run for gold of any amount on the Bank, for during the following week it only paid away £4,000, and in the week after that about £2,000; and the whole paid away in coin between the 10th of October and the 7th of November, the Saturday before it stopped, was only £44,000. But, during this period, the total deposits demanded were £1,280,000, and, except the sum above mentioned as paid in coin, the whole of these deposits were paid in the Bank's own notes, which were immediately taken and lodged in the other banks.

This dreadful catastrophe deserves to be minutely detailed, because it is strenuously asserted by a very influential party, that the small note circulation of Scotland tends to increase a panic among its holders. But in this case, the Bank's notes in circulation did not in any way increase the panic. Mr. Fleming says "I may say that there was no run for the payment 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 upon the Bank at any time was in respect of 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 The whole money withdrawn was taken away in notes, and the consequence was that on the afternoon of the 9th of November, when the Bank stopped, there was a very large amount of notes in circulation, something about £720,000. Then the depositors became uneasy about the security of their deposits, went to the Bank, and took the Bank's notes ?-Yes. Did they pay them immediately into other banks ?-Yes.. Was there much drain in the provinces upon the balances?-Not a very large amount, certainly; a wonderfully small amount, in proportion to the total deposits, was withdrawn from the country.—I think you said that at the branches there was very little demand for gold; almost none?—Almost none."

At the same time a very heavy blow fell upon them from another quarter. The Bank, instead of keeping its funds well in hand in London, engaged in exchange operations with America. They had an agent in New York, though, perhaps, not openly

and avowedly in that character, who granted letters of credit upon them, in favour of persons who wished to raise money, such parties arranging with the agent, the securities to be lodged to meet the Bank's acceptances. These credits were not by any means always paid at maturity, but were renewed to a large extent. By this operation, a very considerable portion of the Bank's funds were locked up in America, instead of being in London as they ought to have been. At the time of its suspension, its acceptances current, and its obligations to accept, amounted to £317,000, in two months' bills, which, multiplied by six, gives the amount of the year's transactions. The amount of funds locked up in America by their agent there, appears to have been £376,520, against which he held railway bonds and current bills. Mr. Fleming said, Q. 5510-"It appears to me in many cases, the credits established by Lee upon the Western Bank, have been modes of raising money for the purpose of constructing American Railways, and for speculation in stocks, in New York." "The two banks, i. e., the Western and the City of Glasgow," said Mr. Robertson, the cashier of the Royal Bank, were in the habit of accepting four months' inland bills drawn from London, Liverpool, and Glasgow, in respect of these credits, which was quite condemned by the Bank of England, and all the other banks in Scotland."

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The general stoppage and failure of American credit at this time rendered the expectations of any remittances hopeless from there. And Mr. Fleming, who undertook the duty of manager on the 15th October, told the directors it was absolutely essential to make provision for a contingent drain upon the deposit money, and also for the American acceptances becoming due. On the 17th October, the directors resolved to apply to the Bank of Scotland. On the 21st, a written application was made to that Bank for assistance, and on the 23rd a meeting having been held of all the Edinburgh banks, they declined to assist, until application had been made to the Bank of England. This application was refused. This refusal being telegraphed down to Edinburgh, a meeting of the banks was held the same evening, and they agreed to advance £500,000, on condition that the directors should dissolve and wind up the concern. After some days' negotiation the Edinburgh banks agreed to forego the compulsory winding up, as the directors of the Western said that they had no power Q

VOL. II.

to do so, and advanced the money without this condition. This sum was accordingly advanced on the 29th October, on the promissory notes of the Western Bank, at six months' date, for £510,000, the terms being that the Western Bank should be bound to replace the Edinburgh banks in Consols, at the price of the day. In addition to the loan so advanced by the Edinburgh banks, the Clydesdale Bank advanced £100,000 on a note of the Bank's at six month, with the individual guarantee of the directors, which was discounted at the current rate of 8 per

cent.

The withdrawal of the deposits from the Bank, which was almost entirely among the small depositors, had greatly abated, and, whatever might have been the ultimate result which might have been necessitated in consequence of the examination of the Bank's affairs that was then in progress, there was no immediate danger of a catastrophe; when, on the 29th October, the City article of the Times announced that the Edinburgh banks had resolved to carry the Western Bank through its difficulties, on condition that it should wind up. The Times reached Scotland on the morning of the 30th, and immediately a fresh pressure commenced on the Bank. But this time it was of a different character from the previous one. The first pressure had been among the small depositors, the second consisted of the traders who kept large accounts, who, seeing that the Western Bank was going to close, made haste to transfer their balances to the other banks and open accounts with them, and it was this pressure which continued and made the Bank close its doors on the 9th November, not from a demand for gold, but because the balances of these accounts being withdrawn in the Bank's notes, and paid into other banks, the Western Bank was unable to provide for the purchase of Exchequer bills from the other banks, to rectify this balance by a draft on London.

To shew how mischievous this publication of the terms proposed was, we quote from Mr. Fleming's letter to the Bank of Scotland of 31st October, 1857-"The application made a fortnight ago by the Directors of this Bank to the other Scotch banks, for a credit to the extent of £500,000, was based on my calculation that £350,000 or £400,000 would keep our London finance in perfect order, and that the remainder would be a sufficient reserye to meet any probable withdrawal of deposits.

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.

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"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