« ForrigeFortsett »
most obvious and necessary. After the deed has been prepared by the solicitor, and approved by the directors, it is submitted to the inspection of an eminent barrister. Still perhaps, it is desirable that they be submitted to a barrister appointed by the government, in the same manner as the rules of savings' banks. This officer should not however have a discretionary power; he might be allowed, 1st. to strike out any clause which may be contrary to law. 2. He might object to any clause, which in his judgment would be injurious to the public or to the shareholders, although not contrary to law. In this case, the clause should not be inserted in the deed, unless sanctioned at a meeting of the shareholders, specially summoned for that purpose. 3.-In case he stated that any provision was contrary to law, when the directors did not believe it to be so, the clause might be submitted to the Attorney or SolicitorGeneral for the time being, whose opinion upon the law should be final.
Although different deeds of settlement may require some special clauses according to the circumstances of different companies, yet in their general provisions they must be very similar; and hence it would not be difficult to draw up a list of clauses the most obvious and necessary. But it does not follow that such clauses should be enforced by act of Parliament. They who execute the deed, and who are to be bound by its provisions, should be allowed to judge as to what are the most necessary clauses.
Lord Althorp proposed the granting of charters to all joint stock banks, on a plan somewhat similar to that of America. The following is part of a speech he delivered upon the renewal of the Bank of England Charter, in 1833, as reported in the Times.
"He proposed that every banking company of more than six partners, should be a joint stock company, such company to be established by charter. These chartered banks would be subject to certain regulations, but all advantageous to themselves and the country. He would not propose that these banks should be banks of issue: they were of two sorts; some issued their own notes, and others the
notes of the Bank of England; but banks were prevented issuing notes payable in London for less than £50.
"In the plan he proposed, joint stock banks might exist within the sixty-five miles, if they used the paper of the Bank of England. The conditions on which he proposed government should grant charters to these joint stock banks were the following-first, that the partners in these banks should have half of their subscribed capital paid up, and deposited either in the government funds, or some equally good securities. He further proposed, that the partners should be liable to an unlimited responsibility-the corporation of the bank should not hold any shares in it; and that the accounts of the bank should be yearly audited and published. Of course, it was plain there was a vast difference in those banks which possessed the power of issuing their own notes, and those which did not issue them. In their case, he proposed as the conditions on which charters should be granted, that one quarter of their subscribed capital, instead of one half, as required where they were banks of issue, should be paid up and deposited as before-that their shares should not be less than £100 each ;—and that the partners in such banks should be only liable to a responsibility to the amount of their shares. In a case where a charter was to be granted, it must be at the discretion of government to decide, whether the amount of capital subscribed was a sufficient amount for the locality in which the bank in question was situated. He hoped, however, that every proper facility would be given to the establishment of such banks."
If it were at all desirable to adopt Lord Althorp's plan, it is now too late. It would be unjust to compel the existing joint stock banks to take out charters, and to comply with burdensome conditions, of which they had no knowledge at the time of their formation. But, it may be worthy of inquiry how far charters may be granted without any material alteration of the laws respecting joint stock banks. Lord Althorp's plan appears objectionable-first, in requiring all joint stock banks to be chartered banks; and secondly, in giving the crown a discretionary power in granting the charters. Now might not Parliament prescribe the conditions on which charters might be obtained, and leave to the banks the power of complying with those conditions or not as they pleased? And might not the mixture of banks of different sorts be attended with advantage to the country? It is the opinion of Mr. Clay that the three chartered banks of Scotland "gave a tone to public opinion, and rendered it difficult for any bank commencing business to conduct
its affairs in a manner widely different." And Lord Liverpool advocated the establishment of branches of: the Bank of England upon the ground that they would operate as a check upon the country banks. We know too that the extension of joint stock banks in England has improved the private banks. Why then, may not the establishment of a few chartered banks tend to improve the joint stock banks?
"Sec. 2. And be it further enacted, that every bank incorporated by the authority aforesaid, shall be a corporation by the name of the president, directors, and company of the bank (the blank
to be filled up as the case may require), capable in law to sue and be sued to final judgment and execution, to have and use a common seal, and the same at pleasure again to break, alter, and renew, and also to establish and put in force such bye-laws and regulations as to them shall appear necessary and convenient for the government of said corporation."
The Americans have the sagacity to see that a bank has occasion for the power of suing and being sued. In this country joint stock banks above sixty-five miles. from London sue and are sued in the names of two public officers, whose names are registered at the stamp office. But joint stock banks situated within sixty-five miles of London, although sanctioned by law, have no prescribed mode of suing and being sued. One would have imagined that in an act which sanctioned the establishment of such banks, this would have been considered one of the clauses the most obvious and necessary.
The power to establish, alter, and renew by-laws and regulations, seem very similar in both countries. In England
"The active duties are generally delegated to a small body, called the directors, while the main body of proprietors reserve to themselves the power of re-electing the directors, and of altering from time to time the rules by which the directors are to be governed."
"Sec. 3. Be it further enacted, that no bank, except such as are now incorporated, shall go into operation, make discounts, loan money, 1 emit bills, or promissory notes, until fifty per centum, at least, of its capital stock shall have been paid in gold and silver money, and existing in its vaults, which shall have been examined by three commissioners appointed by the governor, whose duty it shall be, at the expense of the banks, to examine and count the money actually in the vaults, and
to ascertain by the oaths of a majority of the directors of said bank, that its capital hath been paid in by the stockholders of said bank, toward payment for their respective shares, and not for any other purpose; and that it is intended to have it therein remain as part of said capital, and to return a certificate thereof to the governor, and no loan shall be made to any stockholder until the full amount of his shares shall have been paid into the bank; and it shall not be lawful for any bank to have owing to it, on loan, on a pledge of its own stock, a greater amount than fifty per centum of its capital stock actually paid in; and no part of the capital stock of any bank shall be sold or transferred until the whole amount thereof shall have been paid in.”
"The law does not impose any restrictions upon the amount of capital. This will be found to vary from £5,000,000 to £100,000; and in one instance an unlimited power is reserved of issuing shares to any extent.
"The law does not impose any obligation that the whole or any certain amount of shares shall be subscribed for before banking operations commence. In many instances banks have commenced their business before one half of the shares are subscribed for, and 10,000, 20,000, and 30,000 shares are reserved to be issued at the discretion of the directors.
"The law does not enforce any rule with respect to the nominal amount of shares. These will be found to vary from £1,000 to £5. The effects of this variation are strongly stated in the evidence.
“The law does not enforce any rule with respect to the amount of capital paid up before the commencement of business. This will be found to vary from £100 to £5."
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 farther 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 case, the bank will be but a small bank; the number of proprietors will be few, and the number of persons eligible to be chosen directors will be few; hence there will not be the same guarantee for good management. If a bank with a small capital have
also a very small business, it had much better cease as an independant establishment, and become the branch of a larger bank. If, on the other hand, it has a large business, with a large circulation, large deposits, and large loans or discounts, its losses will sometimes be large, and hence the whole capital may be swept away. It is true, that while it avoids losses the shareholders will receive large dividends, but these large profits had much better be left in the bank as an addition to its capital than shared among the proprietors in the form of dividends. There is danger too that the high premium on those shares may induce many shareholders to sell out and form other, and perhaps rival establishments.
On the other hand there is an evil in a bank having too large a capital. In this case, as the capital cannot be employed in the business, the directors are under the temptation of investing it in dead or hazardous securities for the sake of obtaining a higher rate of interest; perhaps too they may speculate in the funds, and sustain loss. Hence it is much better that a bank should commence business with a small capital, and increase the amount as the business may require.
It is difficult to state in all cases what proportion a capital ought to bear to the liabilities of a bank. Perhaps the best criterion we can have, is the rate of dividend, provided that dividend be paid out of the business profits of the company. When we hear of a bank paying from fifteen to twenty per cent. dividend, we may be assured that the capital is too small for the business. The liabilities of the bank, either in notes or deposits, must far exceed the amount of its capital. As a general maxim, the greater the capital the less the dividend; let the whole capital be employed at any given rate of interest, say four per cent., then the capital raised by notes or deposit, produce after paying all expenses, a certain sum as profit. Now, it is evident, that if this amount of profit be distributed over a large capital, it will yield a less rate per cent. than when distributed over a small capital. Sometimes