Hamilton to Merivale (Permanent Under-Secretary)
Treasury Chambers
26 February 1859
I am commanded to acquaint you for the information of Secretary Sir E. Bulwer Lytton that the Lords Commissioners of Her Majesty's Treasury have had under their consideration your further communication on the subject of the Charter proposed to be granted to the Bank of British Columbia dated the 14th inst.
I am directed to state with reference toManuscript imageto the observations which appear to call in question the accuracy of Their Lordships assertion regarding the introduction of the clause providing for the revocation of the Charter in the event of breach of conditions in all recent Colonial Bank Charters, that the impression of My Lords is that the Clause on one of equivalent import, was first inserted in the Charter of the Oriental Bank granted in 1850, and has been introduced into all subsequent charters incorporating new Banking Companies inManuscript imagein London for carrying on the business of banking in the Colonies. It is true that it was not introduced into Charters granted previously to that date; neither was it introduced into the supplemental charters granted to the Bank of Australia in 1856, for the obvious reason that the original Charter of that Coporation is still in force, and the supplemental Charter for extending it's powers did not touch the clauses relating to it's original Constitution. For the same reason it is probable that if a supplementalManuscript imagesupplemental Charter had been granted to the Colonial Bank in 1855, as supposed by Sir E. Bulwer Lytton, it would not have contained the clause in question; but he will find on inquiry that he is mistaken in referring to the case of that Bank, as no such charter passed the Great Seal.
With respect to Sir E. Bulwer Lytton's observation that he is not aware under what circumstances the clause in question was first adopted, My Lords have only to state that theManuscript imagethe explanation of the circumstances afforded in the Letter of this Board of the 13th Ultimo is correct; but if he desires any further information on the point, they will endeavour to procure it, if he will be so good as to inform them of the points in respect of which that explanation is considered deficient.
My Lords feel it right to observe, with reference to the allusion in your Letter to the responsibility of the Secretary of State for the fitting exercise of the powers of the Crown inManuscript imagein Colonial Affairs, that powers are reserved in these Charters to the Secretary of State, and that their operation in the Colonies is subject to Local laws; but independently of the control which devolves upon this Board generally in all Matters of a financial character in the Colonies, it should be borne in mind that the Charters in question are granted not to Colonial Bodies, but to persons associated in London for the purpose of carrying on the business of banking in the Colonies, and such ChartersManuscript imageCharters are not confined to companies associated for Banking in the Colonies, as similar ones have been granted to the Bank of Egypt and the Ottoman Bank.
The regulations for the government of Banking Companies of this class were originally framed, in concert, by this Board and the Board of Trade, and the responsibility of enforcing the principal requirements of the Charters devolves upon the Treasury by express provisions contained in the Charters.
My Lords consider it right therefore that they should be the organs for communicatingManuscript imagecommunicating to the Queen any breach of the conditions of the Charters; and indeed whether the clause existed or not, any proceedings for their revocation in the event of such breach of conditions must necessarily emanate from this Board.
Their Lordships believe that the knowledge of the existence of a summary power of revocation on legal proof of a violation of the conditions of the Charters, has facilitated the exercise of that control which is legally vested in this Board; and, independently of all question regarding Departmental functionsManuscript imagefunctions, their Lordships think that that beneficial effect might be weakened if, by the insertion of the coordinate authority of the Secretary of State in the matter, the impression were allowed to arise that it would be open to a delinquent body to appeal from one Department to the other. Their Lordships are also of opinion that the abandonment of a provision, to which no objection has been raised by the bodies affected by it, would be detrimental, and might fairly be objected to by Banking Corporations whichManuscript imagewhich come under it's operation, when they found that rival institutions were exempted from like penalties.
For these reasons My Lords consider that it would be highly impolitic to omit the clause from future Charters; but if, on further consideration Sir E. Lytton Bulwer maintains his objections to it, they will be willing, in deference to him, and on his responsibility, to strike it out of the Draft.
They cannot, however, consent to fetter it by the introduction of the Novel proviso suggested by him, for which as My Lords believeManuscript imagebelieve, there is no precedent in any Crown Charter or Act of Parliament.
I am, at the same time, to state that My Lords have had under their consideration the suggestion in your Letter of the 20th December last, for the insertion of a provision, like that in the Banking Companies Act, Cap 91 of last Session, "that the Bank (query Shareholders) shall not be entitled to limited liability in respect of Note issues" on this point I am to observe that while the principle of unlimited liability was maintained by Parliament in respect of Banking CompaniesManuscript imageCompanies in the United Kingdom, the opposite principle was observed of limiting the liability of Shareholders of Companies incorporated for Banking in the Colonies to twice the account of their Shares. At the same time, precautions were introduced, which are not required in the case of Joint Stock Banking Companies in the United Kingdom, for restricting the amount of liabilities to be incurred by Colonial Banks to three times the amount of the Capital, and latterly the additional requirement has been enforcedManuscript imageenforced of a maintenance of a reserve of Specie equal to one third of the Notes in circulation. Parliament has now permitted the adoption of the principle of limited liability in the case of Joint Stock Banks, with an exception regarding the Note issues, but without any provision regarding the proportion of subscribed capital to debts, or other safeguards, which are enforced in the case of Colonial Banks.
It does not appear to My Lords that the circumstance of this relaxation of the principle hitherto observed in ImperialManuscript imageImperial legislation on the subject, affords of itself any ground for altering the constitution of Colonial Banks; and as My Lords are led to believe that the introduction of a new principle regarding the liability of the Shareholders would impede the development of a system, which has hitherto worked very successfully, they are not disposed to recommend the adoption of the provision suggested by Sir E. Bulwer Lytton.
At the same time, Their Lordships would observe that they are generally favourable to provisions for ensuring theManuscript imagethe convertibility of promissory Notes circulating as Money, but they think that if the Royal Charters granted to Companies fail to provide perfect security in this respect, it may be obtained by local encactments, as in the case of Canada, requiring the deposit of securities with a public functionary for all Notes in circulation exceeding the amount of Specie held by the Banks.
I remain etc.
Geo. A. Hamilton
Minutes by CO staff
Manuscript image
ABd 28 Feb
HM Mh 1
Mr Merivale
There is no copy here of the draft Charter—this having been returned to the Treasury. You will however recollect that this 'Bank of British Columbia' is practically an association for purely Colonial purposes, though the capitalists belong to this Country, & but for the fact that the Colony is in its infancy the Crown would probably not proceed by Charter at all, but leave the Bank to get its local powers from the local Legislature. In short the Charter is a substitute for local Legislation, & I conclude Sir E. Lytton will remain of opinion, in answering this letter, that the revocation like the grant of the Charter must receive the concurrence of the Secretary of State, & inform the Treasury that he accepts their offer to strike out the provisions empowering two Lords of the Treasury to address the Crown—to his exclusion, in case revocation should be necessary.
You will observe that it is now admitted that the provision in question, which the Treasury informed us at first Manuscript imagewas in all recent Charters—is in fact not in all of them, and is an innovation as recent as 1850. The mistake, (if it is one) which I made by mentioning the Charter of the Colonial Bank, as I was led into by the Board of Trade having sent me this Charter as one which had actually passed the great seal. It now seems it was only a draft which did not take effect.
On the other point, (question of liability in respect of note issues) say that Sir E. Lytton readily adopts the views of the Lords Commissrs?
WS March 2
HM Mh 8
Sir E. Lytton
This is a question on wh I do not think that I can offer any advice; but in the difference of opinion Manuscript imagewh exists I wd request you carefully to read this last letter from the Treasury & our letter to wh it was an answer. The Treasury Entertain clearly a strong opinion.
C March 8
We have no chance of convincing the Treasury & must get the best we can.
EBL M 12
Other documents included in the file
Manuscript image
Draft reply, Merivale to Hamilton, 21 March 1859, expressing Lytton's approval of Treasury views, with explanation.