THE POWER OF PANIC.

New Zealand Times, Volume XXXIV, Issue 5583, 19 February 1879, Page 3

THE POWER OF PANIC.

There has seldom been a more glaring illustration of the power of panic than is furnished by tho compulsion laid upon the Caledonian Bank to go into liquidation. It has had to stop business, and its shareholders have probably lost their capital, because it held four £IOO shares iu the City of Glargow Bank. Its business was perfectly sound ; it) capital was untouched ; its stability was nut suspected; and it is morally certain it could have continued prosperous and Houriahing, doing a safe banking bu.-iness on sound principles, and m< efing all its liabilities witli the utmost ea-e, those resulting from the Glasgow Bank calls included. It could have done so, and would have done so; but people would not believe ft, and their disbelief compelled its directors to put up the shutters. In an evil day for all its interests the manager received, in security for an advance to a miller near Nairn, to enable that individual to start a mill for manufacturing farina from potatoes, four shares of the City of Glasgow Bank. Tho Caledonian Bank directors, all unconscious of their danger ami coming doom, continued to hold the shares which they might have sold at a prfit often since 1875, tire year they received them. At length came the Glasgow smash, aud tire Caledonian Bank directors gave immediate assurance that they could meet all calls in respect of tho .four shares with the greatest ease. So reeeutly as only a week before the bank was forced into liquidation, they issued a circular showing that, though calls to the extent of £3OOO per share should be made, the bank would have no difficulty in paying the amount. They were even ready to assign over £IOO,OOO to tho Glasgow Bank liquidators to meet calls if they might thereby win their discharge. But the liquidators could not give a discharge, because they were wholly unable to fix the maximum contribution, and a conditional discharge would not have arrested the process of waning confidence in the minds of the public in consequence of the uncertainty. The shareholders of the Caledonian Bank who rushed to sell their shares are responsible for the disaster. Their panic sales forced down prices, and as the liquidators of tho Glasgow Bank saw substantia! shareholders being rapidly transformed into men of straw, they felt hound to interpose. Thu customers of the bank caught the alarm, and its business was in swift course of destruction. If the .share register could have been closed, all might have been well; but that could not be done ; and with the indefinite liability of the Glasgow Bank in prospect, customers would have gone on withdrawing their deposits. The dire necessity had therefore to be faced of winding up a sound business, not because the bank could not meet its liabilities, but because it was impossible to estimate what the amount of those would be, or—equally fatal catastrophe—when they would have to bo met. The Caledonian Bank was ruined by tho Glasgow Bank, but the immediate agent was tho

irrational terror of its own panic-stricken shareholders. Its revival would bo practicable if there were a speedy liquidation of the Glasgow Bank on the basis of a composition, as advocated in these columns; but if the hideous wreck be left cumbering the ground for long years tho hope of such a result must soon vanish away.— World