THE CITY OF GLASGOW BANK AND ITS LESSON.

Thames Star, Volume X, Issue 3139, 11 March 1879, Page 1

THE CITY OF GLASGOW BANK AND ITS LESSON.

The Fortnightly Beview for December contains an article on the above which is well worth attentive reading. As a condemnation of the behavior of those responsible for the conduct of that bank, the article is not one wit too serere, but the chief value of the article lies in its suggestions for banking reform. It is shown that the banking legislation of the past lies been defective in part because such developments in banking as have taken place since 1845 were never contemplated by the statesmen of that day. Banking has outrun all calculations both in the magnitude of the operations carried on through its agency, and in the enormous amounts of monr-y which have been accumulated by the leading 'institutions of the country. The failure of the City of GlasgowBank has proved also that the existing laws and customs of 'banking, offr practically no safeguard against the mo 4 gigantic frauds. The " confidence" system is therefore at an end, and the banks must therefore be prepared for an entirely .changed attitude toward them on the part alike of the public and the law. Scotch banks have in particular, tho writer of this article thinks, been favoured by the legislation of 1844 and 1845, us compared with the banks of England and Wales, but we are not sure that this is proved-or that too.much is not made by him of the effects of the Scotch note issues. However these things may be, the broad lines of reform must be the same for all banks, and we cordially endorse the remark that all remedies are not to be found in artificial distinctions and discouragement of one kind of banking as compared with another. All banks will have to be put on the same level, and all subject to the same legislative provisions. Bearing in mind that the utmost which legislative or other ingenuity can do is to make fraud difficult, and that no legislative or other provisions can ever in themselves prevent fraud, the following recommendations which we summarise from the article seem to us to point in the direction which bank* ing reform must take:—l. That a uniform balance sheet be required by law from all banks, public or private, to be published at frequent intervals and under the sanction of a public auditor or of an audit committee, such auditor net to be compelled to value the advances and bills discounted, bat merely to certify that the figures of the books are correct. 2. The Bank of England must be compelled by law to separate the banker's balances which it holds from the money of its. own customers. At present the Bank of England holds no reserve at all against its liabilities to its own customers, It trades on the banker's money, and its total reserve at the present moment probably does not cover by several trillions the actual cash which bankers ha^e deposited with it, and which they might any d»y wquire. The state of affairs i'l 80 unsound as to be absolutely intolerab^ in • community anxious to conserve it*B mercantile credit. Were the Bank of England to throw out the banker's balan.™ altogether the position would be more toafid than it m now. 3. It is proposed that the present legal re. straints on the circulation o/ notes of the provincial banks of England find Wales, and of the Scotch and Irish banks, shou .1 be at once abolished. All banks should be placed on the same footing as to-note issues, and their notes could be rendered safe either by requiring issuing banks to deposit public securities for the lull average amount of their circulation, or by taking security for half such amount and giving the noteholders a first claimon the general assets of the bank that failed. This change .would certainly do away with the present monopoly m banking, and in # that respect would perhaps be an immense step gamed; but the note issue question iB a very wide one, and we therefore take ifclhat the last proposition of all made by the Fortnightly writer is the one which must be first adopted. It is that the Government should appoint a departmental or .Kopl Commission of competent men for (lie purpose of collecting facts and opinions oa the banking question, with a view to legislation. That seems to us a step for which there is urgent necessity. The cloud which now hangs over English commercial credit must be removed if we are to retain our mercantile position, and in order to remove it we want two things—re thorough revision of our banking laws and a thorough change in the laws of bankruptcy. As a preliminary to the former, « Eoyal Commission is probably the beat step that could be take*, for the problem to be solved is a most complicated and difficult one, and rash legislation upon it w o ul d perhaps do more harm than good. To ct veot solid and lasting reform we must avoid n *nic legislation; but legislation is none the >» absolutely necessary, and the Government cannot too soon or too earneatlv recok^w 6 the perils which the LS !i from thY present chaotic state of affairs. '