THE WESTERN BANK OF SCOTLAND.
Edinburgh, 28th December 1857.
Sin—I have just read your notice regarding the Western Bank headed "The Public and the Banks." While perfectly agreeing with you upon some of the essential points, I hope you will correct some errors you have inadvertently fallen into.
You take for granted that those who purchased lately into the Western Bank secured by so doing 9 per cent for the money so Invested. This was not the case. The shares of 601. each had risen to 761. previous to July 1856; and after the increase then to 9 per centdividend, they rose to 84/. and 861.
There can be no question that this was owing to the belief that this in- crease of one per cent to the dividend was a bona fide statement on which reliance might be placed as to the well-doing of the Bank. If the Western Bank had been the only joint-stock bank in Scotland that paid 9 per cent on its original stock, some hesitation might have been felt by the public. But on looking to the returns, we find that the British Linen Company pays 9 3-5 per cent, the Commercial Bank 10 per cent, the Union Bank 9 per cent, some of the smaller banks 10 per cent, and the Bank of Scotland 8 per cent. The public, then, had only to judge as to the trust to be placed in the truth of the statement made by the Directors. In the Western, they were all men who in the commercial world had hitherto held a high and unblemished reputation. I therefore conceive, that although we have been unfortunate in giving credit to this estimate of them, we exposed ourselves to no risk beyond that now run by every holder of shares in the joint-stock banks of Scotland. You also allude to what I said at the last meeting when expressing my
opinion that it was yet to be explained how men of realized wealth, and who from their intimate acquaintance with the trade of Glasgow must have known the kind of business transacted by the Western Bank, yet retained their position in it. Excuse me if I say you have not given my views upon that subject.
I myself believe it to be next to impossible that traders and men who held
the position of bank directors could have remained in ignorance of the style of business carried on by the Western Bank. I also perceive that to men trading in Glasgow,—where sound credit and realized wealth are perhaps inore scarce than the fictitious counterfeit which is presented by the class of empty speculators receiving unbounded accommodation from such banks,— the wealth drawn from the shareholders and depositors, and so distributed with a lavish hand by the Western Bank, was an important element in the formation of those gigantic fortunes we have beard of as lately realized in Glasgow.
I am unacquainted with trade myself, and have only lately turned my at- tention to these subjects ; but it requires no wizard to perceive that the position of director in so speculative a bank as the Western, where no secu- rity for advances appeared to be required, was a place of great influence and authority, particularly to commercial men.
Glasgow, by the closing of the doors of the Western Bank, has lost, for the present at least, the use of six millions of deposits beyond the invested capital; had this money been well distributed among the commercial circles of Glasgow, the loss would have been more serious than it may now prove. There can be no question that the reckless system of advances made to ernpty speculators has fostered a trade in Glasgow dangerous to our best in- terests. Sound traders have been undersold, and have been unable to corn- Pete with men who were dependent not upon their profits but upon a hol-
low system of credit. A large population has been brought up in Glasgow, trusting to employment which depends upon unsound trade. The whole commercial circle has been convulsed by the introduction of men who, with capital received from these banks, have pushed their connexions beyond their legitimate trade, and who, with a widespread system of accommo- dation-bills beyond their stock or other securities, have, by removing credit from sounder traders, drawn them also into this general vortex.
The working of our joint-stick banks is, through their various branches to collect from every part of the country the capital that is unemployed, and by distribution in our trading towns, to make it available for increasing our commercial wealth. The power thus held by our banks is of the most momentous nature. They are no less than the depositories of the public purse, and are left in uncontrolled power of dispensing it in furtherance of commerce.
Taking for granted that it is of vital importance nothing should be done to interfere with this source of our commercial wealth, nor to lessen the flow of capital into these channels, it becomes most desirable that the Le- gislature, while it gives to these institutions the power of issue and other advantages, should take steps to guarantee a sound discretion being used by the directors and a proper use being made of this great amount of capital. It has been urged that the limited responsibility of shareholders would be an improvement. If by this it could be hoped that those who were now de- positors should become shareholders, there might be an advantage in this ; but I doubt if such would be the consequence; and the limitation of respon- sibility of shareholders to the capital invested would certainly lessen the confidence of the depositing public. It was the belief that a full investigation into the conduct of the Western Bank Directors would show their culpable folly and negligence in the di- rection of our affairs, would agitate this vital question, and would lead to some law being passed making directors liable for their conduct, that induced me to pursue from the first the line of conduct I have adopted—hoping that public attention should be directed to the condition of our joint-stock bank property, when the fact became patent that one manager, through the con- nivance or neglect of a body of directors, had brought such wholesale ruin upon the Western Bank. Believe me, yours, &c., W. Macoxecnin-Wzravoon. [If Captain Maeonochie-Welwood will reperuse our remarks a little more attentively, he will perceive that there is less difference between us than he has supposed.—ED.I
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