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. 1,350,0007.; accounts current, 1,150,0007.; and estimated liabilities on rediscounts, 100,000l. 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, 766,0007., 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 2,000,000l.; and there was one peculiarity which was, that while the debt of the Derwent Iron Company was taken as an asset in November at 750,0007., in January it was taken as an asset at 947,000l., 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 betweer 3,000,000l. and 4,000,000l. 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.

"Thus we have traced a system under which extensive fictitious credits have been created by means of accommodation bills and open credits, great facilities for which have been afforded by the practice of joint stock country banks discounting such bills, and rediscounting them with the bill brokers in the London market, upon the credit of the bank alone, without reference to the quality of the bills otherwise. The rediscounter relies on the belief that if the bank suspend and the bills are not met at maturity, he will obtain from the Bank of England such immediate assistance as will save him from the consequences. Thus, Mr. Dixon states, 'In incidental conversation about the whole affair, one of the bill brokers made the remark that if it had not been for Sir Robert Peel's Act the Borough Bank need not have suspended. In reply to that, I said, that whatever might be the merits of Sir Robert Peel's Act, for my own part, I would not have been willing to lift a finger to assist the Borough Bank through its difficulties, if the so doing had involved the continuance of such a wretched system of business as had been practised; and I said, if I had only known half as much of the proceedings of the Borough Bank while I was a director (referring to the time previous to the 1st of August, when I became a managing director) as you must have known, by seeing a great many of the bills of the Borough Bank discounted, you would never have caught me being a shareholder;' the rejoinder to which was, 'Nor would you have caught me being a shareholder; it was very well for me to discount the bills, but I would not have been a shareholder either.""

The subjoined illustrative table supplies its own commentary :

ABSTRACT STATEMENT of the (Estimated) Position of Sixteen Firms who suspended Payment during the Monetary Crisis of 1857-58.

The foregoing disclosures are as beacon lights to warn against the dangers of the rocks and shoals and quicksands which beset the track of modern adventurers in search of the Golden Fleece. Disclosures of the kind could be multiplied almost ad infinitum. But, once the gold-fever sets in, it rages until the moment of the crisis. And what follows then? We cannot answer the query better than by quoting from her History of the Thirty Years' Peace," Miss Martineau's description of the consequences resulting from the terrible panic of 1825:

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"There are many now living," wrote that talented lady in 1846, "who remember that year with bitter pain. They saw parents grow whitehaired in a week's time; lovers parted on the eve of marriage; lighthearted girls sent forth from home as governesses or sempstresses; governesses, too old for new situations, going actually into the workhouse; rural gentry quitting their lands; and whole families relinquishing every prospect in life, and standing as bare under the storm as Lear and his strange comrades upon the heath!"

Must these vicissitudes continue? A recent writer on the subject remarks

"If crises must work their will when they arise, how are they to be prevented in the future? The problem is difficult, yet not absolutely insoluble. The difficulty lies more in moral than in physical or trade forces it is the want of knowledge, and still more of observation and reflection, which generates real crises. Crisis is not merely another

word for poverty. If the diminution of wealth is met by wise curtailment of speculation even in its legitimate form, property may dwindle, but the convulsions peculiar to a crisis will not be developed. Then, again, if farmers never drained except with the surplus of a good harvest, if manufacturers never built new mills except out of realised profits, if goods were not produced except under a very strong presumption that they were in demand, if bankers never lent except upon solid and realisable security, no crisis would ever desolate the world. Traders and bankers, like sailors, have a difficult task in predicting the coming weather; and, like sailors, they must try to acquire the sailor's eye-the faculty of discerning small signs and judging their significance accordingly. The vital point is that they should notice the right things, the causes which are at work in brewing mischief. They must be studied at their origin. The difference between the intelligent merchant or banker, and the unintelligent, lies in the ability to understand the forces which make deposits and their withd. awals great or small-in the skill rerum cognoscere causas. This is a wide study beyond doubt. It is easier, no doubt, to float down the stream as it runs in the present, to make profits and to let to-morrow take its chance, or to set up some empirical rule, some high-sounding jargon, * Mr Bonamy Price, in No. cvi. of the North British Review.'

without stopping to inquire whether it possesses the reality as well as the look of knowledge. But if men choose to let their actions be guided by such methods, they must look out for crises-sharp, sudden, and overwhelming crises. The responsibility weighs heaviest upon banks, not upon the Bank of England only, as some proclaim, but upon all bankers collectively. Everything depends on the sagacity and prudence they bring to bear on the loans they grant. The periodical recurrence of these convulsions seems to indicate that prudence lasts a year or two after disaster has punished folly; care and caution are developed in all commercial classes; and the energy and industry of the people restore the losses incurred. Prosperity follows; prudence gradually disappears; then heedlessness encourages every kind of enterprise; and again the thunder and lightning avenge forgotten virtue.”

In other words, a cynic may remark on the above, when men shall become strictly moral and profoundly wise, the financial cataclysms, called panics, will be things of the past.

Although not expecting mankind to advance to that pitch of perfection which the writer just quoted seems to consider not only possible, but essential for the prevention of these catastrophes, our faith, as we intimated early in the present chapter, inclines to the hopeful. The panic of 1866 seems to have sunk deep into the public mind. Its effects on the rash spirit of eager speculation are still felt: indeed, undertakings which may fairly be called legitimate are looked upon coldly, and are with difficulty launched. The secrets of the manufacture of companies by promoters and directors, who, as soon as the market is "rigged," and shares at a premium, make their fortunes upon the ruin of the victimised purchasers, are now patent to most; and there are few, comparatively speaking, who do not understand that the holding out the inducement of exorbitant interest means certain risk to the capital invested, if not its sure loss. Yet, at this very moment of writing, an event is about to take place which, whilst it will rejoice every feeling heart, and gladden the whole civilised world, is already marking a change in the aspect of monetary affairs, so that what was true of their state but a few seconds ago, as it were, is quickly becoming a misrepresentation of the present, and of most questionable accuracy as respects the future. Peace will, too probably ban as well as bless. Speculation is already watching its opportunities with open eyes; and the prophet is not yet born who can foretell whether the next decennial cycle will, like the past, be black with doom, or inaugurate a new, a brighter, and a more auspicious era.

SECTION XI.

THE ADMINISTRATION OF JOINT-STOCK BANKS, WITH AN
INQUIRY INTO THE CAUSES OF THEIR FAILURES.

THE chief points in which a joint-stock bank differs from a private bank are,-the number of its partners-the permanency of its capital-and the form of its government. A private bank formerly could not have more than six partners; a jointstock bank may have a thousand partners. If a partner in a private bank die, or become insolvent, his capital is withdrawn from the bank; in the case of a partner in a joint-stock bank, his shares are transferred, and the capital of the bank remains the same. In a private bank all the partners may attend to its administration: a joint-stock bank is governed by a board of directors. The business principles on which these two kinds of banks are administered are the same, and the observations of the preceding sections will equally apply to both. The topics, therefore, to which we shall in this section more particularly direct our attention will be those that have a special reference to the constitution of joint-stock banks. We shall first consider the principles which should regulate their formation and management, and then notice the modifications imposed on new banks by the "Act to regulate Joint-stock Banks," passed in 1844. After the 6th of May, 1844, it was not lawful for any new company of more than six persons to carry on the trade or business of bankers in England, unless by virtue of letters patent to be granted by her Majesty according to the provisions of that Act. I. All joint-stock banks have a certain amount of paid-up capital.

The payment of a certain portion of the capital before the commencement of business, is a pledge that the project is not a mere bubble, and this is especially necessary when the proprietors have no further liability. But even with unlimited liability a certain amount appears to be necessary. The employment of capital judiciously is sometimes a means of acquiring business; and in case of loss there should always be a sufficient capital to fall back upon without recurring to the shareholders.

There is an evil in a bank having too small a capital. In this

* 7 & 8 Vict. cap. 113.