committee were enabled to nuke out an analysis of their leading provisions.

" First, as to the power of altering the regulations of the company. " 'f he active I hities are generally delegated to a small body called the Di- rectors ; eimile the main hotly of proprietors reserve to themselves the power of selecting the Directors, and of altering from time to time the rules by which the Directors are to be governed. Indeed, it might have been expected that the proprietors would always have reserved to themselves this power ; nor should this general rule have been noticed, had it net been necessary to paint out a single exception to it, in the case of one particular company. in which all the powers of the company- ale vested in the Directors of the Central Bank, till danuary IS:38; and even after that date, tide authority is only to be con- trolled by the general board of Directors,' consisting of the Central Directors themselves, and of the Local Directors of branch bank, appointed by them.

The deeds of all the other Companies expressly' give a power.thgt i

the to make new laws and regulations. , " Secondly, as to the mode of condnetieg time business of banking. " This Is for tie most pat t set out ecneral terms. Sieve It:Inking compa- nies content themselves with definie • Le 'nosiness to franking in ad its branches;' in other cases it is call, .• bile:trees of bankers.'

" Advancing money on teal seetirit:, in no in ,tamei forbidden. Tim deeds of three compenies are silent on the,e2.: ..t ; :;, • 7 7• • • 71‘11,7,14. aIlk.W .t.

" The materity of the deeds are sil •• t 1 • el tha"purcliase of lend. The — lien kir; Cempeny emir( ;.. — rtiii- pany and the riiion Pinking Cempse:. • ;: Id it. "An advance of money on neni: in no instance exprie,ly allowed; in many it is expreesly forhhie reejority it is !reseed over iu silence.

" Advances (Twomey upon any public Fin,: Government Stock, or the stock of any foreign chaste] ed public compeey,' is directly eauctiomet ill the deeds of four Bankile, Companies. Investment in Foleign Government :stock or funds is allowed by the deed of another baok. Such adV,111103 are ex- pressly fiabliblen by many of the deeds, and arc 'reseed over in silence by many others.

" In no instance is the company forbidden to become the purchaser of its own shares; but, on time contrary, power is expressly given to do so by wails of the deeds, end that to any amount. The only modifications of this power which your Committee have found, are in the case of one banking company, in which the Directors are authorized to purchase shares in the case may of a re. fusel to admit as a proprietor the person propesing to buy ; and in the case of another bank, the number of shares to be bought iu by the Directors is re- stricted to forty."

With regard to the state of the accounts of their customers, the rule is to preserve secrecy more or less rigid-

" The Directors are in general required to sign a declaration, pledging them- aelves to observe secresy as to the transactions of the bank, with their cus- tomers, and the state of the accounts of individuals. la smne of the companies this declaration is also to be signed by all the clerks and officers. Omer banking company goes so far as to require an oath to this effect. If the Proprietors are dissatisfied with the statement of accounts made by the Directors, a power is generally reserved to appoiut auditors or inspectors for the examination of the books; 'but these auditors or inspectors are required to sign a similar declara- tion of secresy. "No proprietor, nut being a Director, is entitled to inspect any of the books of the company. "The Directors are in general bound to exhibit to the general meeting of the shareholders a summary or balance•sheet of their affairs, and to make such further statement or report as the Directors may deem expedient and conducive to the interests of the company. In the case of one of these banks, even this is not obligatory by the terms of the deed; which leave it to the discretion of the Directors whether they do or do not exhibit a balance-sheet. In a very ex- tensive bank, the proprietors annually appoint auditors to examine the affairs of the company and to report thereon. "In some of the companies the principle of secresy is carried still further : two of the Directors, Selected from the rest, arc the exclusive depositors of the power of inspecting the private accounts of customers. These persons are some- times called Confidential Directors.' fhis provision is stated to be made in order that the credit and private transactions of individuals may be preserved inviolate.' Sometimes they are called 'Managing Directors,' sometimes ' Special Directors.' In other companies, though all the Directors have the power of inspection of the accounts of customers, two of the Directors are se- lected to inspect bills and notes, • in order to prevent the exposure of such bills of exchange and promissory notes as may pass through the bank.' These two Directors are called 'the Bill Committee. In two of the companies a single !revert. called 'the Manager,' has the exclusive power of inspecting bills and otes."

Provision is made in most deeds of settlement for a dissolution of the company incase the reserved fund and :25 per cent, of the capital should be lost. One bank is to stop on the 1st of January2001. The Committee furnish ample reasons for altering the present law, which, subject to certain local restrictions imposed for the protection of the Bank of England's privileges, authorizes any number of persons to establish a joint stock bank of deposit or isssue, or both. The de- fects of the law will appear from the following summary of what it does not provide for- " 1. The law imposes on the Joint Stock Banks no preliminary obligation be- yond the payment of a licence-duty, and the registration of the names of share- holders at the Stamp-office.

"2. The la does not require that the deed of settlement shall be considered or revised by any competent authority whatever, and no precaution is taken to enforce the insertion in such deeds of clauses the most obvious and necessary.

"3. The law does not impose any restrictions upon the amount of nominal capital. This will he found to vary hum 5,000,000/. to 100,000/. ; and is one instance an unlimited power is reserved by issuing shares to any extent. "4. The law does not impose any obligation that the whole or any certain-4 • amount of shares shall be subscribed for before banking operations commence. In many instances banks commence their business before one-half of the shares are subscribel for, and 10,000, 20,000, and 30,000 shares are reserved to be issued at the discretion of the Directors.

" 5. The lamv does not enforce any rule with respect to the nominal amount of shares. These will be found to vary from 10001. to 5/. The effects of this variation are strongly stated in the evidence.

"6. The law does not enforce any rule with respect to the amount of capital paid up before the commencement of business. This will be foland to vary from 105/. to 51.

" 7. The law does not provide for any publication of the liabilities and assets of these banks, nor does it enforce the communication of any balance-sheet to the proprietors at large.

" 8. The law does not impose any restrictions by which care shall be takea that dividends are paid out of banking profits only, and that bed or doubtful debts are first written olf.

"9. The law does not prohibit purchases, sales, and speculative traffic on the part of the companies in their own stock, nor advances to be made on the credit of their own shares.

"10. The late does not provide that the guarantee fund shall be kept apart, and invested in Government or other securities.

" II. The law does not limit the number of branches, or the distance of such branches from the central bank.

" 12. The law is not sufficiently stringent to insure to the public that the names registered at the Stamp-office are the names of persons bond fide pro- prietors, who have signed the deed of settlement, and who are responsible to the public. " 13. The provisions of the law appear inadequate, or at least are disregarded, so far as they impose upon banks time obligation of making their notes payable at the places of issue."

Respecting the operation of the joint stock banks on the credit and circulation of the country, the Committee observe- " It appears that a great extension has been given to both ; and that if the operations of all banks, whether private or funned on joint stock principles, are not conducted whim prudence and with coition, measures adopted by the Bank of England with a view to the state of the foreign exchanges, and of the cnnsequent demand for bullion, may be counteracted by the advances and in- creased issues of Country Banks. The Mowing table will exhibit the progress . of the cir.mlation for some time past ; and it is to be lute; red from the increased issue, ef Joint Stock Banks t petiods when the Bank of England was endea- viniriimg to limit the aniount of ppm. in circulation, that a due attention was nut given by them to tine returns published, in the Gazette ueder the Act of the

3i1 and Will. IV. c. 93."

From the tables referred to, it appears that

Oa the •.eth of March 1835, the circulation of the Bank of Eng- time Joint Stock Banks

On the 27th Juile, time circulatiou of the Bank of England the Joint Steck Banks (In time 26th December, the Bank of England the Joint Stock Banks Ou the 26th March 1836, the Bank of England the Joint Stock Banks On the 23th June 1836, the Bank of England ...... the Joint Stock Banks

The circulation of the Joint Stock Banks, from the 28th December IS:lel to the 25th June 1S36, has been regularly increasing, from

1,315,3011. to 3,585,064/. The circulation of the Private Banks, during the same period, has varied from 7,912,587/. to 8,875,7951.

The Committee abstained from recommending any alteration of the law last session, for the following reasons—

"If a bill had been introduced, prospective only in its enactments, an infe. rence might have been raised contrary to that which is the decided opinion of your Committees—namely, that the existing banks are subject to any revision of the law which Parliament may enact. 'The right of the Legislature to into fere, not only in respect to banks to be established hereafter, but in respect to existing establishments also, is a principle which your Committee are pre- pared to assert in the strongest manner. They have now before them the ac- counts of the existing Joint Stock Banks, exhibiting in very minute detail their mode of conducting their business. If, as your Committee strongly re- commend, it should be the pleasure :of the House to renew this inquiry at thee, opening of the next session, a continuation of these accounts would necessarily be called for. It is the earnest hope of your Committee, that the comparison of these two series of accounts may prove that the banking operations during the recess may have been conducted with prudence and caution, and more par- ticularly that those who assume the responsibility of issuing notes payable on demand have felt it to be their pressing duty to examine accurately the state of the exchanges, the proceedings of the Bank of England in reference to its is- sues, and may thus guard against the dangerous error of an imprudent ex- tension either of credit or of circulation when an opposite course was rendered necessary."

In conclusion, the Committee strongly recommend the managers of the Joint Stock Banks to be cautious in their operations ; and warn them, that on their conduct during the recess it will in a great measure depend whether Parliament shall determine to interfere further.

-C18,152,000 2,188,954 17,637,000 2,484,687 16,564,000 2,799,551 17,669,000 3,094,025 17,164,000 3,388,064