Clonmel get their bills discounted at the bank which might be established at Why should not an agriculturist living at Mallow get an advance of capital from a branch bank established in Cork?-Those in the greatest credit might, but the opportunities of knowledge of individuals at a distance is not so perfect, and the facilities are not so great as where there is a bank established upon the spot. Do you conceive it would be advisable to have a bank established in every town in Ireland?-I conceive it would be a great advantage to Ireland. Supposing there was not a bank established in every town in Ireland, do you apprehend that where a party produced sufficient security and was willing to pay a sufficient rate of interest, there would be any objection whatever to advance capital to that individual, although he might reside at the distance of twenty or thirty miles from the seat of the banking establishment ?-None at all. Have you made any inquiry as to the mode of conducting the banking establishments at Limerick before the establishment of the branch provincial bank?I made general inquiry. Are you aware that bills were discounted by discounting houses, who issued nothing but bank of Ireland notes?—Yes. It has been stated to the Committee that the charge to a party getting a bill discounted amounted to twelve and even fifteen per cent, when the commission was charged with the interest; do you apprehend that to be a correct statement?— I cannot speak to the correctness of that statement, but those bills were bills no doubt drawn upon Dublin or Great Britain for goods shipped and sent out of the country, and that interest would be paid as a matter of necessity more than of choice. If discounting houses can exist by the discount of bills, where they gain no profit by issuing their own paper, and if persons can be found who will pay twelve or fifteen per cent interest upon the discount of those bills, do not you think that affords a strong presumption that a banking establishment which was allowed to charge seven or eight per cent interest upon the discount of bills, would find it a profitable concern in Ireland?-If charges at the rate of twelve per cent were made upon these bills, or even if a higher charge was made, the parties would probably have been obliged to pay it, or otherwise have sent the bills themselves to be received where payable, and have incurred the risk and expense of having the money returned to them. This charge of twelve per cent would be as much a charge of commission or rate of exchange as of interest. How did the discounting houses, in the north of Ireland, exist previously to 1797?-Probably by purchasing the bills drawn against the produce of the country exported. Previously to the year 1797 an agriculturist could raise money in the north of Ireland by the discounting a bill, which bill was discounted in gold, and the profit to the bank which discounted arose from a charge of six per cent interest, and something as commission: supposing that the issue of notes below five pounds were now to be prohibited, why should not the banking establishment derive a profit from discounting local bills in five-pound notes, if five-pound notes could be issued, and if they could not, in sovereigns, charging seven per cent interest for the amount of their advances?-I have no doubt whatever that if all notes were withdrawn from circulation, there would be persons who would borrow money at that rate of interest, rather than not have it; but the question, with reference to the establishment of a bank, would be, whether it was probable that the amount of business that would be done would support the expenses of it, and leave a sufficient profit besides. It does not appear to me, from what has come under my observation, that there would be sufficient of such business to support a bank, except in a few large towns; say in Limerick, Cork, Belfast, and Waterford; perhaps not in any other. Would that not have the effect of diminishing the operating capital of the country ?--I think it would be a very great disadvantage to Ireland in its present state; in the infancy of the commerce and agriculture of the country, every little assistance is of great importance to it; that assistance would now be invaluable to Ireland which might be of no consequence to either England or Scotland: the present question is of infinitely more importance to Ireland than to Scotland or England. Do not you think it absolutely essential for the permanent improvement of Ireland that the banking establishments of that country should be placed upon a perfectly secure footing?-Certainly. Appx. No. 17. Mr. Thomas Joplin. (12 April.) Do you think there is any country in the world that has suffered so much as Ireland, within the last twenty years, from the insecurity of its banking establishments?-No. A Do you not apprehend that the issues of those different banks did for a time operate in furtherance of the local improvement of the country?--Yes. Do not you apprehend that Ireland has lost more by the failure of those banking establishments than she would have lost if there had been less facility of credit, but if the banking of that country had been conducted upon a sure footing?--I have assumed in all that I have said that the banks should be established on the secure footing upon which the Provincial Bank and the bank of Ireland is founded; nothing can be worse than the system of banking that has been carried on in Ireland heretofore, which system is now, however, near extinguished in the provincial parts of the country. Do you think the provincial bank of Ireland, established upon the principles upon which it is now established, provides a perfect security against an over issue of paper, and the consequences that might result from its over issue?-Certainly not; I think public companies can over issue paper just as much as private banks. What is the check upon that over issue?-I do not see any efficient check; the introduction of gold will to a certain extent be a check, but it will not be a perfect one... Do you think it necessary as a check that gold should be introduced?-I think to a certain extent it may be useful as a check; the banks could never increase their issues of five pound notes without supplying an equal proportion of gold currency, which proportion would be a quantity equal to the amount of small notes now in circulation. If a bank was to over issue to the extent say of 100,000l., and the proportion which the small notes under the value of 5. bore to the whole circulation was one third, or one half, it could not maintain that sum in circulation without supplying 50 or 100,000 l. in sovereigns. These would have to be obtained from London, and in a majority of cases would have to be purchased by a sale of government securities. As an increase of issues, however, generally takes place when capital is becoming scarce and valuable, this sale would have to be made at a loss, and the question for a bank to consider would be, whether for an increase of issues, which might only be temporary, it would be worth making any sacrifice. Thomas Kinnear, (17 April.) ཟླ''' Lune, 17° die Aprilis, 1826. ་་་་ THE RIGHT HONOURABLE WILLIAM HUSKISSON, IN THE CHAIR. Thomas Kinnear, Esq. called in; and Examined. YOU are a banker in Edinburgh, are you not?-I am.. You are also a director of one of the chartered banks of Scotland, are you not? I am a director of the bank of Scotland, which is established by act of Parliament; it does not hold a charter from the Crown, but in common language it is called a Chartered Bank. In your capacity of a private banker have you any branch banks established in any part of Scotland?—None. Are you, in in your capacity of a private banker, agent for any banks which are so established? Our house are agents for several country banks in Scotland. They keep their accounts, and transact their business through your house in Edinburgh ?Yes, they do. In your capacity of a director of a chartered bank, and in your capacity of agent to private banks, and yourself a banker, you can probably give the Committee an account of the whole system of banking in its different branches, and the mode in which it is carried on in Scotland?I have been a director of the bank of Scotland for about a year only, and therefore, perhaps, I am not equal to giving so detailed an account of the system of their banking as I should otherwise do, inasmuch as I have had only one year's experience in it, but I think I am acquainted with the system generally. ཕ་ ཞེ ༤ ན》 ུ རི Does your private bank issue one-pound notes?-No. I should explain to the Committee that we have, during nearly seventy years that our banking house has been established, in two instances permitted parties to overdraw their accounts on bonds, certainly similar to cash credits; with these exceptions the question may be answered decidedly in the negative. In what does your business consist at this banking house?-Our business consists of two branches; dealing in capital, and being agents for country banks. By dealing in capital you mean receiving deposits from the customers of the bank?--By dealing in capital, I mean using my own capital in the way of loan, and borrowing and lending capital generally. Part of which consists of deposits ?-Certainly. By borrowed capital you mean deposits?—Yes. In what manner do you generally employ the capital of your bank?-Upon the usual securities in which bankers deal, either private or public securities. Discounting bills of exchange probably?—Yes. Do you lend money on mortgage?-No. In fact your business as a private banker resembles very much the business of a private banker in London, having also the agency of country banks?-I am not acquainted with the business of a private banker in London, and, therefore, I can hardly answer that question. What do you mean by lending on private security?-Our house do not lend on mortgage, but they might lend on mortgage. I should be afraid to attempt to enumerate all the securities on which we occasionally lend, I might unintentionally leave some out: Bills of exchange; permitting parties whom we know to be solvent to borrow from us, perhaps by overdrawing their accounts. The nature of the securities we receive depends upon the nature of the transaction. Is it a common practice to permit parties to overdraw their accounts? --Where we are satisfied of our security it is occasionally one of the modes in which we lend capital. Do you lend money generally in that way?-To what I think a proper extent. What is the distinction you take, between not granting cash credits and lending money by advances to parties who are solvent, and who keep accounts with you?Lending money is making an advance of the cash we have, and which we want to employ, that we do if we permit parties to overdraw their accounts; they come and ask whether we will lend them so many hundred pounds, and we do it. Giving a cash credit is not advancing the money, but promising to advance the money if at any future period the party applying shall want it, whether convenient to the banker or not. Do you permit accounts to be overdrawn without having taking previous security? Certainly not, without knowing that we are secure. Without having taken previous security from the party?—I should say, certainly not. Usually if a person, who possessed a large fortune to our knowledge, came in and asked to overdraw his account to so many hundred pounds, we should not refuse it; but it is generally the case that we take a promissory note, and we charge the discount of it, and place the proceeds to the credit of the party. Of course upon those transactions you charge interest?-Yes, certainly. You state that a cash credit is an engagement on the part of the banker to lend money within the limits of that engagement when required?--Yes, it is. But your mode of transacting business is, instead of coming under a preliminary engagement to lend money, to grant that accommodation when required by the wants of any party in whose solvency you have confidence?-Yes, if it suit us. Is there any other difference between those two modes of lending money, except the different forms in which the security is given?-Our usual mode is by making a definite loan; both definite in amount and definite in period. If a person has leave to overdraw his account indefinitely, it is a very rare and uncommon thing; the way in which we grant an accommodation in the common mode of our business is, by making a bill definite in its amount and definite in time. A cash account is indefinite in amount, except that the maximum is defined, and it is indefinite in time. There is a slight difference in the return upon the capital employed in discounting bills and in the capital employed in advances on cash accounts when required, because the one is discount interest and the other is simple interest. As far as the mere question of the return for the capital goes, I do not at present recollect any other difference. Are there many banks in Edinburgh who, like your house, carry on business without issuing one-pound notes, and without allowing cash credits?-There are three or four houses. Appx. No. 17. Thomas Kinnear, Esq. (17 April.) Appx. No. 17. Thomas Kinnear, Do those houses, as far as you know, carry on business in the same manner as you have stated your house to do, by advancing money to those who may require in whose sufficiency they have confidence?-Yes, I presume so. What is the rate of interest you now charge on advances of this description?→ The rate of interest on discounts or overdrawn accounts at present is five per cent. What is the rate of interest on cash credits where the banks are in the habit of granting them?-Five per cent. And in fact the rate of interest in the one and in the other mode of borrowing has always been kept the same?-The interest when a loan is made on a cash account is the same as the interest on a discount. There may, and I rather think there has been a difference in some banks between the interest charged on a cash account and the interest charged on a discount; I am not quite sure of that; I do not know any instance of its having been done, but I rather think it has been done. When you are called upon in your own bank to give bills on London, are they at the same date as bills issued by banks that circulate one-pound notes?-London bills form one of the securities in which we trade; if we are called upon by the public to draw on London for cash, we draw at the same rate that the public banks do, twenty days after date. Do you know of any bank in Scotland, not issuing one-pound notes, which affords cash credits I have already answered that in our own house, in the period of seventy years, I am aware that two advances of that kind have been given; if the question is meant to apply to the system, undoubtedly not. Is the advantage to the party borrowing greater under the system of cash credit than under the system of lending in the ordinary mode?-Infinitely. Why?-As to the question of actual pounds, shillings or pence paid in the shape Does not your bank grant interest on deposits of cash?--Yes, on current balances. Do the banks which grant cash credits allow a greater interest than four per cent? No. Do they charge the same interest upon the advances upon those credits that you do upon the discount of bills?-Yes, five per cent. Then, supposing instead of discounting a bill of exchange for three months, it was a customer to whom you would make an advance commensurate with his actual wants, by allowing his account to be overdrawn upon his own cheque, what advantage would there be to that same individual if he drew the same amount as a part of a cash credit he had lodged with the bank?--The only advantage that I see would be, that in the one case, in the first case mentioned, after having once reduced the advance, he must come and ask me leave again before he could increase it, which probably I might not grant unless it was for my advantage; but, as I have stated, these sort of advances by private grants are exceptions and not rules; it is a very rare thing, and it is a favour in the banker, which he must have some other reason than the mere mercantile one of making money to induce him to confer often. To all your customers whom you consider as respectable, who are in the habit of wanting an advance, would you not make it?—Yes; but the mere circumstance of such an advance being frequently required, would induce me to say that, in banking language, that customer was not so respectable as another. The very circum ( stance stance of his respectability in banking language depends on his not requiring those sort of advances frequently. But as far as that mode of transacting business goes, the interest charged on the advance, and the interest allowed by the banker on any deposit the same party may have to make with him, is the same whether the advance be made without a cash credit, or with a cash credit?—I have already mentioned as to the interest. It is in one sense a mode, but it is not a usual mode of transacting the business; it is the exception, it is not the rule. Is the Committee to understand that the usual mode of granting advances to a customer by a bank which does not issue notes, is on the credit of a promissory note of that person to the bank?-Generally on the promissory note; we generally wish for more than one party on the note or bill. On the amount of that bill, he pays discount at the rate of five per cent from the day the money is granted?--Yes, certainly, and takes away the money if he pleases. And if he paid in the whole of that money the next day, the banker would allow him only four per cent upon it?-Certainly; and we should make a profit of one per cent upon it without any risk. But if he were to pay that in on a cash account, he would be saving five per cent by paying it in ?—Yes; the difference would be, that the net profit of my banking house would be one per cent for three months, whereas the gross profit of the other would be five per cent for one day, or till the money was again paid in. Would it not suit the bankers not issuing one-pound notes to adopt this system of advance by cash credits, as a mode of employing their capital ?—Not unless such an extraordinary change was to take place, which I see no reason to anticipate, that we could not make a better use of our money; we employ our money where it is most profitable. Can you employ your money, generally speaking, at a higher rate of advantage than five per cent?-I believe very few bankers who look back to the last twenty years would be contented to take their accumulation at five per cent on the capital employed. The question refers to the present moment?—It is difficult to say. I should be sorry to invest a sum at five per cent, simple interest, for some years to come; I mean, that supposing five per cent to continue the market rate of interest; I think that it is my business to make a banker's profit instead of simple interest upon it. Is it the practice of bankers to invest their money, so as to tie it up for years and place it beyond their reach ?—I think I shall make more than five per cent of my money for the next six or eight months. I should be sorry to think that my profits were limited to five per cent on my capital. But you cannot by discount, or by any ordinary mode of business, get more?— Yes, by exchanges, by persons requiring money in different parts of the country; by discounting bills not payable in the place where they are discounted, which form the bankers trade; or by commissions, or various small charges of one kind or other, made up at the end of the year, they certainly pay us more than five per cent on our capital. At present we can discount first rate bills at five per cent, we do not want to carry that to a great extent, because transactions turn up which pay us better than the market rate of interest. Is it not a constant practice of bankers to regulate the extent of their discounts by a reference to the value of money?-I think that in this country, where there is a fair competition of capital, securities of equal solidity with first rate commercial bills are not likely to pay a higher interest. Government securities?-They are not of equal security with mercantile bills; there is more risk. At what rate did you discount at this time last year?-Four per cent. Supposing that, where you were discounting at four per cent on ordinary bills, you had granted cash credits at five per cent, would that have answered your purpose as well?It would not. Why not?--I have already said that a cash credit is not a loan; it is an engage ment to lend money when it is wanted, that is the bargain; then the party to whom I have come under this engagement, may, if he chooses, very willingly agree to pay six per cent, but when the time comes round he will not take it unless it is worth it. If capital was plentiful, and if a man was in good credit (and if he were not I would not have dealt with him), he would get his money at four per cent, and I should be Appy. No. 17. Thomas Kinnear, Esq. (17 April.) |