their bills. They applied to the other banks for assistance, and received it upon certain conditions. In the year 1838 they applied to the Board of Trade for letters patent, which were refused. At this time the Bank of Scotland and other banks addressed a memorial to Mr. Poulett Thomson, alleging the breach of the conditions referred to.

"In 1847 the Western Bank was again in difficulties, and was assisted by the Bank of England, receiving an advance of 300,000l. The then manager, Mr. Donald Smith, appears to have taken alarm from the occurrences of 1847; and in 1852, when he retired, the bank, though not in a satisfactory position, stood better than it had stood before since 1847. When it failed on 9th November, 1857, it appeared that the four insolvent houses of Macdonald, Monteith, Wallace, and Pattison, were indebted to it in the sum of 1,603,000l.; the whole capital of the bank being only 1,500,000l. One of the conditions of the co-partnery was, 'that if it shall at any time appear, on balancing the company's books, that a sum equal to 257. per centum on the advanced capital stock of the company has been lost in prosecution of the business of the company, such loss shall, ipso facto, and without the necessity of any further procedure, dissolve and put an end to the company.'

"Mr. Fleming became assistant manager in July, 1857, and at once examined the affairs. He estimated that even supposing the debts of these four houses (which had not yet beco.ne insolvent) were assumed to be good, there appeared on the face of the books as good assets 573,0007. of bad debts; and deducting the rest and guarantee fund, which then amounted to 246,0007., there remained an apparent deficiency or encroachment on the capital of the bank of 327,000l. This of itself nearly approached the limit which dissolved the partnership and put an end to the existence of the board; and of this state of affairs Mr. Fleming believes that up to that time the directors were in a state of almost entire ignorance. In 1853, previously to the first meeting of the shareholders after Mr. Smith's departure, an examination was instituted preparatory to the annual balance. From a confidential paper, having marks upon it in the handwriting of the then manager, it appears that a sum of 260,000l. was reported to him as irrecoverable on one branch of the assets, which nevertheless appeared as good assets in the published balance sheet. The modes in which this kind of disguise can be accomplished will perhaps be best understood by stating the manner in which a debt called 'Scarth's debt,' comprised in a different branch of the assets, was disposed of. That debt amounted to 120,0007., and it ought to have appeared among the protested bills. It was, however, divided into four or five open credit accounts, bearing the names of the acceptors of Scarth's bills. These accounts were debited with the amount of their respective acceptances, and insurances were effected on the lives of the debtors to the extent of 75,000l. On these insurances 33,000l. have since been paid as premiums by the bank itself. These all now stand as assets in the books. Though this substitution took place in 1848, yet down to the time when Mr. Fleming's examinations began to bring to light the true state of affairs, the six directors appear to have regarded these sums as part of the available property of the shareholders. This being the actual state of the accounts, the dividend

was raised in 1854 from 7 to 8 per cent., and in 1856 to 9 per cent. Nine per cent. was the dividend declared in June, 1857, at which date a very slight acquaintance with the books must have led to the strongest suspicion, not to say to the clear conviction, that for some time a considerable portion of the capital had been lost.

"This bank had 101 branches throughout Scotland. It had connections in America, who were allowed to draw upon it for the mere sake of the commission. At home it made advances upon 'indents;' or, in other words, provided the manufacturer with the capital with which yet unmade cloth was thereafter to be produced. Its discounts, which in 1853 were 14,987,000., had been increased in 1857 (till 9th November) to 20,691,000. With what care this business was conducted may appear from the circumstances that Macdonald's bills were accepted by 124 different parties; that only 37 had been inquired about, and in the case of 21 the reports received from the correspondents of the bank were unsatisfactory, or positively bad. Yet the credit given to Macdonald continued undiminished. The rediscounts of the bank in London, which in 1852 had been 407,0007., rose in 1856 to 5,407,000l. The exchanges of notes in Edinburgh have been always against the Western Bank, and for an average of the last six years to an extent of not less than 3,000,000l. a year. This circumstance is accounted for by Mr. Fleming chiefly by reference to the nature of the transactions with Macdonald's and other houses in accommodation bills; 988,000l. were due to the bank from its own shareholders.

"About the end of October the Northumberland and Durham Bank applied for assistance to the Bank of England. It was declined, as they could not give any satisfactory explanation of their real position. They applied a second time, urging the great peril in which they were placed by the continued discredit, and by the constant drain of small deposits; they urged also the fear of disturbances and breach of the peace which might ensue if they were to fail, they being so largely connected with collieries and ironworks. Accordingly on Tuesday, 24th November, Mr. Hodgson went down to Newcastle, and told the directors that he had been sent down by the Bank of England to examine into their books, and see whether it was possible to render them such assistance as would enable them to go on; but that the first condition of the Bank doing anything was that they should prove themselves solvent. The result was that Mr. Hodgson found the liabilities, as then stated, amounting to 2,600,0007., of which there were 1,350,000l. of deposits, 1,150,000l. accounts current, and they had rediscounted 1,500,000l., of which they expected that 100,0007. would come back upon them, and for which they would ultimately be liable, making altogether 2,600,000. Their assets were of a very peculiar nature indeed, the early realization of which would be almost impossible. They held about 1,000,000. in securities of different kinds. They held in trade bills, that is to say, small bills on shopkeepers of Newcastle, about 250,000l., bills which were probably good in themselves, but which were not available anywhere out of Newcastle; they were not bills which could have been discounted in any other part of the money market. They had in overdrawn accounts 1,664,0007., without any specific securities attached to them. Of these 1,664,000l., there were 400,000l. which one of the

directors very candidly confessed must be considered as totally bad, and which ought to have been written off long before, but which still remained in the account as good debts. The capital of the concern was 656,0007. nominally, but in reality it was considerably less than that; because in 1847 they had been in trouble, and in order to get out of that trouble they had made a call of 51. or 10l. a share, which was not paid upon some of the shares, which shares were forfeited, and taken by them into the stock of their bank, to be reissued should occasion warrant their doing so. The consequence was that the subscribed capital of the bank was about 600,000. This statement at once showed that any attempt to help them, short of taking up the whole concern and liquidating it for them, would be perfectly useless. It was evident that the whole capital was gone; and, looking at the character of the securities, Mr. Hodgson came to the conclusion, not only that the capital was gone, but that the bank was totally insolvent. Being very much struck with the extraordinary loss which had taken place in the bank, which, when a private bank, he knew to have been a very flourishing one, he inquired whether there was not some old sore of which nothing had as yet been said. He was told that there was one; there was rather a disinclination to mention what it was, but he felt it his duty to press it, and they told him they had a very large debt with the Derwent Iron Company. He inquired the amount of this debt, and found, much to his astonishment, that it amounted to 750,000l., the capital of the bank being 600,000 For that debt there was a kind of security, which consisted of 250,000 of what were called Derwent Iron Company's debentures, which were, however, in reality, nothing but the promissory notes of the directors, there being very few persons in this Derwent Iron Company. The bank had also 100,0007. mortgage on the plant, and the remaining 400,000l. was totally unsecured. In addition to this original debt then mentioned of 750,000l., there is now another charge upon it of 197,000l., resulting from bills which have not been paid, and which, in order that the Derwent Iron Company might get them discounted, the bank had endorsed or otherwise guaranteed. These have now come back, so that the total liability for which the Derwent Iron Company is indebted to the bank is about 947,000l.; very nearly 1,000,000l. The Derwent Iron Company appears to have been, almost from the time of the conversion of the bank into a joint-stock bank, very intimately connected with it. Mr. Jonathan Richardson, who was the moving spring of the whole bank, in fact the person who managed everything, was, though not a partner in the Derwent Iron Company, very largely interested in it as holding the royalties upon the minerals which they worked. It appears that the concern has been worked extremely badly; that it has never made any profits at all, even in the very finest years, for the ironmasters, and it has gone on absorbing the money of the bank unchecked by the directors.

"Mr. Hodgson says that 1,000,000l. of securities were taken of the most extraordinary nature for any bank to hold that he ever saw; that 1,000,0007. of securities, which was the only tangible asset which they had against the 2,600,0007. of liabilities, consisted of 350,000l. of the Derwent Iron Company's obligations, 250,000l. being debentures, and 100,000l. mortgage on the plant. They had besides these, 100,0007. on a building speculation at Elswick, near Newcastle, which however was not a primary mortgage,

there being a mortgage of 20,0007. on that land belonging to Mr. Hodgson Hinde. They had also another 100,0007. on other building land and houses in the neighbourhood of Newcastle. They had about 350,000l. in securities of works and manufactures of different sorts, and they had about 50,000l. in navigation bonds guaranteed by the railway, but which railway was the only security to which they could look in any given time to realise any sum of money; that made about 1,000,000l. altogether. The other securities were absolutely unmarketable. This bank had derived assistance from the Bank of England in the former crisis, that of 1847. Almost exactly the same circumstances arose then which arose in 1857, and almost from the same cause. The bank, however, applied at that time to the agent of the Bank of England at Newcastle, and he, on his own responsibility, made them a very large advance, which carried them through; he taking at the same time a very considerable security from them in various mortgages, pretty much of the character which has been above mentioned, but better in quality, although not any more banking securities than these; between 700,000l. and 800,000l. altogether.

"The whole of the advance made in 1847 was repaid to the Bank of England, was it not?'-'Yes. With regard to the late occasion I represented at the same time that, though the bank could not be assisted, yet the fact of its failing, which it would do the moment it was known that the Bank of England would not help it, would be at that moment a very serious thing for the district, because it was so much connected with the collieries and ironworks that it paid every week, either for persons who had balances with it, or for persons whose bills it discounted, and thus gave them the money, about 35,000l., on which the wages of 30,000 people were dependent; and as their pay-day was on the Friday, and the bank would stop on the Thursday, it was very desirable that something should be done to prevent the confusion which would arise if there was no preparation made for that conjuncture. In consequence of that the Bank of England requested me to go down again that night, with full powers to make arrangements with all persons who might have any tangible and good security, though, perhaps, not perfectly regular security, so as to provide them with the means of making their pays on the Friday. I went down accordingly, and arranged with almost everybody, or with everybody, I may say, to make such advances as would enable them to meet the pays for that week and for the next, should it be necessary. I also advised the manager of the savings bank to open his bank on Saturday for payments, though it was not the usual day, and authorised him to draw upon the Bank of England for any sum of money which he might require for the purpose of making any payment; but owing to the fact of the Bank of England thus enabling the proprietors, the coal mines, and the works, to make their weekly payments, there was no run whatever upon the savings bank, and everything passed off quite quietly.'

"Was there any limit to the authority which you had from the Bank of England to give assistance in Newcastle?'-'No, there was no limit, it was left to my discretion to do what might be necessary. We knew very well that it could not amount to a sum, under any circumstances, of much more than from 50,000l. to 70,000%.'

66 6

'Are there any other particulars connected with the Newcastle Bank

which you are able to lay before the committee?'—I will, if the committee wish, give them the actual result of the accounts of the bank when it was finally wound up in January this year, as compared with those in November, 1857: it will show a little difference. In November, 1857, the liabilities of the bank were 2,600,000.; these consisted of deposits, 1,350,000l.; accounts current, 1,150,000l.; and estimated liabilities on rediscounts, 100,000. In January, when the bank was positively wound up and the thing ascertained, it appeared that there were of deposits 1,256,000l., in accounts current, 766,000l., and in liabilities on rediscounts, 231,000. The only great difference was in the accounts current, which were diminished about 400,000. This was principally, I believe, from the fact that many persons who had accounts current had deposit accounts also; they kept two accounts, one of which had a balance in its favour, and the other was overdrawn; therefore, one account being set against the other, it diminished it by so much, and at the same time diminished the amount. of overdrawn accounts; the assets which were estimated in November at 2,500,000l. had fallen in January to 2,000,0007.; and there was one peculiarity which was, that while the debt of the Derwent Iron Company was taken as an asset in November at 750,000l., in January it was taken as an asset at 947,0007., and that it is an asset of a very doubtful nature; the position of the bank is much worse in reality than is shown by the statement of the figures.

"This disclosure was the result of an examination which lasted about two hours; yet the bank had declared, at the last half-yearly meeting, a dividend of seven per cent., making to the shareholders a statement the substance of which showed a very prosperous state of things. Mr. Hodgson mentions that he remarked on the fact of their having declared a dividend in June, when it was admitted that half the capital was lost, and he asked how they could have done so; it was stated, in reply, that there were so many persons who depended entirely for their livelihood on the dividends received, that they really could not bear to face them without paying any dividend.

"Each of these three banks had been in peril in 1847, and though by the assistance of the Bank of England they were enabled to surmount it, they fell on the next occasion of severe commercial pressure, under circumstances still more injurious both to their own proprietors and to the public. Two bill-broking houses in London suspended payment in 1847, both afterwards resumed business. In 1857 both suspended again. The liabilities of one house in 1847 were, in round numbers, 2,683,000l., with a capital of 180,000l.; the liabilities of the same house in 1857 were 5,300,000l., the capital much smaller, probably not more than one-fourth of what it was in 1847. The liabilities of the other firm were between 3,000,000l. and 4,000,0007. at each period of stoppage, with a capital not exceeding 45,000/.

"These five houses contributed more than any others to the commercial disaster and discredit of 1857. It is impossible for your committee to attribute the failure of such establishments to any other cause than to their own inherent unsoundness, the natural, the inevitable result of their own misconduct.

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