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limited liability; and since after the very heavy losses which shareholders have suffered in the case of the City of Glasgow Bank, and, though not to the same extent, in that of the West of England Bank, the same class of shareholders can hardly be expected to remain without some sort of protection from crushing calls, the next question for the depositor and customer to consider is whether the liability of entirely solvent men, though limited, may not be better to them than the unlimited liability of less solvent, perhaps even of insolvent

men.

Besides these two questions, there will be many points of de tail to be considered. The limit of uncalled liability will have to be fixed. Many banks will prefer to have a margin of uncalled capital besides a further amount of liability which, for want perhaps of a better name, we shall call, as it was originally designated when the measure was first discussed, reserve liability that is to say, an amount which the shareholder cannot be called on to pay up unless the concern becomes insolvent. There may be some slight difficulty in adjusting these two points. A reserve liability of the same amount as the whole paid capital can in no way be considered excessive. As a matter of fact, many banks may prefer even a larger margin. Twice the amount of the paid capital has been spoken of in some instances as a suitable limit for the reserve liability, and some banks may prefer to have a wider limit.

If we take the case of a bank with shares of £50, and £30 paid on each, it will be possible to leave £20 as uncalled capital, which the directors of the Company may call up in case the business requires it, and to arrange for a reserve liability of £50 further in case of a winding up. The shareholder would in this case remain liable for £70 per share. This may appear a large amount with only £30 paid, but it must be remembered that this would be proposed instead of an absolutely unlimited liability, which was the case before. It may be true that this unlimited liability has in many instances not been dreaded, but this has been because the danger of the enforcement of the penalty has been overlooked and lost sight of, not because it did not exist. If people had realised what their position was in this respect, they would have felt what a very serious risk they ran, and would probably have avoided it. They simply lost sight of a danger which was not very apparent to them, and did not take it into account at all. Now that they realise what the danger is, they may think very differently about it.

It will be very desirable, in view of these circumstances, that special reserve funds should be formed, which should be invested

in securities beyond the risk of the business, in order to meet the reserve liability. As a special trust deed would be required for this purpose, there would seem to be no difficulty in wording it in such a manner that a specific sum should be held against the reserve liability on each share. Thus in the case of a bank with a nominal capital of £1,000,000, divided into 20,000 shares of £50 each, and a reserve liability of the same amount, it might be provided that, as soon as the fund set apart against the reserve liability amounts to £200,000, this should stand against, and so extinguish reserve liability to the extent of £10 on each share. The class of investment selected for reserve funds of this description would naturally be either government stocks or first-class securities like debenture and first preference stocks of railways. From investments of this description a high rate of interest could not be expected, but the gain to the shareholders would be more than the mere return from the investment. The amount put aside in this manner would be publicly known, the position of the reserve fund would be given in every balancesheet and at every meeting of the shareholders. Its periodical increase would be commented on, and when once the nature of the reserve and the purpose for which it was set aside were understood, a desire to see it made fully equal to the reserve liability as rapidly as possible might be expected to arise. In years of exceptional profits, some portions of these might be very suitably devoted to increasing these reserves. Shareholders would reap as great an advantage from the amounts employed in this manner, through the enhanced value of their property, as if the sum were actually divided amongst them in the form of a bonus. They would eventually reap even a larger advantage, as it can hardly be doubted that depositors would prefer banks which had made sure in this manner that a part or the whole of the reserve liability was forthcoming, in case of need, to those which had made no such provision, and that banks which had taken these precautions might expect a larger and a sounder business than those which had not done so. It has been by gradual accumulations of this description that those private businesses which have attained a large size have been formed. To divide the whole of the profits which are earned in any year immediately, is frequently an unwise policy; but it is difficult to resist the plea which those among the shareholders who look only to the advantage of the moment frequently put forward, that the profits should be immediately shared among those to whom they belong. An arrangement of the description spoken of would meet this difficulty, from the immediate effect it might be expected to produce on the value of the shares. In

the case of an ordinary reserve fund, the advantage is more likely to be overlooked. In the event of disaster, the ordinary reserve fund is just as liable to be swept away as the capital, and most usually shares the same fate. We cannot remember an instance in which, when the capital has been squandered through mismanagement, the reserve fund has not been also wrecked at the same time. But, in the manner proposed, the reserve fund would be secure, whatever might be the vicissitudes to which the business capital might be exposed. Banks might in this manner become completely limited, as far as their shareholders were concerned, and yet offer their depositors the further security of a substantial reserve.

The issuing joint stock banks might also with advantage follow a similar plan with regard to their circulation. In respect of this, the liability remains unlimited. It would surely be a desirable policy to settle the security for this at once. The liability in that case of the shareholders in a bank of issue would remain on the same footing in all respects as in a nonissuing bank.

Though it is very desirable to consider these questions, it must never be forgotten that all these provisions for security, and, indeed, any that can be devised, stand far below good manage ment of a business in a practical sense. There is no royal road to good judgment, success, or permanent prosperity; but still, advantage may be taken of opportunities like the present, when the fundamental conditions of banking seem more likely to be considered than they usually are, to endeavour to put forward plans which may tend to the increase of the security of banks, as that security is a matter which should be considered far more than the selling value of the shares or the amount of the dividends paid. It is not too much to say that it is of the highest importance to the welfare of the country.

A DECADE IN THE HISTORY OF INDIAN BANKS. LAST month we dealt at some length with the history of Australian banking during the past ten years, and these were shown to have been years of great development and progress. Next in importance amongst similar colonial establishments are cur Anglo-Indian banks; and in reviewing the various vicissitudes of fortune which have marked their career in the same interval of ten years we must be prepared for a very different result. Australia is a continent capable of supporting doubtless a hundred times the number of its present inhabitants; very rich in its agricultural and mineral resources; and its working

population are British, and earnestly British in their desire to improve. In India, on the other hand, the rulers are alone British, and the working population are far less anxious for progress, while the numbers are so dense that in more than one recent year the land has yielded far less than sufficient to support them, and famine has been the result. The great

mass of the people are poor, and are still in many ways shut out from improvement by caste distinctions. Added to this the fact that what was recently India's principal article of export has to a large extent been driven from the field by the better staple produced in America, and that the circulating medium being silver has suffered a rapid depreciation in its relation to gold currencies, and it will be seen that there are prima facie reasons why the past decade should have resulted very differently to these two descriptions of banking enterprises with which investors and depositors in this country are so intimately connected. The failures of last year have likewise fallen heavily upon our Indian banks, and the present is especially an unfavourable time to institute any comparison in respect to them; but, even if allowance be made for the present serious depression in India, the contrast of market prices and dividends which are given in the following tables prove to us clearly that periods of depression and loss occur far more often in India than in any other of our colonies, and that they must be provided against in the future as in the past:

MARKET PRICES OF INDIAN BANK SHARES.

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These prices show that the shares of four banks are at a discount, one stands at par, and one at 5 per cent. premium. The Oriental Bank Corporation, which is considerably the largest on the list, has suffered the most, partly, however, through its connections out of India, and these extraneous connections are now in course of curtailment. The aggregate market value of the share capitals of those six companies may

now be set down at £4,250,000; whereas, ten years ago, value must have been nearly, if not quite, £6,000,000.

TEN YEARS' DIVIDENDS ON INDIAN BANK SHARES,

RATE PER CENT. PAID IN EACH YEAR.

BANK.

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It would be difficult indeed to find a list of more violent fluctuations than these. They represent the dividends paid-not those earned-during each year, the result being that there was a very general reduction in 1871-2-3, after the great fall in cotton had taken place; while 1874-5-6-7 were years in which a recovery in dividend was very noticeable. In 1876-7, however, due allowance was not made for the depreciation of securities owing to the fall in silver; and when the crisis of 1878 necessitated a strict investigation into the accounts of these companies, a state of affairs was disclosed, which necessitated the greatly reduced dividend in 1879. Still, in no case has there been an absolute loss of dividend this year, though only by diminishing reserves have those distributions, in some cases, been effected.

What the effects of these various crises have been in the reserves may be judged from the figures below:

RESERVES AND UNDIVIDED PROFITS OF INDIAN BANKS.

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