UNLIXITED BANKS.
[To THE EDITOR OF THE " tiescrace."1
Sia,—It is gratifying to find your influential journal advocating the compulsory discontinuance-of the unlimited liability of Bank -shareholders. " The Banking corporations should," as you say in your article on the subject this week, " be compelled by law to limit their liability." Such limitation is necessary, not in the interest of shareholders only, but in that of depositors and of the public generally. That it is for the interest of bank proprietors to be protected against such utter ruin as that which has overtaken the holders of shares in the City of Glasgow Bank, is obvious. But when we con- sider the serious anxiety and inconvenience (and it may be some ultimate loss), suffered by the creditors of that insti- tution, we see that it would have been better for them, too, had that Bank been conducted on the principle of limited liability, which would have made them more cautious in trusting it. The advantage to the public at large in being able to invest in bank shares without incurring a ruinous liability, in being taught to -exercise a sound discretion in giving credit to Banks, as depositors or otherwise, and in deliverance from the wide-spread panic and the disastrous derangement of commerce consequent on such Bank failures as took place last autumn, would be very considerable.
But it is probable that this limitation might cause a falling- off in deposits, and hence directors and managers of Unlimited Banks do not, as a• rule, desire it, and so object to any Parlia- mentary interference with their arrangements in conducting their business. Those Directors, however, who see that some curtailment of their transactions, and perhaps even of their profits, is preferable to the risks now incurred, must wish that the limitation of liability may be made compulsory, since only thus can it be effectively carried out. Whilst the proposed -change of system is merely permissive, very few Banks, how- ever desirous, can venture to adopt it, because if their neigh- bours remain unlimited, depositors will generally prefer that Bank each shareholder of which is liable for its debts to the full -extent of his property. So long as the two systems exist side by side, this is but natural, as each customer seeks present -safety, regardless that the system he is encouraging may -eventually cause those wealthy proprietors on whom he now relies to withdraw from the dangerous position they occupy. As, therefore, the strong inducement of immediate and temporary interest and convenience may probably cause both Banks and their customers to overlook the more distant and permanent advantage, sound and far-seeing legislation should -do for them that which but few of them may desire to do (and which, even if they desire it, they cannot do) for themselves. "Therefore it is that I am glad to see the Spectator recommend. ing compulsory legislation in this matter, and beg to offer its Editor my best thanks, and any small encouragement to per- severe in the advocacy of this course which may be afforded by the cordial agreement and hearty approval of
A MANAGER OF AN UNLIMITED BANK.
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