the property of the directors, that in case it should be necessary to come upon the property of the shareholders to make up a deficiency, that of the directors may be first taken.

II. That those joint stock banks that require it may have charters upon the following conditions.

1. That the paid-up capital shall be at least £250,000, and the nominal capital £1,000,000.

2. The shareholders shall not be liable beyond the amount of the nominal capital.

3. The bank shall make periodical returns to government in the manner described, and shall lay before its shareholders an annual balance-sheet, certified by two auditors who are not directors.

4. The bank shall not permit any overdrawn accounts, nor advance any money upon mortgage, railways, &c. &c., nor in any other way except by discounting bills or investments in government securities.

5. The bank shall not issue notes beyond the amount of its paid-up capital, nor incur liabilities beyond three times the amount of its paid-up capital.

6. The bank shall not discount or rediscount any bills it may have discounted, nor reissue any bills having more than three months to run.

7. The bank shall not draw bills upon London at more than two months after date.

8. The bank shall not have any branches.

9. The charter shall be limited to ten years, and the bank shall be established beyond ten miles from London.

10. In case the bank should stop payment, its affairs shall immediately be placed in the hands of the government commissioners, for the purpose of being wound up. In case of a deficiency, all the shareholders shall be answerable to make it good, but only in proportion to their respective shares; and an extent in aid, or some other process equally summary, shall enforce these claims.

It will be seen that I have not suggested any

method of limiting the value of the shares, the amount of the nominal capital, or the number or distance of the branches. I am inclined to think that these are matters which the legislature had better let alone.

We must always bear in mind that it is not the business of the legislature to lay down rules for the management of banks; but merely to establish such laws as shall have the effect of placing the banks under the guidance of persons who know how to manage them. Upon this subject I need only quote the speech delivered from the throne at the opening of the present session of parliament.

"The best security against mismanagement of banking affairs must ever be found in the capacity and integrity of those who are entrusted with the administration of them, and in the caution and prudence of the public; but no legislative regulation should be omitted which can increase and ensure the stability of establishments upon which commercial credit so much depends."

This may be regarded as a truism, but it is a truism that is often forgotten, and hence it very properly found a place in the royal speech. It is useful to legislators to be reminded of the limits of legisla

A COMPARISON BETWEEN THE ENGLISH AND THE AMERICAN SYSTEMS OF BANKING, WITH REFERENCE TO THE CURRENCY AND TO THE FOREIGN EXCHANGES.

In 1810 two bank directors stated to the bullion committee, that in regulating the general amount of their loans and discounts, they did not "advert to the circumstance of the exchanges, it appearing upon a reference to the amount of the notes in circulation, and the course of the exchange, that they frequently have no connection."

Since that period the opinion of the directors of the Bank of England have undergone a change; and it is now admitted, that the amount of notes in circulation has a considerable effect upon the foreign exchanges. The mode in which this effect is produced is thus described in the History and Principles of Banking.

"The effect which the amount of notes in circulation has upon the foreign exchanges has been the subject of much discussion. One party contended, that as the amount of notes increases, the exchange must become unfavourable. Another party maintained, that the exchanges were not at all affected by the issue of notes, but by the state of foreign trade. The authors of the report of the bullion committee expressed the former opinion, some of the bank directors maintained the latter.

"It is obvious that the exchanges are regulated by the amount of gold that is required to be sent abroad, either to pay the balance of trade, or to pay our armies, or to subsidize foreign powers, or as rents to absentees, or for some other purpose. Now it is clear that an increased or diminished issue of notes will in no way diminish the amount of gold that is to be sent abroad, and therefore have no direct effect upon the exchanges; if we owe gold, we must pay it. We may diminish our issue of notes, but that will not pay our debts. If, then, the issue of notes have any effect upon the exchanges, it must be in an indirect way.

"I have already stated that an increased issue of notes can have no effect upon the prices of commodities at home, but by influencing either the supply or the demand. If the increased quantity of money raises the demand for commodities beyond a certain point, it will advance the price; and if it increases the supply, it will lower the price; but in no way can the quantity of money in circulation affect the prices of commodities but through the channels of supply and command. Just so with the foreign exchanges; an unfavourable course of exchange arises generally from our owing a sum of money which we have to pay, in consequence of our imports having exceeded our exports. An increased quantity of money, therefore, to affect the exchanges, must diminish the amount of our foreign debt, and it can do this only by either increasing our exports or diminishing our imports. When money is abundant, our merchants can import more than formerly; this increases our debt. The importers are disposed to lay in stocks of goods, and the competition between the importers raises the prices they give to the foreigner; hence there are heavy sums to be sent abroad. It is true, that when money is abundant our manufacturers and exporters can also export more goods, but the competition among exporters diminishes the price to the foreigner, and hence we have a less proportionate sum to receive. The exporter, too, having abundance of money, gives the foreigner long credit, and hence the money is not received in England for a considerable time after the goods have been shipped; in the mean time the exchanges become unfavourable, and gold must be sent abroad. Now suppose in this state of

things the bank contract their issues; money becomes scarce, bills cannot be discounted, and trade is dull. Now, then, the importer having already a heavy stock of goods, will buy no more, he is anxious to sell, for he has not now sufficient capital to keep so large a stock—a general desire of selling will cause a fall of price. Fewer commodities will now be imported, and these obtained at a less price; hence there is less money due to the foreigner. The exporters on the other hand, deprived also of their usual accommodation, cannot carry on business to the same extent; the supply will be reduced, the competition is less, and prices rise to the foreigner. The exporters, too, cannot now give such long credit as formerly; they will call in the sums due to them, and hence more money must come in from abroad. As, then, we have to pay other nations a less amount of money for our imports, and they have to pay us a greater amount for our exports, the exchange will become favourable. It is obvious that this operation will cause great embarrassment to trade; in fact it is only by producing embarrassment that a contraction of the currency can affect the exchanges.

"The amount of notes in circulation affects the foreign exchanges in another way. When an increased issue takes place, money becomes more abundant; the lenders are more numerous, and the supply of capital is increased; hence the price given for the loan of money, that is the rate of interest, falls. Persons who have money to employ will find they cannot obtain the same interest as formerly, hence they will be disposed to invest it in the foreign funds, where it can be employed to greater advantage. In order to remit this money, they will purchase foreign bills; this demand for foreign bills will advance their price, and the exchanges will consequently be unfavourable. On the other hand, when the circulation is considerably reduced, money becomes scarce, a higher price will be given for the use of it, the rate of interest rises; persons who have property abroad will be disposed to bring it home, where it can be more profitably invested; they will draw bills against it, and sell them in the market. This new supply of bills will lower the price, and make the exchanges favourable.

"It should always be recollected that the transmission of money as subsidies, loans, or for investment in the foreign funds, will have the same effect upon the exchanges as though it were transmitted in payment of commodities imported. Whenever, therefore, the issue of notes shall, directly or indirectly, cause a transmission of money from one country to another, the exchanges will be affected; but when this shall not be the case, the expansion or contraction of the currency will have no effect upon the foreign exchange."

It is also an admitted principle in America, that paper issued to excess will have the effect of raising prices, stimulating speculation, and rendering the exchanges unfavorable. The operation of the currency upon the exchange in America was thus described a few years ago by Mr. Biddle, the President of the Bank of the United States.

"The currency of the United States consists of coin, and of bank notes promising to pay coin. As long as the bank can always pay the coin they promise, they are useful; because, in a country where the monied capital is disproportioned to the means of employing capital, the substitution of credits for coins enables the nation to make its exchanges with less coin, and of course saves the expense of that coin. But this advantage has by its side a great danger. Banks are often directed by needy persons, who borrow too much, or by sang uine persons, anxious only to increase the profits, without much pecuniary interest or personal responsibility in the administration. The constant tendency of banks is, therefore, to lend too much, and to put too many notes in circulation. Now the addition of many notes, even while they are as good as coin, by being always exchangeable for coin, may be injurious, because the increase of the mixed mass of money generally, occasions a rise in the price of all commodities. The consequence is, that the high price of foreign productions, tempts foreigners to send a large amount of their commodities; while the high price of domestic productions, prevents these foreigners from taking in exchange a large amount of our commodities. When, therefore, you buy from foreigners more than they buy from you, as they cannot take the paper part of your currency, they must take the coin part. If this is done to a considerable extent, the danger is, that the banks will be obliged to pay so much of their coin for their notes, as not to leave them a sufficient quantity to answer the demand for it, in which case the banks fail, and the community is defrauded. To prevent this, a prudent bank, the moment it perceives an unusual demand for its notes, and has reason to fear a drain on its vaults, should immediately diminish the amount of its notes, and call in part of its debts. So on a large scale, when the banks of a country perceive such a demand for coin for exportation, as diminishes too much the stock of coin necessary for their banking purposes, they should stop the exportation. This they can always do, if their affairs have been well managed: and here lies the test of bank management.

Its

"The law of a mixed currency of coin and paper is, that when, from superabundance of the mixed mass, too much of the coin part leaves the country, the remainder must be preserved by diminishing the paper part, so as to make the mixed mass valuable in proportion; it is this capacity of diminishing the paper which protects it. value consists in its elasticity, its power of alternate expansion and contraction, to suit the state of the community; and when it looses its flexibility it no longer contains within itself the means of its defence, and is full of hazard: in truth the merit of a bank is nearly in proportion to the degree of this flexibility of its means.

If a bank lends its money on mortgages, on stocks, for long terms, and to persons careless of protests, it incurs this great risk, that, on the one hand its notes are payable on demand, while, on the other its debts cannot be called in without great delay, a delay fatal to its credit and character. This is the general error of banks who do not always discriminate between two things essentially distinct in banking, a debt ultimately secure, and a debt certainly payable. But a wellmanaged bank has its funds mainly in short loans to persons in busi