Private banks have formerly been worked with capital subscribed by not more than six persons, which, in case of death, has undergone a proportionate diminution unless some other person should purchase the lapsed interest in the concern. As a rule, all the partners in a private bank assist in its administration; and it has long been a matter of dispute as to whether private banks under this system have not been more successful in proportion to their means than a joint-stock bank under the administration of salaried servants. It is only reasonable to assume that auy business will be more lucrative when those who are directly interested in the profits take the leading part in the management. Mr. J. Stuart Mill, in his l Principles of Political Economy/ bk. ii, p. 486, says: ' Management, however, by hired servants, who have no interest in the result but that of preserving their salaries, is proverbially inefficient, unless they act under the inspecting eye, if not the controlling hand, of the person chiefly interested; and prudence almost always recommends giving to a manager not thus controlled a remuneration partly dependent on the profits, which virtually reduces the case to that of a sleeping partner' On the other hand, however, it is clear, and the experience of late years has furnished ample proofs of the soundness of the doctrine, that a manager whose remuneration depends upon the profits earned will be very-likely to engage in transactions of a less secure nature than would probably be entertained by the partner of a private bank, whose fortune is at stake. A manager's income is his interest in the concern, and should be understood to be as much at stake as the partner's private fortune, and so no doubt in a sense it is; but a limited interest seldom secures more than a limited amount of vigilance in any calling where strong enthusiasm in the work itself does not supply the place of that naturally nourished by a leading interest in the pecuniary results.

Private banks may be looked upon now as institutions of the past. Many of the best of them before and about the time of the panic of 1866 were swallowed up by the joint-stock system, and from year to year they are gradually eliminated by the same process.

A joint-stock bank differs from a private bank-First, by its capital being permanent; secondly, its number of partners unlimited; and thirdly, in the form of its government. If a partner - or, as he is generally termed, a shareholder - die, his shares are simply transferred, and the capital remains the same. A joint-stock bank is directed by a board of gentlemen drawn from various classes of society, under whom is a manager, who acts as their representative, and who, to a certain extent under their control, administers the whole of the affairs of the bank, assisted by a sub-manager, secretary, and subordinates, as the nature of the business may require.

Up to the year 1855* shareholders in joint-stock banks were unlimited in their liability, by which system it will be seen that many rich men would be liable for their entire fortunes by becoming shareholders; and thus, banks of unlimited liability, on coming into positions of difficulty, would be likely to lose their best shareholders, as was often the case at the outset, when masters transferred their shares into the names of their servants. This, however, was put an end to by a special clause, which all banking copartnerships take care to include in their regulations, and which empowers the directors of a bank to refuse a transfer should they not approve of the transferee.

* Limited Liability Act, 20 & 21 Vict. c. 49.

The Act of Parliament passed in 1855, limiting the liability of shareholders to the amount of their shares, is looked upon by some persons as in principle vicious. There can be no doubt that a great number of banks, established with limited liability, have failed most disastrously both in England and the United States. The stoppage of banks in the latter country, where nearly, if not all, are on the limited liability system, has been especially disastrous. Some authorities assert, not without some show of reason, that limiting the shareholders' liability takes off much of the pressure which should be constantly kept upon those whose duty it is to exercise caution and prudence in employing the bank's funds. The argument that shareholders whose all is at stake will be more likely to see that prudent and experienced directors form the board, and that the strictest possible supervision is exercised, is sound enough in the abstract; but abstract principles cannot be applied to the working of banks. In practice they break down, of which in this particular case there is ample proof. Shareholders will not be bothered with supervising the prudence and the caution which the managers are expected to apply in the exercise of their duty, and there is consequently no alternative if they are to avoid the risk of being ruined but to limit their liability.

Mr. James Wilson made the following remarks in the year 1845 with reference to the conditions upon which success in banking depends.

"The two great essential and fundamental principles, therefore, on which the success of banking depends, and to which hitherto very little attention has been paid in all the discussions which have taken place on the subject, are:

"1st. By what means can a bank attract the largest amount of deposits?

"2nd. In what way can a bank employ those deposits to the greatest advantage, consistently with the conditions on which they are made; that is, repayment on demand?

"These two propositions really do involve the whole art of banking, whether viewed as a source of profit to bankers, or as a source of economy, safety, and convenience to the public. We will consider them separately.

"First. By what means can a bank attract the largest amount of deposits?

"The first essential property which a bank must possess is a perfect confidence on the part of the public. The small amount of benefit, which a banker can afford to give his customer for placing his money in his hands can never be sufficient to induce any man to run a hazard; and, more particularly, the mere difference of terms which one banker can afford compared with another cannot be sufficient to induce any man to give preference to more tempting terms, when weighed against a greater security and confidence.