patent, when a number of the other Scotch banks presented a joint memorial against it. They said that they should be wanting in their duty to the public, as well as their own constituents, if they sanctioned, by their silence, such an application-"The fact is well known to you, that while there have occurred, during the past fifty years, periodical convulsions among the banks in England, which have led to the failure of several hundreds, Scotland has, for the most part, maintained a state of general tranquillity, and there have, in the same time, occurred only three or four failures, and those of a very minor character. The cause of this is notoriously owing, first, to the large capital employed in the Scotch banks, and second, to the system of administration adopted. Capital alone, as has been recently experienced in England, by extending the scale of operations, may only increase the mischief. In the like manner, a numerous proprietary, constituting a protection to the public against eventual loss, may, by adding to the credit, add to the power of such an institution for evil. The safeguard of the Scotch system has been the uniform practice adopted of retaining a large portion of the capital and deposits invested in Government securities, capable of being converted into money, at all times, and under all circumstances. This requires a sacrifice, because the rate of interest is small, and, in times of difficulty, the sale involves a loss, but it has given the Scotch banks absolute security, and enabled them to pass unhurt through periods of great discredit.

"It is not then unreasonable that the managers of the Scotch banks should look with favour on a system which, notwithstanding their close connection with England, has exempted them from these calamities, and, in the doubt that exists on banking theories elsewhere, it is at this moment sufficient to say that the system established in Scotland has worked well, and ought not to be disturbed there.

"The Western Bank was established in the year 1832, and the principle on which it has avowedly acted has been to employ as much as possible of its capital and assets in discounts and loans, retaining only the cash necessary to meet its current engagements.

"As this is a more profitable investment than Government securities, there is always a strong temptation to speculative or inexperienced persons to adopt this course, and if the conse

quences were to affect themselves alone, it would be of small moment, but, unfortunately, in banking, this cannot be. The whole system depends upon credit, and the failure of an ill-regulated establishment, affects those differently constituted. Such a body, in prosperous times, boldly extends its business, and, from seeing the readiness with which in such seasons commercial paper is discounted, comes to the conclusion, that it is the best and most convertible description of investment that could be found.

"Prudent banks, knowing the delusive nature of this expectation, are compelled to increase their own reserve to meet the consequences of this unwise expansion; and, when the difficulty comes, they must either assist their rival to prevent an explosion, or must make a heavy sacrifice by selling their securities at a loss.

"The Western Bank, acting on this principle, allowed their London transactions to assume such an irregular shape, that their London agents, the respectable house of Jones, Loyd, and Co., took alarm, and in 1834 dishonoured their drafts. The Bank of Scotland, Royal Bank, and British Linen Company were compelled to come to their assistance, and made them considerable advances. These circumstances occurring in a time when the Money Market was perfectly tranquil, shewed the extreme danger of the practice. The Edinburgh banks insisted on a better system of management being adopted, and that the Western Bank should have invested in Government securities a sum amply sufficient to meet emergencies. The Directors, after much discussion, at length, by a resolution dated 30th October, 1834, distinctly assented to the requisition, but, as they had so engaged the assets of the Bank, as to render it impossible immediately to procure the funds, the Edinburgh banks lent them £100,000 for the purpose. For some time the Western Bank may have acted on this agreement, but the temptation of profit appears to have got the better of their prudence, and they now repudiate their engagement.

"It will be quite apparent that a bank that can employ its whole funds in this manner, is enabled either to divide a larger share of profits than its competitors, or to do business on more favourable terms; and we repeat, that if the only consequence of this was to increase or diminish the dividends of the rival establish

ments, it would be of comparatively small importance, but in its result it endangers the existence of every bank in the country, and the fortunes of a large portion of the community. We feel that, if letters patent shall be granted to this Bank, after what has passed, it will be a public sanction and countenance of a new and mischievous principle, opposed to the Banking system of Scotland.

"The question is not, in this instance, whether Government will interpose new restraints on banking companies, but whether they will encourage a violation of the old system, by granting distinction and privileges to a company which, having pledged itself to their observance, now disowns them in its practice, and under these circumstances applies for a charter." This memorial was signed by the Bank of Scotland, the British Linen Company, the Commercial and National Banks; and the Charter, if applied for, never was granted.

This system of keeping such small reserves in London produced the consequence foreseen in the preceding memorial. In 1847 the Western Bank was in difficulties, and received assistance from the Bank of England to the amount of £300,000 in November and December, 1847, which it repaid in March, 1848. From this time forward till 1852, when a change in the management took place, a rather more cautious course was pursued, but they did what we believe was totally contrary to the usual practice of the other Scotch banks-they rediscounted. The following figures shew the amounts of discounts and rediscounts from 1847 to 1852

At this time the Bank had £356,000 of overdue bills, besides other very heavy locks-up of capital, in one case amounting to £120,000, which was covered with insurances on the lives of the obligants, on which it had paid £33,512 as premiums when it stopped. "But even at this time," says Mr. Fleming, "it had a cluster of those people who had manufactured accommodation

bills, doing business with them." So that in this year, he says, the Bank was not in a satisfactory state.

In 1852 a new management commenced, and to shew how the practice of rediscounting increased, we give the following figures

Rediscounted. £1,682,320

In 1853

Discounted.
£14,987,740

Thus we see the enormous increase of this most perilous practice during these years, a practice which places the existence of any institution that depends upon it to any great extent, at any moment at the mercy of the will, the caprice, or any accident that may happen to the purchaser of its bills.

But this was by no means the only instance of reckless management. Over and above all the other embarrassments, there were four accounts particularly to which the subsequent calamity was due; we will shew the state of these accounts in 1852 and 1857

Shewing that these four firms were under obligations to the Bank

in 1852 to the amount of £193,394. state of the same accounts in 1857

The following was the

Being a sum total of £1,603,725 to these four houses alone, when they failed. And, to shew the character of the bills discounted for these firms, of £402,716 bills of Macdonald's current at the time of their failure, £398,349 were dishonoured at maturity; of Menteith's, £376,699 current at their failure, £269,726 were dishonoured at maturity; of Wallace's, of £226,741 current, there were dishonoured £209,534; and of Pattison's, of £336,996 current, there were dishonoured £150,749.

Soon after the general meeting of June, 1857, the directors requested another person to examine the Bank's books, who, after doing so, and allowing all the current business of the Bank to be good, including the above four firms, found that bad debts to the amount of £573,000 were kept on the books as good, which, after deducting the rest and guarantee fund, amounting to £246,000, made a loss of £327,000 in the capital of the Bank, and the advances to the shareholddrs, holding 7,626 shares in the Bank, amounted to £988,487. In the month of September, 1857, Mr. Fleming, the person whom the directors had requested to assume the temporary management of the Bank, began seriously to inquire into the nature of these immense accounts, and on the 7th the Wallaces acknowledged that they were dealing in accommodation bills, and he saw that the Macdonalds must be doing the same thing, as the two houses were drawing on the same names. It was found that the Macdonalds drew upon 124 acceptors, only 37 of whom had been inquired about, and of these, reports on 21 were extremely bad. But there were 60 or 70 persons whom they drew upon, who made it a regular trade to accept bills for a small commission; in fact, it appeared that they engaged a man in London to procure them accommodation acceptances. As soon as the true nature of these accounts was ascertained, there was no resource but to stop them. The failures of Menteith and Macdonald, which were the first that became notorious, created a panic on the Stock Exchange on the 10th October, and the price of stock rapidly fell, it being commonly reported that the whole capital of the Bank had been engaged in enabling these parties to carry on their business for a series of years. These rumours created a run on the Bank, to a slight extent, on the following Tuesday, which continued for two or three days, and during that week, ending the 17th of October, the Bank paid away about £36,000 in coin, but this was the only