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338
[BRITISH
BANKS AND BANKING

had an unexpected influence on the constitution of the banking system. After favouring the existence of small banks for many years, it gradually led, as the time arrived when the establishment of large and powerful banks in England and Wales became necessary, to their formation. No new bank of issue whatever was allowed to be established—restrictions were placed on the English issuing banks—private issuing banks with not more than six partners were allowed to remain, to amalgamate with other private issuing banks and to retain their joint issues. The joint-stock banks which possessed issues were also allowed to continue these, but when two joint-stock banks amalgamated, the continuing bank only retained its issue. Also when a private issuing bank was formed into or joined a joint-stock bank, the issue lapsed.

The greater number of the provincial banks in England and Wales had been banks of issue up to 1844. The act of 1844 restricted their power of issuing notes, which at that date and even subsequently continued to be of importance to them, in such a manner that, as Sir R. H. Inglis Palgrave stated in giving evidence before the committee of the House of Commons at the banking inquiry of 1875, these banks possessed in their issues a property they could use, but were not able to sell. The statistics forming part of Appendix 14 to the report of the select committee of the House of Commons on banks of issue (1875) give interesting information as to the proportion of notes in circulation to the deposits of banks in various districts of the country and at various dates. The statements were supplied by twenty-one banks, some in agricultural districts, some in places where manufactures flourished, some in mixed districts, commercial and agricultural, or industrial and manufacturing. In all of these, the inquiry being carried as far back as 1844, the proportion of the circulation to the banking deposits had greatly diminished in recent years. In several cases the deposits had increased three-fold in the time. In one case it was five times as large, in another nearly seven times, in another nearly twelve and a half times. The proportion of the circulation to the deposits had very largely diminished in that time. In one instance, from being about one-third of the deposits, at which proportion it had remained for five years consecutively, it fell to 9% at the end of the term. In another from being 22% it had diminished to 1½% of the total. In all cases where the detail was given it had diminished greatly.

The Bank Act of 1844 was arranged with the intention of concentrating the note issues on the Bank of England in order to secure the monopoly of that bank as the one issuer in England and Wales. The result was that nearly all the provincial banks in England had by 1906 lost the right of issue. Doubtless all were destined to do so before long, a result by which banking in England and the industries of the country must lose the advantage which the local issues have been to Scotland and Ireland. Had the English country banks been allowed, as the Scottish banks were, to associate together and to retain their issues, powerful banks would many years since have been established throughout England and Wales, and the amalgamations of recent years would have been carried through at a much earlier date, and on terms much more favourable to the public.

No security was ever required to be given for the local issues Security of note issue. in the United Kingdom. The provisions of the acts of 1844-1845 which compel the Irish and Scottish banks to hold specie against the notes issued beyond the legal limit, do not make the coin held a security for them. The legislation of 1879 which made the note issues a first charge, with unlimited liability, on the total assets of the joint-stock banks which accepted the principle of limited liability for the rest of their business, has been the only recognition by the state of the duty to the note-holders of rendering them secure. It has been a real disadvantage to England that this duty has never been sufficiently recognized, and that the provincial note issue, which is a very convenient power for a bank to possess, and incidentally a considerable advantage to its customers, has been swept away without any attempt being made to remedy its deficiencies. There may be objections raised to a note circulation secured by the bonds of the government, but the security of the note issues of the national banks of the United States made against such bonds, has scarcely ever been questioned.

A different policy was followed by Sir Robert Peel in Scotland and in Ireland from that which he established in England. By the acts of 1844-1845 the Scottish and Irish banks were allowed to exceed their authorized issues on holding specie to the amount of the excess, and no restrictions were placed on amalgamations among banks in these countries. In Scotland and in Ireland notes for less than £5 continued to be allowed. The result has been that the ten large banks in Scotland, and six of the nine banks in Ireland, possess the power of issuing notes. The large proportion of local branches in these countries has been greatly assisted by this power.

Originally, besides the Bank of England, nearly all the provincial Amounts in circulation. banks in England and Wales possessed the privilege of issue. These banks continued their operations as previously during the time while the Bank Act was discussed in parliament. When the arrangements which that act created were made public, nine banks, of which eight were private and one was a joint-stock bank, ceased to issue their notes prior to the 12th of October 1844, when the act came into operation. Of these, the Western District Joint-Stock Banking Co. was dissolved, one of the private banks was closed, the remaining seven issued Bank of England notes and were allowed certain privileges for doing this. By the act of 1844 the maximum circulation of the English issuing banks was fixed at the average circulation of the twelve weeks before the 27th of April 1844.

The number of the banks to which the privilege of circulation was then allowed and the amount of notes permitted were, in England:—


207 private banks with an authorized issue of £5,153,417
  72 joint-stock banks with an authorized issue of 3,478,230
£8,631,647


The actual circulation of the country in October 1844 was as follows:—

Notes in Circulation.—The monthly return of the circulation ending the 12th of October 1844 (stamps and taxes, 25th October);


England.
Bank of England £20,228,800
Private banks 4,674,162
Joint-stock banks 3,331,516

Scotland.
Chartered, private and joint-stock banks 2,987,665

Ireland.
Bank of Ireland 3,597,850
Private and joint-stock banks 2,456,261
Total          £37,276,254


In May 1907 the number and amounts were reduced to:—


  Authorized Issue. Actual Issue.
12 private banks £482,744 £122,536
17 joint-stock banks 1,084,836 437,693


The reason why the actual circulation of these banks is so far below the authorized issue is that under existing circumstances their circulation can only extend over a very limited area. The notes of country banks are now almost unknown except in the immediate neighbourhood of the places where they are issued; though they may all be payable in London, yet there is often considerable difficulty in getting them cashed.

The average circulation in 1906 was as follows:—


Bank of England £28,890,000
Private banks 124,000
Joint-stock banks 429,000
                    Total in England £29,443,000
Scotland 7,477,000
Ireland 6,452,000
                    Total in United Kingdom £43,372,000


This shows an apparent increase of more than £6,000,000 since 1844. The decrease of the country circulation in England and the increase of the Scottish and Irish circulations may be set off against each other. The increase is mainly in the notes of the Bank of England. In 1844 the number of banking offices in England and Wales was 976, while in 1906 there were more than 5880. Each of these offices must hold some till-money, and of this Bank of England notes almost always form a part. Hence it is probable that a large part of the increase in the circulation of the Bank of England since 1844 is held in the tills of the banks in England and Wales, and that the active note circulation of the United Kingdom is but little larger than it was.

It may be added that the government received from the note circulation for a typical year (ending 5th of April 1904), out of the profits of issue (Bank of England) £184,930, 2s. 2d., and also composition for the duties on the bills and notes of the banks of England and Ireland and of country bankers, £120,768, 18s. 6d.

In 1906 the banking business of England was carried on practically by about ten private and sixty joint-stock banks of which more than one was properly a private firm under a joint-stock form of organization. Though the number of individual banks had diminished, the offices had greatly increased.

The records of the numbers of banks in the United Kingdom have up to quite recent years been very imperfect. Such as exist were made by individual observers. The banks of England and Wales are believed to have been 350 in number in 1792. Those registered from 1826 to 1842 were:—