We are not, however, inclined to adopt the opinion expressed by the committee of the House of Commons, to the extent of admitting that it would be either politic or just to disturb the whole banking system of a country on account of private frauds, whether forgeries or the fabrication of counterfeit coin. If their opinion was a sound one, the weight of evidence is now upon our side of the argument; but we hold that the interests at stake are far too great to be affected by any such minor details. If any new circumstance has arisen "to affect the relations of trade and intercourse between Scotland and England," we at least are wholly unconscious of the occurrence, and, of course, it is the duty of those who meditate a change to point it out, in order that it may be thoroughly scrutinized. Internally, the business of the banks has been increasing, and, commensurate with that increase, there has been a vast addition to the number of branch banks spread over the face of the country; so that, whereas in 1825 there was but one office for every 13,170 individuals, in 1841 there was an office for every 6600 of the population. This is plainly the inevitable effect of competition; but lest that increase should be founded upon by our opponents as a proof of over-circulation, we shall say a few words upon the subject of the exchange between the banks themselves, which is a leading feature of our whole system, and the most complete check against over-trading which human ingenuity could devise. Fortunately we have ample data for our statement in the evidence tendered to the committee on banks of issue in 1841.
It is right, however, to premise that, strictly speaking, there are not more, nay, there are positively fewer banks in Scotland at the present moment than there were in 1825, though the amount of paid-up capital in the banks is more than doubled. It is the branches alone which make this astonishing increase. Now, as a branch is merely a local agency of the parent bank, established at a distance for the sake of outlying business, the number of parties engaged in banking who are responsible to the public is not thereby increased, nor is the amount in circulation extended. In fact, the multiplication of the branch banks has been of extraordinary benefit to the public, by affording the inhabitants of even the remotest districts a ready, easy, and favourite method of deposit, and by extinguishing all risks of credit. Further, it has this manifest advantage, that the manager of the branch bank has far greater facilities of ascertaining the character, habits, and pursuits of those persons who may have received the advantage of a cash-credit accommodation, and can immediately report to his superiors any circumstances which may render it advisable that the credit should be contracted or withdrawn. So far are we from holding that the multiplication of branch banks is any evil or incumbrance, that we look upon it as an increased security not only to the banker but the dealer. The latter, in fact, is the principal gainer; because a competition among the banks has always the effect of heightening the rate of interest given upon deposits, and of lowering the rates charged upon advances. Nor does this give any impetus to rash speculation on the part of the dealer, but directly the reverse. The deposits always increase with the advancing rate of interest; and experience has shown, that it is not until that rate declines to two per cent that deposited money is usually withdrawn, which is the signal of commencing speculation. To the mere speculator the banks afford no facilities, but the reverse. Their cash credits are only granted for the daily operations of persons actively engaged in trade, business, or commerce. So soon as that credit appears to be converted into a different channel, it is withdrawn, as alike dangerous to the user and unprofitable to the bank which has given it.
Of thirty-one banks in Scotland which issue notes, five only are chartered– that is, the responsibility of the proprietors in those established is confined to the amount of their subscribed capital. The remaining twenty-six are, with one or two exceptions, joint-stock banks, and the proprietors are liable to the public for the whole of the bank responsibilities to the last shilling of their private fortunes. The number of persons connected with these banks as shareholders is very great, almost every man of opulence in the country being a holder of stock to a greater or a less amount. That some jealousy must exist among so many competitors in a limited field, is an obvious matter of inference. Such jealousy, however, has only operated for the advantage of the public, by the maintenance of a common and vigilant watch upon the manner in which the affairs of each establishment are conducted, and against the intrusion of any new parties into the circle whose capital does not seem to warrant the likelihood of their ultimate stability. Accordingly, the Scottish bankers have arranged amongst themselves a mutual system of exchange, as stringent as if it had the force of statute, by means of which an over-issue of notes becomes a matter of perfect impossibility. Twice in every week the whole notes deposited with the different bank offices in Scotland are regularly interchanged. Now, with this system in operation, it is perfectly ludicrous to suppose that any bank would issue its paper rashly for the sake of an extended circulation. The whole notes in circulation throughout Scotland return to their respective banks in a period averaging from ten to eleven days in urban, and from a fortnight to three weeks in rural districts. In consequence of the rate of interest allowed by the banks, no person has any inducement to keep bank paper by him, but the reverse, and the general practice of the country is to keep the circulation at as low a rate as possible. The numerous branch banks which are situated up and down the country, are the means of taking the notes of their neighbours out of the circle as speedily as possible. In this way it is not possible for the circulation to be more than what is absolutely necessary for the transactions of the country.
If, therefore, any bank had been so rash as to grant accommodation without proper security, merely for the sake of obtaining a circulation, in ten days, or a fortnight at the furthest, it is compelled to account with the other banks for every note they have received. If it does not hold enough of their paper to redeem its own upon exchange, it is compelled to pay the difference in exchequer bills, a certain amount of which every bank is bound by mutual agreement to hold, the fractional parts of each thousand pounds being payable in Bank of England notes or in gold. In this way over-trading, in so far as regards the issue of paper, is so effectually guarded and controlled, that it would puzzle Parliament, with all its conceded conventional wisdom, to devise any plan alike so simple and expeditious.
The amount of notes at present in circulation throughout Scotland is estimated at three millions, or at the very utmost three millions and a half. At certain times of the year, such as the great legal terms of Whitsunday and Martinmas, when money is universally paid over and received, there is, of course, a corresponding increase of issue for the moment which demands an extra supply of notes. It is never considered safe for a bank to have a smaller amount of notes in stock than the average amount which is out in circulation; so that the whole amount of bank-notes, both in circulation and in hand, may be calculated at seven millions. The fluctuation at the above terms is so remarkable, that we are tempted to give an account of the number of notes delivered and received by the bank of Scotland in exchange with other banks during the months of May and November 1840: —
It will be seen from the above table how rapidly the system of bank exchange absorbs the over-issue, and how instantaneously the paper drawn from one bank finds its way into the hands of another.
If further proof were required of the absurdity of the notion, that a paper circulation has a necessary tendency to over-issue, the following fact is conclusive. The banking capital in Scotland has more than doubled between the years 1825 and 1840 – a triumphant proof of their increased stability; whilst the circulation has been nearly stationary, but, if any thing, rather diminished than otherwise. We quote from a report to the Glasgow Chamber of Commerce.
"The first return of the circulation was made in Scotland in 1825. Every one knows the extraordinary advance which Scotland