"'Such is your view of the failures that took place in 1847, speaking generally? ' - 'That is my view.'
"Your Committee have thought it not irrelevant to place on record these instances, which it was not in the power of their predecessors in 1843 to give, because they furnish an instructive example how readily misfortunes are at the time attributed by the sufferers, and others sympathizing with them, to the operation of statutory enactments, which misfortunes, upon a full review of all the circumstances attending them, it is obvious that no wisdom of the legislature, no regulation of the currency could have prevented.
"Your Committee have before them the particulars of thirty houses which failed in 1857. The aggregate liability of these houses is £9,080,000; of this sum the liabilities which other parties ought to provide for amount to £5,215,000, and the estimated assets, £2,317,000. Besides the failures which arose from the suspension of American remittances, another class of failures is disclosed. The nature of these transactions was the system of open credits which were granted; that is, by granting to persons abroad liberty to draw upon the house in England to such extent as had been agreed upon between them; those drafts were then negotiated upon the foreign exchanges, and found their way to England, with the understanding that they were to be provided for at maturity They were principally provided for, not by staple commodities, but by other bills that were sent to take them up.
There was no real basis to the transaction, but the whole affair was a means of raising a temporary command of capital for the convenience of the individuals concerned, merely a bare commission hanging upon it; a banker's commission was all that the houses in England got upon those transactions, with the exception of receiving the consignments probably of goods from certain parties, which brought them a merchant's commission upon them; but they formed a very small amount in comparison with the amount of credits which were granted. One house, at the time of its suspension, was under obligation to the world to the extent of about £900,000. Its capital at the last time of talcing stock was under £10,000. Its business was chiefly the granting of open credits-i.e., the house permitted itself to be drawn upon by foreign houses without any remittance previously or contemporaneously made, but with an engagement that it should be made before the acceptance arrived at maturity. In these cases, the inducement to give the acceptance is a commission varying from 1/2 to 1 1/2 per cent. The acceptances are rendered available by being discounted, as will appear hereafter, when the affairs of the banks which failed come under our notice.
"The obvious effect of such a system is first, unduly to enhance, and then, whilst it continues, to sustain the price of commodities. In 1857, that fall of prices which, according to Mr. Neave, ' far-seeing people had anticipated,' actually occurred. Tables have been put in by more than one of the witnesses, exhibiting an average fall of 20 or 80 per cent., in many instances much more, upon the comparison of July, 1857, with January, 1858. It needs no argument to prove what effect such a fall must have upon houses which had accepted bills, on the security of produce consigned, to the extent of one hundred times the amount of their own capital.
" The witness is asked,-
"'In the case which you are now describing to the Committee, these transactions had gone on to the extent of £900,000. The real guarantee was partly produce and partly bills of exchange; to whatever extent that produce was depreciated, of course the liability of the firm to failure would arise, and the capital of that firm, to meet such depreciation of produce, was about one-hundredth part of the whole of their liabilities?' - 'That is so.'
"'Do you consider that case to be a fair illustration of the recent commercial disasters which have occurred?' -'I think it is, though I should mention that in some cases the proportion of capital possessed was larger than that which I have mentioned......'
" The commercial crisis was very little felt in Ireland until the failure of some of the banks in England and Scotland. The trade of Ireland, with the exception of that of Belfast, being little connected with the United States, did not feel directly the effect of the failures there, but when failures began to take place at home there was an internal pressure consequent upon them, which, about the early part of the month of November, manifested itself severely in a demand for gold by depositors and holders of notes, and there was a run on the savings banks. The Bank of Ireland advanced to the banks in Ireland requiring gold to the extent of about £250,000; and they were obliged to draw from the Bank of England from £1,000,000 to £1,200,000 besides. Belfast has a large trade with the United States, as well as a constant intercourse with Scotland, but there was no alarm until the time of the Scotch bank failures. There was then, what had never been known before in Belfast since the institution of the joint-stock banks, a considerable run for gold in exchange for their notes. But the amount of gold which they held under the Act of 1845 was a source of strength. The banks appear to be well constituted, and no serious results ensued......
"Your Committee have examined Mr. Joshua Dixon, who in August, 1857, first assumed the post of managing director of the Borough Bank; Mr. Fleming, who has been, since July, 1857, assistant manager, manager or liquidator of the Western Bank of Scotland; and Mr. Kirkman Hodgson, a member of the House, and director of the Bank of England, who, being well acquainted with the trade of Newcastle, went to that town in November, for the purpose of ascertaining how far it was right that the Bank of England should give assistance to the Northumberland Bank.
"The state of these three banks at the time of their failure may be collected from the following summary, viz.: