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This calculation, I still believe, would have proved correct, had the assistance required been given promptly, quietly, and free from any condition as to winding up.
"But the demands made upon us have considerably exceeded my calculation, from two causes; first, the notoriety of our financial embarrassment, created by the delay in acceding to our application, and the course which the negotiations took from our having been referred to the Bank of England; and second, the condition as to winding up, which the other banks sought to impose, and the publicity given by the Times to this condition.
"It is not easy to say in figures to what extent these causes have respectively operated in inducing withdrawals, or to estimate to what extent they may still operate. But as to the past, my own observation here, and the reports from our branch agents, all convince me that the second has been immeasurably more mischievous than the first. Deposits on receipts have been withdrawn to a very limited extent indeed, but balances on current accounts kept by the trading community have been removed to other banks to a considerable extent. The reason is natural and obvious. If this Bank is to wind up, traders know that we cannot give them accommodation, and they take the earliest opportunity of arranging for that accommodation elsewhere, and withdraw their balances.
"I am hopeful that the mischief already done is not irreparable. That we retain still a measure of public confidence, is proved by the fact that no fixed deposits of any large amount have been withdrawn, and nothing like a run has taken place, and gold has scarcely ever been demanded.
"I have already said that there has been no demand made upon us for gold, all sums withdrawn having been taken in our own notes, and, consequently, the other banks have got the deposits."
The Western Bank then asked a further loan from the Edinburgh banks, which, having been discussed for some days, was unanimously refused.
On Saturday, the 7th November, there was, from the heavy withdrawal of deposits in the Bank's notes, and their lodgment with the other banks, a heavy adverse balance on the exchange of that day. The Edinburgh banks were immediately informed that the Western Bank was unable to provide for this adverse
balance on the following Monday. On the Sunday they resolved as soon as this inability to pay the balance should be declared, to instruct their agents to refuse the Western's notes. And it was beyond all question shewn that it was this injudicious line of conduct that chiefly brought on the subsequent run for gold.
The Exchange being heavily against the Western on Saturday, it made a final proposal to the Edinburgh banks, and sent a scheme for an amalgamation with the Clydesdale Bank, to be discussed by them on Monday morning, the 9th, and kept its doors open till 2 o'clock, to learn their final decision. This being a decided refusal to entertain the terms proposed, the Western Bank shut its doors at 2 p.m., on Monday, the 9th November. Another Bank, the City of Glasgow, it was also known, had been engaged in transactions of the same nature as the Western, in America, and had also been equally negligent in keeping due reserves in London. This bank, too, required the assistance of the Edinburgh banks, though it is not stated how much they received. On the evening of the 9th a run commenced on the saving's bank branches of this bank. "On the Tuesday morning," says Mr. J. Robertson, the manager of the Union Bank, "when the doors of the banks were opened, a great number of parties appeared with deposit receipts demanding gold; in fact, the office of our own establishment was quite filled with parties within a quarter of an hour of the opening of the doors. I think at half-past 9. The Chairman: You are now speaking of the Union Bank?--I am speaking of most of the banks; I speak of the Union Bank particularly. Were the Western Notes at that time current, or were they refused?-They were not current, unfortunately. Was there any deputation from Glasgow to Edinburgh on the subject of the other banks agreeing to take the Western Bank's notes?— This run, as you may call it, or panic, increased so much, that the continued refusal of the notes of the Western Bank added very much to the excitement. Those people who came for money would not take the notes of any bank, it did not matter what bank it was; they refused everything but gold. We thought that it would allay the excitement if we were to take the Western Bank's notes; there being no danger of ultimate payment. We were so much impressed with that feeling, that two of the banks sent a deputation to their directors to Edin
burgh to confer with the managers of the Edinburgh banks on the subject, and to induce them to rescind their order. They failed in that; the notes of the Western Bank were refused the whole day on the Tuesday."
The run of Tuesday exhausted the City of Glasgow Bank, and it did not open on Wednesday, the 11th. The state of Glasgow was so alarming that the magistrates sent for troops, and did all in their power to allay the excitement; they issued a proclamation advising the people not to press the banks for payment, and to take the notes of all the banks. They issued an order to all the rate collectors in the city to take all notes presented to them, including those of the two suspended banks. But the demand for gold was almost entirely confined to the depositors, very few noteholders coming forward. On Wednesday and Thursday large remittances of gold from London arrived about 10 o'clock in the morning, and were taken in waggons to the banks, escorted by strong bodies of police. But the run entirely ceased about 2 o'clock on Wednesday. At half past two, says the same witness, there were not half-a-dozen people in the establishment. The panic, as the witness said, only lasted one whole day and part of the next.
In fact, the refusal to take the Western Bank's notes was one of the chief causes of the run for gold; and, as soon as the other banks agreed to take them, the panic ceased. Mr. Lawrence Robertson was asked, "What was it which first caused the panic to cease?-When the stoppage of these banks took place, the other banks were not precisely informed of their position, and hesitated a little in taking their notes; after further consideration, the other banks resolved to take all the notes as they came forward, and when that was done the thing subsided. As soon as it became known that the notes of the Western Bank would be received by the general body of the banks in Scotland, the panic with regard to the notes of the Western Bank, came to an end? -Entirely."
The same witness also said, that there was no run upon any of the Glasgow banks before the stoppage of the Western Bank. "Were those parties who drew out gold over the counter in exchange for notes, or by cheques on their deposits?—It was chiefly in the case of small deposit receipts. And not for any considerable amount?-No. Do you think that it exceeded £1,000?—
It is difficult to fix upon a sum; I never looked at that. It was not of sufficient importance to call your attention to it?-No." The City of Glasgow Bank resumed payment in about a month, but the Western Bank had lost not only its whole paid up capital of £1,500,000, but as much more again.
16. The details of this great catastrophe well deserve our closest attention, because it is the first instance of a banking panic in Scotland, and even that was confined to one town. The commercial failures were confined exclusively to the herd of adventurers who had been fostered and supported by the mismanagement of the Western Bank. There was but one house of any magnitude connected with Glasgow which suspended payment during this period, Dennistoun & Co., who were more a Liverpool and London house than a Glasgow one, and whose temporary stoppage was brought about by other causes. But this calamity has been seized hold of by persons who are hostile to the Scotch system of banking in general, and also to the £1 note currency of Scotland, to condemn them. But, when we come to investigate the true facts, we shall find that they lend no support to these charges. For, with respect to the first, it is distinctly proved by the most unanswerable evidence, that from the commencement to the close of its career, the Western Bank pursued a system of business that was totally opposed to the well-recognised system of Scotch banking, and unanimously condemned by all the well-conducted banks. That, during its whole course, it was a subject of terror and alarm to the other banks. That its locking up its funds in America was totally condemned by the Bank of England, and all the other Scotch banks. And the directors themselves, when, however, it was too late, acknowledged their own misconduct, for, in their first application for assistance to the Bank of Scotland, on the 21st October, 1857, the directors say-"On the part of the board of direction, it is right that we should frankly say, that they are fully alive to the recklessness of the past management of the Bank; that its credit has been strained to the extreme point; and that, in the attempt to make large profits for the proprietary, unwise and undue risks have been run. Feeling all this, the directors have entered on a course of management, which (although the present commercial crisis renders curtailment difficult of speedy
accomplishment) will eventuate in the establishment, on a secure basis, of a business of a safer and a more legitimate, though certainly of a more limited description, than has for many years been conducted by the Western Bank of Scotland." Habemus ipsos confitentes reos. The directors themselves acknowledged that their course of business was not in accordance with the usual Scotch banking system. What possible reflection, then, can it be on the recognised system that a bank, which went right in the teeth of it, failed? The very same remarks apply, only, of course, in a lesser degree, to the City of Glasgow Bank. This Bank too, was guilty of speculating in America, instead of keeping its reserves in London; and it, too, paid the penalty by a temporary suspension.
The second charge, too, is equally groundless against the small note circulation. For it is said that these small notes aggravate a panic, and that a panic is most likely to commence amongst their holders. But, in this case, the evidence most decisively negatives the supposition that any part of the panic was due to the small notes, and not only that, but it decisively proves that the demand for gold was greatly lessened on account of the notes. Mr. Fleming says, Q. 5532—“I may say there was no run for payments of notes all through. There may have been a few notes presented, but I should certainly limit the demand for gold in exchange for notes to £5,000 or £6,000. I do not think it would exceed that. Mr. Wilson: In point of fact, the whole pressure on the Bank at any time was in respect to its deposits, and not in respect to its circulation ?-Decidedly, there was no pressure in respect to its circulation; so much so, that during the last two days for which the Bank was in operation, I do not think £1,000 was paid away in gold at the head office. The whole money withdrawn was taken away in notes, and the consequence was, that on the afternoon of the 9th November, when the Bank stopped, there was a very large amount of notes in circulation, something about £720,000. Mr. Wilson: Then the depositors became uneasy about the security of their deposits, went to the Bank, and took the Bank's notes?Yes. Mr. Wilson: Did they pay them immediately into other banks?—Yes. Mr. Wilson: They thereby indirectly obtained payment through the other banks?-Precisely so; they transferred their deposits from one bank to the other. Mr.