Seanad Éireann - Volume 9 - 22 July, 1927
PRIVATE BUSINESS. - CURRENCY BILL, 1927—SECOND STAGE.
CATHAOIRLEACH: The question is—“That this Bill be read a Second Time.”
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: Is the Minister going to say anything about the Bill, or are we to debate it without first hearing him?
CATHAOIRLEACH: Perhaps the Minister would like to know whether he is to discuss it without first hearing you.
Mr. GUINNESS Mr. GUINNESS
Mr. GUINNESS: I think it would be advisable if we first had an outline of the Bill from the Minister.
MINISTER for FINANCE (Mr. Blythe) Ernest Blythe
MINISTER for FINANCE (Mr. Blythe): I was not going to intervene at this stage, because I thought it was usual for a Minister to speak later. Senators, I am sure, have at least taken some notice of the debates on this Bill in the other House, so I need not deal with it as fully as if it were quite new to them. About fifteen or sixteen months ago a commission was appointed to inquire into the changes which might be necessary or desirable in the law relative to banking and note issue, regard being had to all the circumstances arising from the establishment of Saorstát Eireann. That commission was appointed because it had been brought to the notice of the Government that there was no legal tender in the country, or, at any rate, no legal tender identifiable as such.
The British currency notes in circulation, if issued after the Treaty, were not legal tender, while those, if any,  issued before the Treaty, were, perhaps, legal tender, but, at any rate, there was no legal tender identifiable as such in the country. Then there was the fiduciary note issue relative to the whole of Ireland, and there was no apportionment, or no means of apportioning that issue, between Saorstát Eireann and Northern Ireland, although Saorstát Eireann was a definite fiscal and, to some extent, economic unit. It was accordingly desirable that that should be done. There was a further point that not only had we British legal tender notes in circulation here, but we had secured bank notes in circulation which really represented British currency notes, as they were backed by British notes, and the profit on them went to the British Exchequer. It was felt that it was desirable that steps should be taken that the profit on such notes circulating here should go to our Exchequer rather than to the British Exchequer.
There had also been various suggestions and complaints in regard to the banking system. It was stated that there were not the facilities in this country which were required for agricultural credit, and some people found fault, in my opinion unreasonably, with the existing banks. Other matters had been raised from time to time, and, because of these various questions brought into discussion, it was decided to appoint this commission. The commission consisted, in part, of representatives of the Irish joint stock banks, each category of joint stock bank being represented. There was a representative of the banks which have their headquarters and also their note issue here. There was a representative of the banks which have their headquarters outside the Saorstát, and have a note issue. There was also a representative of the banks which have no note issue, and also a representative of the banks which have their headquarters in Northern Ireland. In addition, there was the Chairman, Professor Parker Willis, who had considerable experience, and had given a great deal of attention to banking and allied problems, and had written on them in America. There was also Mr. Campion, who had experience in the service of the Commonwealth  Bank of Australia, both in Australia and Great Britain. In addition to these, we had Mr. Smith Gordon, who had been in a responsible position in the Irish Agricultural Organisation Society for some time, and who had written on problems of rural credit and agricultural co-operation and organisation, and who also had experience in the Land Bank, as well as other experience. There was also a representative of the Department of Finance.
Half of the commission consisted of representatives of the Irish joint stock banks. Various reports were presented by the commission. The first interim report is the report on which this Bill is based. It was signed by seven out of the eight members. The Bill follows the recommendations of that report very closely. There is practically nothing in the Bill which is not either definitely recommended or implied in that report. Only on one or two particulars have we deviated from the report. Although the report recommends it, we have not set a limit to the amount of legal tender notes which may be issued. All the advice that we received from every quarter subsequent to the issue of the report was to the effect that no such limit should be fixed. In one other respect we deviated from the report following discussions in the Dáil. The report recommended that the amount of consolidated bank note issue in the first two years should not exceed six millions. We have provided in the Bill that that limit may be exceeded in certain circumstances.
The main proposals are that there be established a Banking Commission which shall be an independent commission, and shall exercise its functions independently. That commission will consist of six ordinary members, three of whom will be elected by the joint stock banks, and three nominated by the Minister for Finance, two of whom must be engaged in, or representative of, industry and commerce in this country, while the other may, if the Minister wishes, be a civil servant. The six ordinary members will have the election of the chairman, but, in case of a deadlock, the chairman may be nominated by the Minister. The ordinary members of the commission will hold office for a  period of three years. The chairman will hold office for a period of five years, so that there will be no possibility that any Government might suddenly oblige the commission to pursue any line of policy. The membership of the commission can only be changed, as I have indicated, gradually. I think we have taken every reasonable step that could be taken to safeguard the independence of the commission and to see that not only are the banks which are most directly interested, represented upon it, but also the general public, who, of course, if not so directly, are, at least, equally interested.
Under the supervision and control of the commission there will be issued two sorts of notes. In the first instance, there will be issued legal tender notes which will be obtained on the payment of British currency, on the payment of sterling. The sterling against which they will be issued will be invested in British Government securities. These notes will be exchangeable for sterling on demand at the London agency of the commission, and may be exchanged for sterling in Dublin. Adequate steps are taken to ensure the free convertibility of these legal tender notes into sterling. They will be backed to their full value by British dividend-bearing securities, and there will be a reserve fund which will provide for any depreciation which might occur in the value of the securities. These will be legal tender for any amount, and they will take the place in the Saorstát of the British currency notes which we have at present, and also of the bank notes which really represent British currency notes, that is, the secured bank notes.
The dividends arising from the issue of these legal tender notes, the dividends on securities held behind them, after payment of certain expenses, will go to the Exchequer, and will represent in a general way the profits that at present go to the British Exchequer on the currency notes in circulation here. The present system of the issue of bank notes by certain of the banks will come to an end. There will be issued consolidated bank notes which will be allocated amongst the various shareholding banks.
 The portion allotted to each bank will bear the name of and be the obligation of that bank. But there will be no separate issue. There will be a maximum issue for the whole country, which will be decided and altered from time to time by the Currency Commission, and that maximum, which in the first period is to be £6,000,000, will be apportioned amongst the various banks in the way set out in the Bill, and will be re-apportioned from time to time according to the requirements and the claims of the various banks. The issue of these consolidated bank notes will be related to the liquid sound advances of the banks, but, of course, nobody will imagine that the total of the consolidated note issue at any time will equal the liquid sound advances. The liquid sound advances are the thing by which the volume is to be measured, but it will not equal the amount of the liquid sound advances, although that is set down as the maximum.
Sir J. KEANE Sir J. KEANE
Sir J. KEANE: Will the Minister say what he has in his mind as liquid sound advances?
Mr. BLYTHE Mr. BLYTHE
Mr. BLYTHE: I think Senator Sir J. Keane is trying to put a conundrum to me, and consequently I am not going to enter into any dispute with him. The term is pretty well known, and the Currency Commission will have to fix their own standards in relation to it. It would have been impossible to touch the present note issue arrangement without some such radical change as has been proposed. We have certain banks here with the privilege of note issue, and certain other banks, which are equally sound and equally good institutions, with no note issue. Once we were touching the matter at all, it would have been impossible simply to apportion the note issue of a particular bank as between the Saorstát and Northern Ireland, to say it might issue so many notes in the Saorstát and that the authorities in the Northern Area should make the arrangements there, and still leave the banks which had no note issue here without note issue. On the other hand, it was not considered desirable, and I do not think it would  be in accordance with any good practice, that we should extend the privilege to other banks on the existing basis. The Commission did not go so far as to recommend the setting up of a Central Bank, with the sole right of note issue, although that is the tendency. There is not the same necessity here for the setting up of a Central Bank that there is in other countries, and there are not the same opportunities for the setting up of such a bank, but it recommended the setting up of a body which might be regarded as a compromise between a Central Bank, with the sole right of note issue, and the system under which each bank would issue its own notes— a body which would control the note issue, which would regulate it according to the requirements of the country from time to time, and which would apportion it between the various banks and re-apportion it from time to time on a just basis.
The new arrangement, I think, will be a more satisfactory arrangement than that which has been in existence in the past. The past arrangement was simply that in 1845 a certain fiduciary issue was fixed for each bank, and it has remained without any reference to the changed conditions ever since. I am satisfied that the new system will be entirely safe. It will meet the various points of difficulty which first suggested the setting up of the Banking Commission, and, although this is only an incidental thing, it will bring certain funds into the Exchequer which heretofore have been going elsewhere. The Government were conscious that they must go very carefully in this matter, and it was because they felt they must proceed carefully that this Commission was set up, that people of knowledge and experience were appointed to that Commission, and that half the membership of the Commission was given to the Joint Stock Banks here. As I said, we have not set out on our own to devise new methods or to interfere with this matter, but having set up an expert Commission, and having got a Report which was as near to unanimous as it could be without being actually unanimous, we have adopted the recommendations of the Commission. We have done no more in the Bill than cross the  t's and dot the i's of the report. Senators will understand that many matters of detail could not and would not be dealt with in the report. The need for them only appears when an actual measure is being drafted, but we have, as I say, tried to keep as closely as possible to the recommendations of the best commission that we could find.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: I happen to be the individual that the Minister has just referred to, who, having sat on the Commission, disagreed with the report of the majority. The Minister has shortly run through the various matters dealt with in the Bill, and his speech follows on the same lines as those which he made in the Dáil. The principal thing I should like to say is that I do not think that the Minister has followed the lines which he should have followed. I think he should have told both the Dáil and the country far more of what this measure really contains; the effect it is really going to have; what object some members of the Commission at least had in making their recommendations; that the Government have adopted a perfectly new system of dealing with the banking problem in this country and that the various things which would enable them to deal with it were contained in the Bill. I think that he ought to have announced it in much more definite terms than I have been able to gather in reading through all the speeches made by the Minister in the Dáil. His description of the Bill is on exactly the same lines as the speeches he made in the Dáil, from which the country has taken it for granted that they knew all about the Bill.
I am afraid that I will have to trouble the House at considerable length, because I think it is necessary that someone like myself, who listened to all the discussions at the Banking Commission on these matters, should tell the country exactly what is in the Bill and what it proposes to do, so that at least we will not walk blindfolded into a complete change of our currency system without knowing in what direction it is going to lead us and for what purpose it is done. The Minister for Finance has said that all  the Government has done in drafting this Bill is to dot the “i's” and cross the “t's” of the recommendations of the Banking Commission. That is a very wide expression and I hope to let the Senate see what the dotting of the “i's” and the stroking of the “t's” means.
In mentioning my opposition, the Minister for Finance in the Dáil said that I differed from the report of the majority only in what might be called more or less minor details, and that I agreed in what were really the vital points. We will see a little about that later. The points, of course, I did agree with were the first things to which the Minister referred to-day: The fact was that there was no legal tender in the Saorstát except the issue of Irish banks backed by British legal tender, and that the resulting profit of that tender was going to Britain instead of the Free State. All of us bankers knew that, and for a long time were saying that the Saorstát should alter that state of affairs, and that this £300,000, or so, a year should be kept at home, and it could have been, by an extremely short Bill years ago. There is no question about that. Anyone could have introduced a Bill which would have been passed at once to make the banks of the Free State deposit the funds which are at present deposited with the British Government, with their own Government, and to let the Government make their profit out of them. It would be quite simple, and should have been done long ago. Of course it would be very foolish of any inhabitants of the Free State to quarrel with bringing over to our Government the profit at present made by the British Government. The other point was that the fiduciary issues of the Irish banks were based on an allotment of issue that had to serve the whole of Ireland. It is quite evident we are now a unit by ourselves, and that these fiduciary issues would have to be revised and allotted on a basis of the business done in the Free State. It was easy to see that. We went into these particulars.
Again, when it came to a discussion as to the redistribution of the issues, it  was quite evident that these issues had been made many years ago. Some of the banks now doing large business in the Free State were not in being then.
Now, I have been accused of looking with an evil eye on this redistribution because it happens to operate in a not very favourable manner on the fiduciary issue of the bank with which I am connected. The Senate will hardly think that while I was trying to do my duty on the Bank Commission, I ever allowed anything connected with the private interests of the institution with which I am associated to influence me in the slightest. As a matter of fact, the redistribution of the amount allotted to fiduciary issues was arranged by the banks themselves at a meeting entirely of the bankers, where the Bank of Ireland and all the other banks took part, and the Bank of Ireland were in agreement with this redistribution now embodied in the Bill.
I have referred to the fact that I am supposed only to have differed with the recommendations of the Commission on some minor points. The Minister for Finance also said, and he repeated again to-day, that the Bill was based absolutely upon the Report, and that except about the dotting of the i's and the crossing of the t's it really follows absolutely the recommendation of the Report. He said also that it only does the things that are necessary to be done, and does them with the least possible disturbance to existing conditions. That is rather a strong statement, because the difference between what is being done and the least possible disturbance must appear to anyone who looks at the matter as a very considerable thing. Now there is another point. The Bill gives us legal tender backed by British securities, and the Minister holds and says that it will not lead to the creation of a visible rate of exchange with Great Britain.
Now, the establishment by any country of what is properly known as Treasury notes, which are regarded as depending for their value on the credit of the country have hitherto in almost every place in which they have been introduced reflected the credit of that country, and have varied with very  many conditions. In the case of Great Britain their introduction during the war brought down the value of the £ from 20s., compared with the currency of other countries to not more than about 10s. That undoubtedly reflected the credit of the country. This is a point I do not mean to labour very much, because there was a tremendous number of opinions by the most influential and learned people on finance as to what effect the legal tender notes of a country have in disclosing the rate of exchange of that country. We consulted some of the most influential and knowledgable people on finance in Great Britain. Some of them held that the moment we established a legal tender note here, if there are any conditions that do not make our credit quite as good as that of Great Britain the rate of exchange will appear as against us in comparison. Some of them held that the moment we established a legal tender note here, if there are any conditions that do not make our credit quite as good as that of Great Britain the rate of exchange will appear as against us in comparison with Great Britain. Others held that that is not so. All that I would say is this: There is a risk that the people who hold that it will do so may be right, in which case we will undoubtedly suffer and the rate of exchange will be shown. It is one of the risks that is inevitable in this Bill, and it ought to be made known to the country that we are undertaking it.
We have at present in this country an adverse balance of trade against us. Now that adverse balance of trade is held to be a great counter in settling whether the rate of exchange will be against a country or not. In the case of Great Britain in the war, where the balance of trade ran terribly adverse to the country, down went British Treasury notes, and it has taken years of tremendous taxation and enormous precaution to get them back to par again.
There is another point that I think ought to be seriously considered, whether this is a proper time to bring in such a change. There will undoubtedly have to be considerable borrowing by the Free State in the immediate future. Now, if we establish a legal  tender note of our own, undoubtedly any loan that we issue in the Free State must be made repayable both as to interest and principal in our own issues. I believe such a thing as making a loan in a country repayable in the coin of any other country is unknown.
We will undoubtedly have to issue a new loan with interest payable in the new currency. I do not know whether we will be able to get in the Free State all the money we need by way of a loan. If we do it will be all right, and except we want to sell it outside the Free State there will be no evidence at all that our new legal tender note is not as good as any other note. But suppose we need to raise money outside, will other countries, will Great Britain issue a loan in London and not insist upon having the repayment of the interest on that loan in sterling? Which of these loans, I ask, will command the highest price in the market? It is a risk that will have to be run. It will be said, of course, “Oh, the legal tender note is always interchangeable in London at the agency of the Currency Commission.” It is a queer thing, but yet it is true that the slightest difficulty that can be quoted on the Stock Exchange about the payment of anything such as interest on a big loan will to a certain extent influence its value, and if it does influence it at all it will influence it in the way of showing the rate of exchange and that our legal tender note is not as valuable as the British pound. I look upon it as so vital to this country that no such rate of exchange should ever be allowed that, honestly, I think there must be very great benefits to be obtained by putting these legal tender notes into existence at the present time. The Government would make far more if they adopted the present system to hold certificates and let the banks issue their own notes because all the costly arrangements in connection with the issue of notes, the printing, keeping of books, etc., to be done by the Government would disappear and the banks would do that work. Therefore, I say they would make far more if they left the present system alone.
 I believe the idea is that there should be a currency note issued by the Free State to show our nationality. That was the reason given at the Commission for putting this into effect. I am merely pointing that out. It may be excellent, but following that it will undoubtedly incur risk and expense which would not have to be incurred if they left things as regards the printing and the issue of notes in the way that they are at present. The Government would make more money out of the one thing than the other, but of course they would not be enabling the Free State to say that it had its own currency. If we are going to establish our own currency surely it ought to be based on things that we own ourselves. It should be based on gold and such like things, which we held here, but to base it entirely upon British securities and then to call it a national security—that may be all right—but I certainly would not run any risks to get that amount of satisfaction: to be able to say that we had established a national currency.
The Minister for Finance said, in describing the membership of the Commission, that the banks must be represented fully and adequately, that the general community must be represented and that that could only be done by Government nominations. He also said that the majority of the Commission should not be representative of the banks. I believe that there are a good many members of our community— they may not agree on various things, but they seem to be agreed on this— who entertain the sort of idea that the banks are a kind of wild beast that needs to be taken care of and guarded and watched, that they do wrong things and are a burden on the community. It was only the other day that I heard of a Republican orator who, before the elections, said that the banks were stuffed with money, and that if the Republicans only came back into power they would take that money out of the banks and would soon let the people have their own again. The fact of the matter is, of course, that the banks are the people. It is the people's money  they have got, and it is the people's money that they lend to the people. If the people did not think that they were good and solvent and safe institutions to lend their money to they would not give them one farthing. Why we should be abused for the way we handle the people's money I do not know. It is an entirely mistaken idea. When people take up the idea and when a Government takes up the idea that they are going to interfere with the sound financial policy of their banks, then the country that adopts that policy is going to go the way that Japan has just gone, and that some other countries have gone. In Japan, where such a thing was done, the country within the short period of six or seven years had to face enormous financial losses.
The Government is said to be the only authority that can represent the people in this. The Government will have the nomination of three of the six ordinary members of the Commission. One of the members nominated by the Government can be an official of the Department of Finance, and presumably that will be a more or less permanent appointment. It may be a very excellent thing that the Government, which will be so much interested in this, should have someone of its own choice on the Commission. The other two nominated members will remain in office for so many years. There is one thing to be noted. It is stated that the Chairman of the Currency Commission will be chosen by the ordinary members of the Commission. There will be six members on the Commission, three appointed by the Government and three appointed by the banks, and then there is to be a Chairman. If the six members of the Commission do not elect a Chairman from amongst themselves then his nomination is to fall into the hands of the Government. That undoubtedly is placing in the hands of the Government the main directing power of the Currency Commission. The Minister for Finance has said that the Commission cannot be induced by any Government to follow any particular line of policy. That is what the Minister said to-day.
I think I will be able to show the Seanad that one of the main objects of  this Bill is to force a certain line of policy on the banks, and that the Bill is drawn with that object. When you couple that with the power of the Government to have four members on the Banking Commission as against three members representing the banks, you then see that the Government have got the machinery for carrying out their purpose. That the Government relied on the banks continuing to carry on the sound policy that they have pursued in the past was repeatedly referred to. That policy was referred to as being extremely sound by the Banking Commission, which also expressed the opinion that the banking institutions were well managed. The Minister for Finance said that we can rely on the banks seeing that the new system is worked in a very sound way. I am inclined to think, with all the dangers that there are in the Bill, that that is going to be the salvation of the country. I do not believe that it will be possible for any of the boards of directors of the existing banks in the Free State to be led away by any of the conditions in this Bill to depart from what they consider to be sound banking methods. I do not think that the Bill will result in anything like that at present, but remember that you are asked to pass a Bill that is going to continue.
I do not argue with our present Government and our present Minister for Finance, but we do not know how long they are going to remain in power. What lessons did we learn from the recent elections? Are we in a very stable condition? Can we be sure that the Minister to whom we now look to guide us through these difficulties is going to continue in office? Cannot we even see a possible alteration, and that a majority of such members as now call themselves Republicans may come into the Dáil? Can we not see the Government moved by people such as the speaker I have referred to, a quite irresponsible individual, to force the banks to lend their money in the way Republicans and those who hold those views, wish done? The power to enable them to do so is in the Bill. It is a Bill for all time, and if it passes as it stands now the Government that makes up its mind to force out the money, to use the  banks for its own purposes in purchasing votes, as we may say, by telling people they will distribute the money in the banks, has in the Bill the powers to enable it to do so, and to alter the whole policy of the banks. It may be safe to-day, but it may be absolutely unsafe within the next few years. This is how the Government deals with that —that the Government, or any government that follows it, can be relied on to nominate people to see that the interests of the country are attended to, and that no short views are taken. I think we know what our present Government thinks as to the interests of the country, but what about another government? What view may they take of the interests of the country? Is it wise to place in the hands of the Government by a Bill of this kind power over all the funds of the banks, and to direct their policy, and to issue notes only to such banks as do what they are told by the Currency Commission?
I am not going to refer further to the point made by the Minister when he said that we are losing £1,000 a day by not getting this Bill through. We could have had that £1,000 a day long ago. I think it would be well if the country would pause a little and make quite sure that it is right even at the expense of £1,000 a day before proceeding on the lines of this Bill. It might be better to have some very short measure passed which would get us that £1,000 a day, and the Seanad would pass it at one of those little meetings where we say “Aye” to everything put before us. One of the main dangers of the Bill is the power of examination of bank books. The Minister in one of his speeches said there is no intention of scrutinising private accounts. I do not know why he made that statement. He did not say by whom the scrutinising would be done, but implicit in the Bill is the power to scrutinise. Then we come to look at what investments are to be behind the funds provided by the banks to get legal tender notes to carry on their business. The reason I mention this is that at one of the discussions on the proposals in the Report by the Banking Commission the query was  asked: “Where are you going to get these wonderful people who are to sit on this new Currency Commission? Where are you going to get this marvellous chairman who is to take care of everything and be far better than all the boards of directors of our banks have been? Where is he to come from?” Suppose he does not appear, and supposing the Currency Commission makes an odd mistake here and there, what will happen? The Minister for Finance will come in and he will keep everything right. The one individual in the whole place who is to have the power to check any mistakes this new body would make is the Minister for Finance.
Perhaps the Minister for Finance may be right, but when we come to consider what is the proper backing for the legal tender note issue of a country I must say that I am not in agreement with the Minister. He says “Personally I do not think that there will be any need to invest funds in short-dated securities. The Commission will invest in future in securities on which they will get the highest rate of interest.” I know the Minister for Finance means British securities, but where you are dealing with note issue long-dated securities are an extremely dangerous investment. By the time you are called on to redeem the note the securities may, for one reason or another, be considerably under the price you paid for them, though they are absolutely safe. I think the Oireachtas should lay down rules for the Commission for the safe management of this fund, and it should not be left to the Minister for Finance to advise as to what should be done, but the Commission should invest in the highest interest-bearing securities they can get. The Oireachtas should have such short-dated securities at such short-date of redemption that no fall in value could possibly take place. At the present moment there are large numbers of these securities and the few millions required to back these legal tender notes could be all invested in these securities without any risk of loss or deterioration whatever and it ought to be laid down that those are  the only securities to be held. If the money which the Government is going to make out of the half per cent. interest on the backing of those legal tender notes—and there cannot be much more than that in the whole thing—is to weigh against the absolute security that the securities are equal to the notes they are backing, I hold again that we are on the wrong line.
AN LEAS - CATHAOIRLEACH took the Chair.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: I hold that the Oireachtas ought to lay down without any doubt and without any suspicion that no such business as buying long-dated securities at an extra rate of interest should be allowed. The Minister says that the Bill sticks absolutely, except for some little details, to the recommendations made in the Report of the Banking Commission. There are some very vital interests in this matter. I am sorry to detain the House so long but I want to show that this Bill goes beyond the recommendations of the Report and certainly beyond the statements to which the majority of the Commissioners affixed their signatures. I will deal with the Bill and with the various conditions in the Bill in order to explain some of the things I have been speaking about. Section 37 provides that every bank in the Saorstát, whether a shareholding bank or not, must open up its books for inspection by the Currency Commission. When I first read the Bill I saw that this matter as to liquid sound advances—that is, note issue depending on the question of the amount of liquid sound advances, which the bank had made, was a very serious one. But here we find that even the bank that does not ask for any notes—every single bank in the Saorstát—will be bound by this Bill to have its books inspected by the Currency Commission. Why, I wonder? The recommendations laid down again and again that the Currency Commission is to deal only with notes. What right have they got and why should power be taken in this Bill to investigate the accounts of the banks?
There must be something in it. This Bill places every bank in the  Saorstát at a disadvantage compared with every other bank in Great Britain or Northern Ireland. Sub-section (3) of Section 40 applies to the right of inspection of the bank's books when a bank applies to be a shareholding bank. What is the meaning of this inspection of the bank's books and what is the object of it? Section 37, which to my mind ought never to have been in the Bill, and ought never be allowed to remain there, states in sub-section (3) that the information obtained by the Chairman or his appointed officer shall not be communicated by the Chairman or such officer to any ordinary Commissioner. These are the only two people who are to be allowed to inspect the books of the banks and find out whether they have made the liquid sound advances which they say they have. It is only inspection by one or other of these gentlemen. The information obtained by the Chairman or his appointed officer from the inspection of the bank books shall not be communicated to any ordinary Commissioner in such a form as would enable such information to be identified as relating to the dealings of such bankers with any particular customer or other person. This rule applies to inspection both in Section 37 and Section 40. This would imply that only the Chairman or the officer he appoints would ever see the private accounts in a bank and the amounts of money which a customer has on deposit and the amount of loans they would have issued and to whom. But they are not to communicate this information to the other six Commissioners.
Now you have the position that this Currency Commission is to sit down and settle the amount of the consolidated note issue that is to be given to a particular bank. These six gentlemen sit there, and the Chairman says to them: “I have sent my officer to such and such a bank. He has inspected the accounts of that bank, and its liquid sound advances amount to so and so. We have now to decide what the amount of note issue that we are going to give to that bank is to be.” Surely, any man who is worth his salt would  say, “How do I know that these things are sound? How do I know they are liquid? How do I know anything about them? Am I to take your ipse dixit, and your ipse dixit is dependent on the report of an officer sent down by you?” These six Commissioners are to sit down and to allot to that bank the amount of note issue that they think is right. I do not think that any bank Board in this country has any director who would give an opinion about a matter on which he was not allowed to ask whatever question he wanted to ask. And we are going to treat this wonderful Commission in such a way as if they were a pack of children. How could any Commissioner, how could the Chairman, how could any man who walks into any bank find out what the liquid sound advances of a bank are by the inspection of the bank's books? I have myself been a bank director, anyhow a practical banker, for something about forty years. There is one thing I do know, and it is that at the end of every year I probably have to alter my opinion a great deal as to what are the sound advances given by my own bank. I know very well that if you were to send the Auditor-General or every one of your best auditors into a bank, let them sit down and ask any questions, and, if they can tell me that half a million advances by that bank are liquid sound advances, I will say the man who does that is a greater man than I have met with yet. That is very certain. These are the kind of arguments that will take place at this Commission, which is to settle how these consolidated bank notes are to be issued to the various banks. Of course, there is a reason behind it. I do not think that the Government would have brought in this arrangement unless they had some object. We will get at that presently.
Now, this question of the inspection of bank books arose on the discussion on the Statistics Act. In the discussions of that Act we had quite a difference with the President because all of us who knew the conditions in Ireland said: “If you give your officials the right to come in and inspect the bank's books you will do an infinity of harm to the banks.” The President was  sensible enough to see this. He saw that and he accepted an amendment which was very carefully prepared, and it absolutely protected the banks from any such inquiries being made about their customers. Now, the object of the inspection in this Bill is to enable the Currency Commission to allocate the amount of the consolidated notes to the different banks in proportion to the amounts of the liquid sound advances made by that bank. That is to say, the larger the advances made by the bank the larger the note issue to the bank. The amount of their liquid sound advances is to be the measure by which the Commission is to gauge the amount of notes that each bank is to be allowed to have. Now, when you want to know what the reason for that was, I think you will find it if you go back to some other statement made by the Minister for Finance. He said: “The proportion of notes which any bank gets out of the total depends on the amount of the liquid sound advances which that bank has made, and is making.” That is the Minister's statement. He goes further, and he says this: “There has not perhaps been sufficient attention paid by the banks to the national requirements of the country. Certainly, there has been no such thing as a currency or a credits policy. There has been no machinery for giving effect to such policy, even if the policy could have been evolved. Now we will have the machinery for giving effect to the policy.” Well, the policy is to be carried out through the Currency Commission. I do not think any human being can imagine that the Currency Commission is going to be free from Government influences when not only three of its members, one of them a permanent official, but its Chairman, will almost certainly be nominated by the Government. How could the Minister for Finance say that a policy was going to become definite if the Commission was to be absolutely free? How could the Minister say what the policy of the Commission is going to be? He could not. He says the reason there is to be a policy is because the Government of the day is to have the power of dictating— dominating.
Mr. BLYTHE Mr. BLYTHE
 Mr. BLYTHE: No, sir. I would like to intervene at this stage. When there is a body with work to do, that body will have a policy, and there is machinery to enable it to carry it out. I gave no indication that there was any intention or desire to have Governmental policy.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: The Minister has stated there was no intention. I do not believe in intentions when you come to deal with Bills. I hold that when it lies in the Bill that the Government have the power of getting four members on that Commission, they have got the power to dictate the policy. Here the Minister states there is a policy. The Bill contains the very elements which enable this Currency Commission to dictate. Let us suppose the Minister is right; I have been taking it for granted, for the sake of argument, that the Minister is right; I have no doubt that, individually, he is and I have always said that perhaps individually he has no intention of dominating the policy of this Commission. All I am pointing out is that in the future a Government, not his, and a Minister for Finance, not him, can do the things which I am saying.
We are not passing this Bill for to-day or to-morrow. Supposing that the Government do not influence the policy, what have we to see then? It is to be carried out in the main by the majority votes of a Commission. Supposing they took the view, following out the lines of the Bill, that only note issues are to be given to the banks that make the most sound liquid advances, does that tend to sound banking? Is the note issue going to be a source of profit to the bank that gets it? Presumably it is. The queer thing is that a bank might make up its mind that the profit was not good enough; that it would try to get out of the thing and be free from the control of the Commission, and so they would take no notes. No bank in the Free State, whether it takes notes or not, is to be free from the control of the Currency Commission. The only banks that can give a quid pro quo for lending out money according to their likings are the shareholding banks that take no notes. The banks will get the most that lend out the most money.
 When you come to the securities that lie behind the notes of a bank, down at the very bottom of the list come the advances to the customers. They have to get all sorts of things far ahead of that, balances in London, money ready and available, short-dated securities and all sorts of things ready to meet their notes. The Government and the authors of the Bill know all this perfectly well. This question of the liquid sound advances has nothing whatever to do with the safety of the note. They know perfectly well that if the note is not safe without the liquid sound advances it is a bad note. The moment a bank calls in its advances to customers to meet its notes, it is done and its customers are done. Therefore, any bank must keep all sorts of securities, liquid securities and others. But these are to be the measure by which a bank is to get its note issue and the note issue is to be given out following an inspection of the bank books.
The inspection, which is forced on the banks, is to be carried out for the purpose of enabling the Commission to know what the amount of the liquid sound advances is. The bank that makes its advances in the freest way is probably doing the most dangerous business of the whole lot, and that is the bank that is to get the most notes. That is a principle of note issue that has not prevailed in this country or Great Britain, probably for the best part of one hundred years; it is a principle that is condemned by everybody who studies finance, and it is a principle that is inherent in this Bill.
There is one other point. I think the Banking Commission can hardly be blamed for a departure, what I think is the main departure of the Bill, from the recommendations of the Commission. The Currency Commission does in this case have a direct influence on bank management. One of the things that I objected to in the recommendations of the report, I will now mention. Certain words that were contained in the report were meant to use this Currency Commission in ways that were not dealing with pure note issues; they did mean the Currency Commission to interfere with bank management. When I made that objection, I was answered by the other members of the  Banking Commission. They said I was quite wrong, of course. Here is what they said: “The regulations relating to bank management referred to are, of course, regulations relating to those particulars of bank management as to which the Currency Commission is to function, and have no relation to problems of internal bank management. Over these the Currency Commission has no jurisdiction whatever; and only by stretching the imagination can it be made to appear that there was any such intention.” It is enough to say that there is in the report of the Banking Commission nothing whatever to indicate any desire to interfere with the functions of the banks or to impede or direct their operations.
The names of my three banking friends are put to that. I have not the vestige of a doubt that these three gentlemen absolutely believed that it was true. I happen to remember, however, a statement made by the Chairman early in our discussions on the subject, and here is the gist of what he said. He said that the study of the liquid assets is merely to make sure that the bank did not invest its funds in British securities, but made loans to Irish industry and commerce. If the investigations are for that purpose, and if the Commission are to give out their notes according to the advances of the banks, and take care that they do not put their money into these British securities—which, however, are the only things we are going to allow them to invest our guard for our legal tender notes—the banks are to be pushed off this by the Currency Commission by means of the inspection of the books, and if they find the banks using money in this way they are not to give them notes. How could the Chairman, who had announced that that was his intention and that that was the object of these liquid sound advances, sign a definite statement that the Currency Commission was to have nothing whatever to do with bank management? I fail to see it. That the Chairman undoubtedly meant the Currency Commission to force the banks along a certain line of action I am perfectly convinced, and I have his own words to prove it.
Mr. DOWDALL Mr. DOWDALL
 Mr. DOWDALL: Are they reported anywhere?
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: They were all taken down by reporters. I do not know whether they are in print.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: Are they in this Report?
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: Oh, no.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: I thought not.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: Certainly not, but I can give the Senator word for word out of the typewritten document. I am able to prove every word.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: These are the final findings.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: I am merely stating what the Chairman did say, and if anyone chooses to say that he did not say it I say that is wrong. The man who said that that was the object for which the liquid sound advances were being made, being the Chairman of the Commission, I think he was right, and, what is more, I think it is in the Bill, and, what is more, I think it was announced by the Minister for Finance as the object—a policy to force out money. I am only quoting the words of the Chairman to show that I cannot understand how he came to say one thing, and then sign that report. How a man who announced that the object of the investigation of the liquid sound advances was to take care that the banks did not put their money into British securities, could sign a statement that no recommendation of the Commission would possibly mean any interference with banking management, I do not know. There is no question whatever that the money which we are all talking about, and with which this Bill is concerned, is money which is put into the banks by the depositors, the people with current balances and all the rest.
We may talk here about legal tender notes, and do anything we like, but we ought to be very careful what we do. I know that the Minister will probably reply that I am trying to raise a scare, that I am trying to make out that there will be a great run on the banks, and all that sort of thing, if the Bill goes through. I am not. I  do not believe that that can happen at all, but I do believe that we are running the risk of such a thing. The Minister, I know, holds that the risk is infinitesimal and that the depositors and the people who have money with the banks will not take it out, that they will not mind the Chairman or an officer of the Commission coming along to see how much money is lent to this man or that man, or how much money is deposited with the bank. He may be right. If he is right, and if the money is left there, then all I am talking about is wrong. At the present moment he probably is right, but let us again consider the position with a change of Government, and let us consider an official intimately connected with the Government and appointed by the Government, a Government of which the country does not approve, and which it does not want to have investigating its affairs. What about it then? There will be no way of going back; the danger is there; if not to-day it will be there to-morrow and may be there at any time, and it is a risk that ought not to be run.
What is it all for? What is anybody going to gain by it? Simply a distrust of the banks, a belief that they are not lending out as much money as they ought. There are seven or eight banks in Ireland, all worrying along to try to make their bit, and if they are not going to give everybody who is worthy of credit the money which they are entitled to get, I do not know anything about business. And if any body of men be appointed outside the banks to try to force a set of men, such as the bank directors in this country, to do, for some political object, things that they do not consider safe, that is aiming at the very root of the financial prosperity of the country.
If anybody will think over it quietly and think of what may happen if our present rulers are put out of office, and we get the sort of men, of which this country is full, put over us, what will the results of this Bill be? The Minister for Finance has stated that these proposals have got the backing of the Irish joint stock banks. I do not think that he will make that statement now. He has had the strongest representations made to him by the joint stock  banks as to what they think of this proposal, and I think I am right in saying that it can be placed on record that these proposals, as to the inspection of bank books and what is to be done in regard to all these things, has not got the backing of the Irish joint stock banks. I think I have laboured that sufficiently, but of all the vital things I know and of all the departures from what, anyhow, most of the representatives of the banks thought their recommendations amounted to, this is by far the most dangerous.
Section 52 allows the Commission to give a shareholding bank a consolidated bank note issue equal to the total amount of its so-called liquid assets. The Minister has to-day stated that the amount of the consolidated bank note issue will not at any time equal the amount of the liquid sound advances of the banks. That is not in the Bill, anyway. I think anybody who reads Section 52 will see that the Currency Commission may give any bank an issue equal to the amount of its so-called liquid sound advances. It is not to exceed that, but it may go up to it. Of course the inspection of the bank books, and all the details connected with that, again comes in.
Suppose that two or three of the banks were to go out, that there were several millions of these notes, and that there were only one or two banks to take them. If their liquid sound advances were up to the required figure they might get the whole thing. And there is no obligation, apparently, in the Bill that all the other things which are to lie behind the security of the notes are to be taken into account. I suppose they will be. Of course it would be very foolish if they were not, but at any rate there lies the one element which is to be used for bargaining with the banks and trying to force them to give out advances that they otherwise would not give. There is another smaller matter. Section 58 deals with the exchange of bank notes in the case of banks attending fairs or markets where a bank may run short of notes and may have to send out to another bank for some of its notes. The Minister says it is possible for this power to be given by the Commission,  but he added that the decision of the Commission must be unanimous. There is a Government official sitting on the Commission, and if he is a man who wants to protect the profits of the Government he will veto any proposal of that kind. If at a fair you cannot borrow notes from another bank, you will have to carry down to that fair or market a lot of legal tender notes out of which the Government will make more money than out of the consolidated note issue. These little petty ways of making money regardless of the convenience of the public do not seem to me to be worthy of a Government.
Under Section 60, sub-sections (2) and (3), a Free State bank cannot give any notes of any other country in exchange for its own notes for any purpose whatever. Take, for instance, the case of a client of a bank going abroad who wants some notes of some other kind in exchange for the consolidated notes. Under very heavy penalties the banker cannot give them to him. He must give him his own consolidated notes or legal tender notes, but the customer can go across the water and any bank will give him whatever notes he wants. The object of this, again, is the forcing out of legal tender notes, out of which the Government makes a profit. I hope at least the Minister may see his way to remove such restrictions and not impose such an embargo on ordinary civilised financial intercourse so that when any client goes into a bank to exchange notes he is not to be told “You cannot get the notes you want.” Take British Treasury notes. British Treasury notes can be given out under the Bill because they are not bank notes, but they are very shortly to disappear and be replaced by Bank of England notes. The moment they become Bank of England notes, a bank cannot give them to its customers going over to Holyhead.
There is another point which is again connected with the question of the money the Government is going to make out of this Bill. They are to take it from the banks one way or the other. One of the great privileges banks had as long as the arrangements were such as at present, was that  note was not debited to them until it was issued. They did not pay any duty on it until it was issued to the public. As long as these notes remained in the tills of the bank they were not charged any duty on them. That enabled a bank going down to fairs and attending small branches to keep in its tills a lot of money for which, as long as they did not pay it over the counter, they had not to pay any duty. It assisted banks considerably and made it possible to carry on the small branches and offices in places where the expense of sending down men would have been considerable if they had not been allowed this concession. I believe some members of the Government hold the view that we have too many offices and that it would be no harm to the public if we shut up a lot of our branches. That might take place if we find it too expensive. From my long experience, knowing what the public want in the way of attention nowadays and the need specially in Ireland of having banks close to the people, I can say that anything that would curtail this accommodation would certainly be a very wrong thing to do. I do not think the Government are right in this. I dare say we will have to submit to that but the consequences may be such as will not be good for the country. According to the Bill, we will have to carry legal tender notes in our tills instead of the mere bits of paper on which we paid nothing formerly. The banks will no longer have the privilege of free tills, ordinarily speaking, but I think the loss has been taken into account in fixing the amount of the consolidated note issue at six millions. I think the Minister made a mistake here. If he will look at the facts he will see that the one and a half million, that was added to what is supposed to be the four and a half million of fiduciary issues at present in existence, in the Free State, was not given at all for that purpose. It was really given to enable the banks of non-issue to have an allotment of notes which would not entirely impoverish the banks of issue by taking all the notes from them that were to be given to the banks of non-issue.
 That arrangement, as I said before, was settled by the banks. They took the £6,000,000 and they divided it amongst themselves according to what they thought was right. But that was not intended as compensation for the reduction of the till-money. The loss of the till-money—I do not intend to go into figures—is a much more important thing than one would think from listening to any statements that I am making or that the Minister for Finance has made. It is a very serious consideration to the banks and it will mean a large increase in their expenses. As regards money-making for the Government, the money the Government will make by taking away the credits we have over in Great Britain and transferring the profits to the Free State—which is at present going to the British Government—is pure gain for our Government. There is no doubt about that. But when you come to consider the money they are going to get, it has to be borne in mind that we used to pay the British Government 7/- per cent. for our notes, whereas now we are to pay 30/- We have free till-money at present, but in the future we are not to have free till-money. All the matters I have alluded to will force a much larger consumption of legal tender notes and diminish the profits of the banks. All the money that will be made in that way by the Government will be obtained from the Free State citizens. It will be exactly the same as any other tax. The banks will have less money. Some of the money which they had went towards increasing their reserves and some went in dividends. If this money is taken from them they will not be able to add to their reserves or to increase their dividends. In reality, this is merely new taxation which is being imposed on the State. We have enough taxation already. I do not think it reflects any great credit on the Government that they should make use of a Bill like this to impose another tax on the inhabitants of the State. But they have their arrangements made for it in this Bill. I am not grumbling about the proposal, as a banker. What does it matter to any of us bankers? As bankers we do not care. If the Government take away the money from us it is the shareholders  and people of that kind who will suffer, while our reserves may have to be more slowly increased. The money will be expended by the Government.
There is one other aspect of the matter which should be looked to. If the Government were going to say, in imposing this taxation on the banks: “We will give a concession in regard to something else; we have so many thousands here, and, therefore, we will lighten the burden on some other section of the community,” it might be all right. But some of the provisions in this Bill show that the money which is to be obtained in the way I have indicated, will be spent in quite a useless fashion. As an instance, we have the proposals as to the manufacture and management of the note issue by the Currency Commission. That will involve very great expense. At present there is no such expense. The banks manufacture or obtain their own notes. They keep all the particulars of them, they give certificates as to the number out, and there is no expense whatever to the State. A great part of the 30/- will be used up in these operations. There will have to be a brand new printing establishment, with expensive machinery and highly expensive staff. The control, management and bookkeeping in connection with bank notes, as well as the destruction of cancelled notes, require a highly trained and expensive staff. So does the printing of the notes and the care of the paper on which the notes are printed. The Commission will have to employ whole-time officials to do this work. In the banks, the more highly paid officials perform these duties, along with others, and, therefore, the amount to be charged up against the note issue is small. But the moment that the Currency Commission enter upon this work, the expense to the Treasury or to the Commission will be very considerable. The British Government may have been quite wrong, but, at least, they trusted the bankers of this country and regarded them as honest men. They accepted our certified returns as correct. For instance, the whole of the destruction of the Treasury notes in Ireland at the present time is entrusted to the Bank  of Ireland. These notes come into us and we keep a record of them. We destroy them and furnish the British Government with full particulars. I do not think the charge is excessive, but if we had to bring in a brand new staff to do this work, then it would be extremely expensive.
Perhaps I should not introduce a personal note into this debate, but it occurs to me that there is evidence of distrust of the returns made by the banks of the Free State in this Bill. This matter of establishing Commissions, taking away the management of their own notes from the banks, not taking returns from the banks, which can do the work at a cheap rate, but putting in expensive machinery— these things I do not like to see inserted in a Bill by a Free State Ministry. I can quite easily see why the Chairman of the Commission, who was accustomed to a good many practices that go on across the water, should have thought that we were not a reliable body. But I do think that the Government might have reposed a little more confidence in the banks—as much confidence, at any rate, as the British Government has reposed in the banks and their certified returns. That would save the country an immense amount of money. If the Government thinks it necessary to take money from the banks I do not object. Let them take it, but let them not waste it. Some of the regulations in this Bill mean sheer waste of money. Honestly, there is, amongst bankers, great doubt as to whether an untrained and newly-appointed staff can manage this most difficult task of the printing, cancellation, numbering and destruction of notes. In our own case, there were sundry things which we had to alter and improve in these respects. Now, a new and untrained staff is to set about this work. We have some doubts as regards the risks which will be run by the banks whose notes are sent in for cancellation if some of them are found to be still out against them. There are severe penalties incurred by the banks if, in these circumstances, notes are found to be out. Of course it may be said that that will be impossible. The banks have very highly  trained people looking after these matters. It takes years to train people for this work, and I am thoroughly convinced that it cannot be as well done, or anything like as cheaply done, under the provisions of the Bill as it is done now. What should have been done was to seek the advice of the trained officials of the banks of issue, who know all about the management of bank notes, as to how that work could be done most cheaply for the State. They would have prepared a scheme in a very short time. The proposals in the Bill are prepared by someone who knows nothing about banks. I do not know if Professor Parker Willis had anything to do with it. I do know that he knew no more about Irish banks and Irish customers than he did about— well, he knew nothing whatever about them. The objection I have to all this is that it treats the bankers of the Free State as if they were a pack of children. The conditions in the Bill are such that they, more or less, make a laughingstock of us and of the Government that imposes them upon us.
There are no such things in Great Britain or Northern Ireland. Because we happen to be Free State bankers we are to be subject to all these conditions. Probably they will provide us with a probationary officer to look after us and to send us to a reformatory. Who was responsible for all these recommendations? Who has had to look after this Bill line for line? For whose approval has it been drawn? For that of Professor Parker Willis, the Chairman of the Banking Commission. The other day I happened to come across a report by Professor Parker Willis on his own banking system in the United States. It is a most wonderful statement, and shows why he probably takes the view that he does about us. The Minister for Finance, I think, at one time said that the proposals in the Bill would put our banking system more or less on the lines of the American banking system. I have here a report that I think the members of the Seanad ought to read. It is written by Professor Parker Willis and appears in the “Stock Exchange Gazette” of May 27th this year. He states:
 “The Commercial Service of R. G. Dun & Co. has just completed a compilation of figures for bank failures during the first quarter of 1927, which shows a total of 174, with liabilities of 66,000,000 dollars as against 94 in the same period of 1926 and 144 in the corresponding period of 1925. The report of the Federal Reserve Board states that that organisation listed 956 failures during 1926.”
The Professor goes on to say that the frozen condition of its assets was one of the main causes of this. He wishes, and advises the Currency Commission, to force the bankers to lend out money, when we all know from our business experience, in regard specially to farming in this country, that such money more or less represents frozen assets. It takes a great deal of careful management to see that those frozen assets are not allowed to rise to such a figure that they interfere with the safety of the note issue. You must be always able to redeem your notes when presented. In America, the frozen condition that the bankers allow their finances to get into brings them down at the rate of about 1,200 a year, or 100 a month. During the last three or four months there has been a terrific smash in the Southern parts of Florida for the very same reason. There the bankers made these loans and got themselves into trouble and disaster, not through any Government pressure but because they were out for gains that they should not have been out for. They took risks that they should not have taken. We have seen another instance of all this quite recently in Japan, where a most tremendous smash has taken place. What caused it? The Government wanted trade to be revived because of the terrible conditions that were in the country after the great earthquake. They urged the banks to lend out money, and the banks lent the money. Suddenly there was a little bit of doubt thrown on the transaction and they began to call it in. The money was out in what they thought were liquid sound advances, but they could not get it in and they smashed all over the country. These are examples of what I believe to be the policy of this Bill  and which, I think, anybody can see are embodied in the Bill. I wonder whether the Government are wise to force a Bill such as this upon us at the present time.
There is one other little matter to which I would like to refer. There are, I believe, conditions in this Bill which, without any further law-making on our part, might just let our fiduciary issues go by the board. The fiduciary issues of the banks, both in this country and in Scotland are of vital importance to the people. They are a way of making credit available, especially through the medium of the one pound note, which has practically made the prosperity of Scotland and largely of this country. The legal tender note and the excess issues are not of the same nature. They are needed because of the prices that at present exist—post-war conditions. In the old days the currency of the country was gold. The people had not to ask for very much gold; very little did. The business of the country was managed on fiduciary issues of the banks and a certain quantity of gold. If that condition of affairs returned the conditions of the Bill, as I read them, would do away with the fiduciary issues of the banks at the same time that the legal tender notes disappear. I think it would be well worth the Minister's while to take a look at that clause particularly. He must have studied it. There is a relationship established between the legal tender notes and the fiduciary issue notes— we can debate it afterwards when we come to the clauses—making the two so inter-dependent that if the legal tender note issue disappears so will the other—practically down to two million or three million. I think, at least, we ought to consider whether that is a fact or not before we have done with the Bill, because I do not think we should ever pass anything that could deprive this country of the benefits of the fiduciary note issue. If the prices fell and the gold currency came back to Great Britain—I hope it will not, because it is an extremely expensive way of carrying on business —we would have to adopt it. If we did adopt it under the conditions of this Bill, we would run the risk of having  our fiduciary brought down to such a figure that it would be practically useless. In that way we might be doing a serious amount of damage.
That is only one of my beliefs. I am very much obliged to the Seanad for listening to me at such length. I have tried to explain as well as I could what this Bill really contains, and some of the dangers which appear to one who has been associated with banking for close on half a century. The dangers of it can easily be avoided and the money can be earned for the country that should be earned for it. I am not quarrelling or fighting about the exactions that are going to be made from the banks. I am objecting to the manner in which a good deal of the money is going to be spent. I am principally objecting to the putting in of conditions in this Bill which all the bankers of the country consider dangerous, and which are not at all necessary except to make possible the process of pushing a policy on to the banks of the Free State which has been proved, in other countries, extremely disastrous, and will probably have the same effect here. Even if it were tried in a country with a stable and good government, and we knew that we were going to have the same class of individuals looking after our affairs in the future as at present it puts a weapon into the hands of those who could use it against the whole commercial community of the country and it should never be passed by the Oireachtas.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: We have heard Senator Jameson at considerable length with regard to this Bill, which was framed on the report of a Commission on which he served. He reminds me irresistibly of the juryman who was asked when he got home how he got on. He stated that eleven such obstinate men he never met. A very proper procedure was adopted before framing such a delicate and responsible measure as this. The question was submitted to a number of men who had, for a considerable number of years, active and extensive experience of banking. A number of outsiders were on the Commission, one representing the Government, Professor Parker Willis, of  America, and Mr. Campion, who was associated with the Commonwealth Bank of Australia. I met Professor Smiddy, of Cork, representative of the Free State in Washington, a year or two ago. He told me he had secured the services of Professor Parker Willis to serve on a Commission on Banking in the Free State, and he described him as the most eminent authority on the subject in America.
The Bill follows, with one exception, the recommendations of the Commission. There is one exception, and I do not think Senator Jameson drew attention to it, that is that the Commission suggested a limit of the issue of legal tender notes. The Bill does not adopt that suggestion, but otherwise every provision of the report is embodied in the Bill. Senators would do well to read the report and Bill between now and Committee Stage if they have any misgiving as to what I say in contradistinction to what Senator Jameson said. I have read the Bill very closely, and I was astonished at how accurately and sincerely it represents what was set out in this report, which I found very interesting and instructive. Of course, it was recognised early that a return to the actual use of gold was impracticable. It was found impracticable in England also, where they have adopted the gold standard. The procedure with regard to legal tender notes is that they are secured by British Government securities, British Government obligations, the Legal Tender Reserve Fund, the Note Tender Reserve Fund and in the last resort the Saorstát. They are interchangeable in London through a London agency, perhaps the Bank of England or some other bank, so when Senator Jameson tells us that there is to be a differentiation in exchange he is stating what any bank director knows to be an absolute impossibility. The notes are interchangeable on demand in London. It is suggested in the Bill that the notes will be interchangeable to meet the requirements of the gentleman who wants to have English tender notes in his pocket when he goes to a bank in Dublin. It is a very peculiar thing that Senator Jameson has made this speech. He issued—I am not certain  whether it was simultaneously with or after the issue of the report—a series of criticisms of the report, to which Professor Parker Willis and his associates replied.
On page 57 I find this:—
“During the course of the Commission's work the important points embodied in its final phase were submitted to vote and were unanimously adopted, Mr. Jameson himself being present.”
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: Do you mean that I was present and agreed to the report as a whole and that I adopted it? repudiate it.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: If the Senator will permit me I will again read the paragraph. It says this:—
“During the course of the Commission's work the important points embodied in its final phase were submitted to vote and were unanimously adopted, Mr. Jameson himself being present.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: That is a piece of special pleading. I did not mean to deal with this kind of thing. Various matters were debated with which I agreed. The very moment I saw the report and the recommendations as a whole, and the use being made of the things on which we agreed, I definitely
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: I leave it to the Seanad to decide as between Senator Jameson's statement and the matter in the report. The Currency Commission is to consist of three men who will be elected by the shareholding banks, such banks in this particular case being the banks which will avail of the currency notes and consolidated bank notes issued under this Bill. They are set out in the schedule and there is power to co-opt further banks, if and when certain conditions arise. In the case of any of the shareholding banks not complying with the conditions they forfeit their right to nominate or vote for any of the three members to be selected by the joint stock banks. The Minister is to appoint two men—two business men, I presume, of responsibility—and also nominate one man who will be a civil servant, possibly, an important official  of the Department of Finance. These members will elect a chairman, and, in the event of disagreement, and only then, the Minister for Finance will appoint a chairman.
I believe, though I am not certain that this is in the Bill, that he will secure that his nominee is acceptable to four of the six members. That is not giving the Government control because, even though two important business men are elected on the Commission, I do not expect that they will be two tame cats as far as the Minister for Finance is concerned, as no responsible man would accept nomination on such conditions. Senator Jameson has spoken about the speeches of Ministers and Deputies in the Dáil. Such speeches, however, have nothing to do with us as we are dealing only with what is in the Bill which is framed on the report of the Commission. Senator Jameson, in what I might call his minority report, suggested an alternative Currency Commission. He told us that he was in no way influenced owing to his association with the Bank of Ireland. I am a small shareholder in that bank and I wish it and all banks every possible success. Here is the Currency Commission as suggested by Senator Jameson:
(i) A Chairman, with a defined term of office, elected by the Boards of the Banks having a note issue in the Saorstát;
(ii) A member, learned in banking and finance, to be nominated by the Government, or a member being one of the permanent staff of the Department of Finance; and
(iii) The Governor for the time being of the Bank of Ireland.
I will leave it at that. I come now to what I thought anybody dealing with responsible and delicate matters would be rather chary in commenting on. I refer to Section 37 of the Bill which empowers the Chairman or an appointed official to get certain information from banks. Sub-section (3) says:
“Information in regard to the business of a banker acquired by the Chairman or an officer of the Commission by the exercise of the powers of access to or inspection of  books or records conferred by this Act shall not be communicated by the Chairman or such officer to any ordinary Commissioner in any form which would enable such information to be identified as relating to the dealings of such banker with any particular customer or other person.”
I would also draw Senator Jameson's attention to the form of declaration in Section 32. It is as follows:—
“I do solemnly declare that I will not disclose any information in relation to the business, records, or books of any bank which may come to my knowledge by virtue of my position as the Chairman or a member or an officer of the Currency Commission, except to such persons only as shall act in the execution of the Currency Act, 1927, and where it shall be necessary to disclose the same to them for the purposes of the said Act.”
I confess that if that information could be got in some other way I would prefer it, but, having regard to the fact that such information as is required must necessarily be within the knowledge of hundreds of officials and bank clerks—and to the credit of the bank service it should be said that there is no leakage of information— I cannot understand the terrors which exist in Senator Jameson's mind. All these terrors are imaginary. There is always a terror that something will be done wrong. If I get on a railway train which goes at an excessive speed, I should not accuse the chairman of the company of being in delirium tremens. Senator Jameson's fears are not likely to become real. Any Government that comes into power must be faced with its responsibility. We saw when Mr. Wheatley became a Cabinet Minister in England that he was a very different Mr. Wheatley to the Mr. Wheatley who was a private member. I heard the Right Hon. Ramsay Macdonald make what might be regarded as almost revolutionary speeches. I heard even Ministers of the Free State say things at the elections which I do not think they would say here. I would not give an exaggerated attention to street-corner orators seeking office.
 I have no fear of any responsible Government in this country committing the dreadful depredations which Senator Jameson has outlined. The report goes out of its way to prevent the Commission being subject to political influence, and the Bill is framed, both as regards the election of Chairman and the duration of the tenure of office of the nominated and elected Commissioners, as to make it practically impossible that undue influence could be successfully used upon the Commission. I really think, when Senators study the details of the Bill, and read the report closely, they will agree that the general criticism in which Senator Jameson has indulged is useless. I am fully convinced, when the Bill is studied by members of the Seanad, that they will not hesitate to say that it is an extremely useful measure for this country.
Mr. GUINNESS Mr. GUINNESS
Mr. GUINNESS: I rise to support the Bill, not because I like the Bill, but because I consider it to be my duty to support the Government. Legislation on currency is needed. Incidentally there is no legal tender in this country at the present time, but although the Bill before the House is in many respects admirably conceived, there are certain fundamental conditions of the measure which are radically unsound and quite contrary to the recognised laws of banking and currency. In a Second Reading debate one can only criticise the measure as a whole, but when we come to the Committee Stage I most sincerely hope the Minister may see his way to accept amendments which will be put forward with the genuine object of improving certain features of the Bill which are now or a highly objectionable nature.
As I have said before, the Bill is in many respects an admirable one. On its many good points I do not propose to touch, but I do propose to offer some criticism on certain clauses which, in my opinion, are eminently unsound.
Part 3 of the Bill sets out the arrangements which are proposed for the appointment of a Currency Commission, and it is there provided that the Commission shall consist of seven members, namely, a Chairman and six  ordinary Commissioners. Of these Commissioners, three are to be appointed by the shareholding banks and three by the Minister for Finance, the Chairman being subsequently elected by the six Commissioners and, failing election, he shall be appointed by the Minister for Finance. There can be very little doubt that with such a system of appointment four out of the seven Commissioners will be nominees of the Government—in other words, the Government will control the Currency Board I desire here and now to record my very strongest opposition to a Commission appointed in this manner. It is the basis of all sound monetary systems that the Government should not have control of the currency with power to use such control for the political exigencies of the moment. We have recently seen in other countries how much power has been misused, bringing financial ruin upon the nations concerned. The legislature is the proper guardian of a country's currency, and once established no change or alteration in the monetary system of a country should be possible unless approved and sanctioned by the parliament of the nation.
I now come to Section 37. This section embodies most unusual and inquisitorial provisions, as it enables the Commission to have access to the books of any private firm or individual carrying on the business of a bank in the Saorstát. This is a violation of all recognised custom. The records of a bank have always been of a strictly private character, to be produced if necessary to the court, but not for the inspection of any Government department no matter how that department may be hedged round with safeguards. With Section 37 on the Statute Book, nobody would think of undertaking the business of a banker in the Saorstát, and the business of bankers already established in the country would be most seriously injured.
Part 6 of the Bill deals with what are called “Consolidated Bank Notes.” These are to be notes totally different in design and character from the legal tender notes, and are to be issued to certain shareholding banks to replace the fiduciary issue of notes established under the Irish Bank Act of  1845. I have yet been unable to understand the necessity for two separate and distinct issues of bank notes in the Saorstát. For more than 80 years the banks of this country have functioned most satisfactorily, without distinct and separate series for their free and excess note issues, and why it is now thought advisable to introduce complications by having two series I fail to understand. A single series of legal tender notes secured as to the free or fiduciary portion by, shall we say, a deposit of gilt-edged securities of an equivalent value, and as to the excess portion by purchase £ for £ in gold should, I submit, provide a simple and elastic currency eminently suitable for the requirements of the country.
Section 52 provides that the issue of consolidated bank notes to any bank is to be governed by the total amount of liquid sound advances by such bank. This is a very curious and unique provision, and as a basis for note issue is quite unknown to the banking world. In a recent speech in the Dáil the Minister stated that a system of basing note issue on or relating to liquid sound advances is a system which is very widespread. I would seriously ask the Minister if he could name one country where the system is widespread. In America I believe it was once adopted, but as America is the country where there have been more bank failures than in any other country on a population basis, I hardly think we would be wise to adopt American principles for our banking system.
What is a liquid sound advance? Anybody acquainted with practical banking knows that opinions on this subject are frequently very far apart. Take the case of Ireland: a large proportion of the advances in this country are to farmers and others interested in land, and on the security of land and its adjuncts. In 1920 a vast amount of money was lent in Ireland on the security of land. Would the great majority of these loans be looked upon to-day as liquid sound advances? They are liquid in so far that they have disappeared and melted away. Liquid sound advances as a basis for note issue are quite impracticable. A reasonable and simple method would be to limit  the holding of notes to the amount of the published reserve funds of the bank concerned.
In Section 55 the proposal to make extraordinary issues of consolidated bank notes over and above the quota and subject to an increased rate of duty is novel and of doubtful wisdom. Should currency be required beyond the quota, it is suggested that such currency should be in legal tender notes. This is practically the present system, and it has been accepted and has worked admirably for close upon a century. It acts as a check on inflation and is all in favour of the State.
Section 60, sub-section (2), provides for a penalty of 10 per cent. of the amount for issuing bank notes other than consolidated bank notes. It is presumed that this will not apply to British Treasury notes, which are constantly required for travellers.
In introducing this Bill in the Dáil some days ago the Minister used these words: “We will have the credit requirements of the country better met than they have been in the past, and the institution of the new system is going to have a very good effect upon the banks. I think it is a fact that there has not been sufficient attention paid by the banks to the national requirements of the country.” I very much regret that in advocating this measure the Minister should have used these words. The remarks imply that the Irish banks had, in the past, failed to give the necessary support to the business and industries of the country. For many years I had the honour of occupying a seat on the Board of the Bank of Ireland, and I can confidently assert that during all those years no application for financial support was ever refused without most careful and sympathetic consideration, and then only when the risk involved was such that no banker could prudently accept the responsibility.
Sir JOHN KEANE Sir JOHN KEANE
Sir JOHN KEANE: I do not think I can usefully say much after all that has been already so well said, but there are certain aspects of the problem that I wish to stress and perhaps emphasise more than previous speakers have done. I have no doubt the House realises the vital importance of currency  policy. It would not want a very close knowledge of recent history to see how currency manipulation can be used as a means of confiscation, as a lever of the utmost dishonesty, and as a means of leading to financial collapse, and, indirectly, as an agency of great personal suffering. Of course Germany is an example of that, in addition to a most dishonest repudiation of obligations. However, these are only general matters and do not affect the present case. But it is well to be alive to the fact that there are a lot of currency quacks about. If you read some of the literature on the subject it would make you believe that, like the alchemists of old, they can get gold from the philosopher's stone, give you ninepence for fourpence and all sorts of refreshing fruit. I am not quite sure but that some of these people are to be found nearer home than Westminster. It is important that we should display a little exactitude in terminology on this subject. Even to-day one noticed some loose expressions with regard to currency and credit, as if they were more or less the same or a sort of interchangeable synonymous terms. Currency itself, the standard value of purchasing is of course the proper function of a department of State—of the Parliament. Once that has been determined, then upon it follows the question of credit, which is not the function of the State in any way, but is the function of the people entrusted with the custody of commodities and who have the duty of regulating the rates and maintaining the reserves. Experience all down the ages proves that when the State begins to meddle in these matters danger will come not merely to the money interest but the danger will come to everyone—to the small investor and to the man of quite small means who entrusts his savings to the banks. The Minister more or less loosely used the words “credit policy” but he did not tell us what credit policy is. I hope that later on he will be more precise upon this subject. Does he mean by it the fixing of rates by which credit is controlled, or does he mean the actual control of the nature of the advances? I think if you  examine his utterances closely, you will see that what he has in mind is some control indirectly by the State of the nature and classes of advances and the loans that should be made.
I do not entirely agree with Senator Jameson that there is much danger of an exchange. There may be theoretically. In practice I feel that Senator Dowdall stated the case clearly when he said that when note issue is covered by the securities of the country to which your currency is tied you will not get an exchange between the currency of the two countries. The only thing that might happen is this. If your reserves become exhausted, if your trade balance is bad and if you are gradually eating into your sterling securities and the period in which you will no longer be able to cover arises, there may be a period of apprehension. But by that time, of course, things are very bad, and, indeed, the exchange would not matter very much. Of course we would all like, in theory, to be entirely dependent on the gold basis. We could start to-day on a gold basis, but it would be expensive, because we would have all this gold held up, earning no interest. Of course, gold would go away just the same as anything else if trade balance was unsatisfactory. Whether gold or any other form of security, in these circumstances it would pass away. Gold would not prevent the effects of an adverse trade balance.
I would like the Minister to answer this point. What will be the position of existing contracts when the new currency is in force? There may be some contracts, perhaps the capital of companies, specifically said to be in sterling. Do they still remain in sterling? In every case they may not be said to remain in sterling, but at the time they were made they were made impliedly in sterling. Are they to be repayable in sterling or in the new form of legal tender? If there is any doubt about that I suggest that it should be made clear by amendments in the Bill.
As regards legal tender, I do not think there is any heresy or anything unsound in that, but, as Senator simpler without employing Government Jameson says, it could be done far  officials, perfectly safely, and far cheaper by the existing methods. The Government, I am sure, realise that it is desirable not to employ any more officials than can possibly be helped. There is a certain, flexibility in non-government methods that makes for much more efficient discharge of business and much cheaper work.
As to the question of note issue, I think that here we see the cloven hoof of politics, and this matter would need to be carefully considered. Further, in regard to this test of liquid sound advances of which we heard so much, I do not think there is any mystery about what the Government wants; in fact I admire their candour. They intend to use this as a lever to ensure that the banks shall increase their note issue by making more advances. That is what it comes to; the more a bank lends the more it can earn on the note issue. That is thoroughly bad. I do not think any bank will fall a victim to such temptation, and I should be very sorry to be associated with any bank that did. Anything in the nature of a comparatively small gain that they could get from any further issue should not tempt them in any way to make advances that they do not consider sound. Of course, what is sound depends upon a number of factors prevailing at the moment. In some cases it may be good banking policy to hire out money at longer periods than at others, but that all depends upon a number of factors. You can never lay down a priori rules. One thing that is certain is that there should be no departure by any reputable bank from sound banking policy. Of course there is a danger that some new institution, some new bank, might be so tempted, and it might be argued from that what does it matter as the evil would be isolated.
Any bank so tempted to make unsound advances would, ultimately, get into difficulties and collapse. Here again it might be argued that the danger is confined to that particular bank, its shareholders and depositors, and perhaps, to the directors, who would have to meet, ultimately, the notes. That is not the fact.
The banks cannot afford to let any of their neighbouring banks go down.
 That has been the invariable practice in banking. No bank will sit still and see a neighbouring bank collapse, if it can possibly avoid it. It is in the interest of all banks to keep a weak member alive as long as it can. Therefore every sound bank views with suspicion any measure which is likely to form a temptation to another bank. I suggest that the method on which, in future, note issues will be examined is dangerous. When one comes to examine what the term “liquid sound” means one gets completely puzzled. I do not think that even the Minister himself could tell us. When he was questioned about it he said that it was a conundrum, and that it was something everyone more or less understood. I looked up the dictionary for a definition of this term “conundrum,” and the answer I found was that it was a puzzling question, or an equivocal answer. You do not want terms of that kind in an Act of Parliament. It will not do to have puzzling questions, or equivocal answers, in an Act of Parliament. As a rule, in Acts of Parliament you get definitions that are simply obvious things. You get, for instance, a definition of the Minister; the Commission is defined, and you see that all these definitions, from their context, are perfectly obvious. I think that this term “liquid sound advances” should be defined in the Bill in clear and explicit terms so that the Commission, when they come to regulate the note issue, will not be in any difficulty in regard to the matter.
Senator Jameson dealt very fully with the question of the inspection of books. I need not labour that point, except to say that we are not really apprehensive of any breach of confidence on the part of the Chairman, or of the officials of the Commission, but what we are apprehensive of is the feeling that this power in the Bill will arouse throughout the country. The depositors with whom the banks deal are people mostly of primitive thought. They are suspicious always, but they have always regarded the banks as trustworthy custodians of their private affairs. But let it go in an Act of Parliament that you are going to allow the members of the Currency Commission  largely controlled by the Government to look into their books and individual cases and that will be a dangerous and a bad thing. Of course, you have to know politics to deal with groundless and sometimes ignorant suspicion. Perhaps that is one of the main functions of a statesman, and it has to be considered especially now as those people whose suspicions are likely to be aroused are the people who have votes. That is a point that ought to be borne in mind in view of the fact that we now have a very much enlarged franchise. The Minister made the remark—I think, in fact, that the remark was made on two or three occasions—that while the banks—this was the impression left—were perhaps serving the shareholders and the depositors that they were not serving the general community in the manner that they should.
I think that that point can be very effectively answered. I am not going to attempt to deal with the wild men down the country to whom Senator Jameson referred. Their ideas, to some extent at least, have found expression in the Farmers' Defence League. Members of this organisation have suggested in their speeches that the banks should get a bit of the treatment the landlords got; that they should be paid so much in the pound and that loans obtained from the bank—not deposits— should be written down to the present value of money, and a lot more of that sort of wild stuff. A country in which ideas of that sort get a hold would rapidly come to an end.
There is the point of view that the banks act as trustees for the people who give them their money. I know, of course, that there is a sort of idea abroad that the banks are making big profits and that that is the end of it. It should be remembered, however, that the banks have got their liabilities, and they are very substantial ones, to cover. The people of this country have placed in the custody of the banks a sum of, roughly, £150,000,000. Money on deposit can be recalled at any time. A depositor can go into a bank in the morning and demand whatever sum of money that he has there. The banks  have got to be ready to meet that demand. They have to meet it unhesitatingly. It would not do for them to say to a person whose money they had that he was to come back in a week or two weeks' time for it. They have got to meet the demand there and then. The liquid power to demand at once is a liability which the banks have to be ready to meet. They must be in a position to meet it at once out of their assets.
I can give a very good example of the necessity for liquidity. The absence of liquidity brought down one thousand banks in America last year. Of that number 160 were banks that were allied to the Federal Reserve and were under supervision. They were all reputable institutions and not banks of mushroom growth, and yet the fact is that the absence of liquidity brought them down. If the banking system in Ireland, in recent years, had not been thoroughly sound, we might have experienced the same thing here. If you look at the consolidated figures of the banks since the Treaty, you get this fact, that since the Treaty deposits have been drawn on to the extent of £29,000,000. That is to say they dropped from £191,000,000 to £162,000,000. Of that sum of £29,000,000 twenty millions were met by the sale of sterling investments, and six millions were met by a reduction in cash balances. The remaining sum was made up in several obscure ways that I need not go into. I would ask the House to note this, that the banks, owing to their strong liquid position, were able to meet that very heavy demand, without in any way pressing those to whom they had lent money. In spite of all that has been said about the banks not lending money, they were able to meet that demand, and without calling in advances. As a matter of fact, in that particular period their advances increased by two million pounds. While the deposits were being drawn on, the banks have, in fact, actually increased their loans. That, I think, is an eloquent answer to those who say that the banks are not serving the community.
Of course the banks are refusing loans to people. The Minister himself, if he were a banker, would, I think, also refuse loans in face of one fact. I think 46  per cent of the attempts of the Land Commission to sell land have proved abortive. There is no liquidity nowadays in land. There is a certain liquidity in farmers' bills, not very much. Our chief liquidity is in loans covered by marketable securities, or in trade bills. We have not got that feature of liquidity which Professor Parker Willis had in mind when he brought American ideas over here. In America they have large quantities of what are known as trade bills. A man comes in to borrow a sum of money to buy a cow, which he sells in three months' time. That money, of course, lent by the bank will be coming back to it at the end of the three months. The man, when he sells his cow, is in a position to pay back the money to the bank. That is a liquid advance, because the bill that he obtained originally need not be renewed afterwards, and the money that he repays can be kept to meet other claims, but we have nothing of that kind in this country. The nearest approach that we have to it is in the shape of loans secured on investments. You cannot say that loans on land which the Minister wants to increase are liquid, and it would be a thoroughly unsound policy to put any pressure on banks to increase loans on land beyond their present very high figure. The banks recognise, quite freely, that we are an agricultural country, and they lend as much money as they can on land. But to put pressure on them in that direction would be disastrous for everyone. As regards a lot of this loose criticism that one hears of the banks, the critics say that the depositors, of course, are all right; that they do not think there is any fear about the depositors; that the banks are strong enough to see them through. The critics say that it is the shareholders who are sucking the blood out of the community through the enormous profits that they are drawing, and that it is these people they want to get at. They say that the shareholders render no service to the country, and that they should not be allowed to get so much gain. On that matter there is only just one point that requires to be examined to get a true appreciation of  the shareholders' position. You have got to look at the percentage of the shareholders' money that is in the reserves of the banks. Of the £162,000,000 on deposit only £7,000,000 represents the shareholders' capital, so that in the case of a collapse the shareholders' capital would not stand very much of it. The depositors would be bound to suffer very much more because of the much larger proportion of their money that would be involved.
When examining the rate of dividend on the shareholders' capital account must be taken of the reserves which have been built up in the past, probably at great sacrifice, by the early shareholders in order to strengthen the position of the banks. The share holders in equity should have this taken into consideration when examining the profits. In most industrial businesses they do not require to be so liquid, and a large proportion of these reserves in the case of these businesses would have been capitalised. You have to consider these facts in relation to the figures. Another matter to be considered in connection with the shareholders is the enormous amount of uncalled capital they are liable for. For every £1 invested in the bank a shareholder is liable for £4 in the event of the bank breaking. A man who takes that risk is entitled to a bigger rate of reward than the man who runs no such risk. When all these factors are taken into consideration I think it will be agreed that the reward of the shareholder is nothing like the fantastic figure some people talk about.
One further matter to be taken into account is the class of business it is proper for joint stock companies to do. There is a sort of feeling that banks should give any amount of money on loan to build houses and to buy plant and machinery. That is not the proper business of joint stock banks. You have to be liquid in your assets in order to meet your depositors. That is obvious, but it is not always remembered. There are institutions like mortgage banks that lend money and tie it up for long periods, and there are merchant houses that lend money for various operations. There is a large  amount of share capital involved in that. It is held by rich people who run risks and get rewards, and they are in no way in the same position as the trustees for depositors like joint stock companies. These banks know their business better than other people, and they should be allowed to do it in their own way. Even those who know their own business, as has been shown in the case of America and Japan, have come to grief, but they are not going to be bettered by indirect pressure. This Bill might be a great deal better, but it stands for perfection and is inspired largely by American practice and has the support of other members of the Banking Commission besides the Chairman. I think we should examine this measure on its own merits, and form our own conclusions. As things are, it has to go through, but I hope in Committee certain dangerous features will be examined and eliminated.
Mr. BENNETT Mr. BENNETT
Mr. BENNETT: I listened with great interest to Senator Jameson. He criticised the Bill from two angles, one the angle of the legal tender note and the other of the consolidated note. His arguments as regards the legal tender note were based, as even Senator Sir John Keane will admit, on possible fallacies. He argued that there was a trade balance against us, and the effect of the legal tender note would make the exchange so much run against us. Let us examine the position. The legal tender note to be established here was based on very sound conditions. The conditions are defined in Section 62 of the Bill. There was to be against it “gold bullion; gold coins which are for the time being legal tender in Saorstát Eireann for unlimited amounts; money in any form which is for the time being legal tender in Great Britain for unlimited amounts; British Government securities; securities guaranteed by the British Government, and sterling balances on current or deposit account at the London agency, or any bank in Great Britain or Northern Ireland.” Senator Jameson fears that the establishment of such a note based on either bullion or the security of Great Britain, which does not now exist, was to endanger our exchange.
 I submit that, on the contrary, it is rather liable to better our exchange. I also submit that the parallel with Japan or the parallel with what happened during the Great War is also fallacious. The fact is that various countries came to disaster from the overissue of notes as against sound financial principle. A certain issue of notes was provided for by the State, on the best principles, and these countries overran their liquid assets, and issued notes far above their capacity to pay, and far above the money borrowed against them. Arguing from the angle of the legal tender note, all that is perfectly secured, and it cannot be suggested that the existence of that can in any way endanger our financial position internationally.
We were told about the great stringency in Japan and other countries. What has happened in these countries, I contend, occurred, not from the fact of legal note tender, but because a note issue comparable with our legal tender note was departed from. Notes were issued without any stability to back them. That, I think, is the correct point of view, if I may speak as a layman in the matter. Reference was made to the tremendous failure in Japan. Why did that occur? Because one of the great financial houses was prevented by the Government from continuing inflation, from giving unlimited credits, and that house was forbidden to make advances to any further extent for requirements on speculation. That line of attack, I think, fails, and I am glad to see that Senator Sir John Keane, a banker, agrees with me that it is of no practical importance. With regard to the consolidated bank note, Senator Jameson and other Senators, with the exception of Senator Dowdall, objected apparently to the issue of the consolidated note, and objected very strongly to the manner of its issue. They objected to the inspection of the bankers' books by the Currency Commission for the purpose of making out the amount of notes such banks should be allowed to issue. Senator Jameson never told us by what other method you could determine the amount of issue that should be allowed. Surely if a Government, or a Commission, or somebody,  does not take the responsibility of knowing what amount of consolidated note is to be issued, no consolidated note can possibly be issued.
A consolidated note is essential. I believe it is considered essential, because we had a fiduciary issue in the past, and this fiduciary issue was considered necessary by even the conservative bankers of Ireland. Fiduciary issues are essential to banking, and that being so how could any possible provision be made for arranging the necessary advances to be allowed to bankers other than by some inspection such as is suggested in this Bill? Well, we pass from that and we are told that shareholders and others are going to suffer great hardships from the imposition by the Government of certain tests and certain details in the matter of banking.
Now, were not certain banks in the past unlimited as to note issue? Was the public aware of the fact that these unlimited note issues were charges on all shareholders' banks? Is it better for the shareholders of a bank to have a consolidated note issue supervised by Government, arranged for in a deliberately considered Bill, or to be at the mercy, so to speak, of a small group of financiers who may issue fiduciary notes at their sweet will? Remember that the people who are shareholders in that particular bank are liable for every penny, as far as I understand it, of that fiduciary note issue even though they were limited as to shareholding capital. I submit that such a consideration is a profitable one for the shareholders. I may be wrong, and I would be delighted to be contradicted, but I believe that if the banks that were unlimited as to note issue were to issue fiduciary notes in excess of their own financial stability, such notes were a charge on the shareholders and should be considered and liquidated by them in the event of the liquidation of the bank.
Sir JOHN KEANE Sir JOHN KEANE
Sir JOHN KEANE: Of course they were.
Mr. BENNETT Mr. BENNETT
Mr. BENNETT: That being the case, and that fact not being generally appreciated by the shareholders of the bank as to unlimited note issue, I think the banks will be in a better position  under the new arrangement whereby all this note issue, or consolidated note issue, will be considered from the proper angle of liquid assets which is discussed here, and of which it would be vain to attempt any definition. Everybody knows what liquid assets are. But whether there are any liquid assets in this little State of ours is, I take it, very doubtful. Will bankers here tell me what is the industry in this country that they could safely say could be described as a liquid asset? They refer to agriculture. There is nothing liquid in agriculture. Which of the industries in this country could they say they would be in a position to lend a million of money to and say: “This is a liquid asset”? Liquidity in this country comes from trade, not from business. Liquidity largely comes from trade. If the people of this country are not able to pay on demand where is the liquidity? I submit that to argue this question in such a country as ours is beating the air. We are contrasted with America and the failure of 946 banks in America. The parallel has been sought to be drawn between this little State of ours, between the financial position of Ireland and the financial position of America. Why did these banks in America fail? Some people will tell you that they failed from and because of a plethora of gold occasioned by the Great War. A plethora of gold fostered speculation. Business was good, money was plentiful and the inducement to bankers to advance money to every little industry which started, and to every other person who dabbled in industry was strong and was inherent in the situation. Would anybody try to draw a parallel between that and this country of ours which is struggling to start a few industries, this country into which nobody is rushing by leaps and bounds to start industries? Is it not a desirable thing in such a country that banks should be, if possible, coerced, though it is not suggested?
Sir JOHN KEANE Sir JOHN KEANE
Sir JOHN KEANE: The cat is out of the bag.
Mr. BENNETT Mr. BENNETT
Mr. BENNETT: Yes, the cat is out of the bag. Is it not well that banks should be urged to develop the  country by applying the resources of the country to the development of those industries which could be shown to be sound and by applying the resources of the country to the development of its financial position? If that were done the result would be an increase in wealth and a safeguard to the shareholders of the banks themselves, to whom even an increase in their dividends would be secured and insured.
Sir JOHN KEANE Sir JOHN KEANE
Sir JOHN KEANE: Who is to do the showing?
Mr. BENNETT Mr. BENNETT
Mr. BENNETT: The showing is to be done by expert examination, even as the examination by this Banking Commission has shown that some strong alteration is needed in the banking business. I am glad that the Government is undertaking such financial adjustment as will permit proper enterprise to start in this country and as will prevent undue restriction of credit by the banks in this country. What have they told us here? They have said that no self-respecting banker would retain his position under such conditions. They have said that no self-respecting banker would retain his position under conditions of any sort of control. The bankers were to be the be-all and the end-all of finance. They were to decide who should get a loan and who should not get a loan. They were to decide what industries were to be established and what industries should be suppressed. And why? They have shown from the development of things in this country that they were not so much interested in the development of Ireland as they were in the development of Yucatan. From the point of view of finance I say properly so, because in the past the development of Ireland was the interest of nobody. The development of Ireland to-day is the interest of this State and of this Seanad, and I feel that the time has come when Irishmen will develop their country on proper lines and when the money of Irishmen will be used to develop it and the conservatism to which we were forced by the suppression of initiative in Ireland should disappear.
I think that a reasonably progressive policy of banking is a policy that will  succeed. In this Bill there are some defects, but they are defects that can be remedied in Committee. But what-for conversion into coin or for manuever its defect this Bill makes a vigorous attempt to deal with the problems on the lines of a Banking Commission admirably adapted to consider such a change. I feel that the Bill is a welcome addition to the financial schemes before the country.
Mr. KENNY Mr. KENNY
Mr. KENNY: The Bill is mainly for the purpose of securing for the Free State in its present financial position a profit approximating to something like £300,000 a year. Senator Jameson said a Bill with this single purpose in view could have been introduced at any time during the last few years. It strikes me as strange that Senator Jameson, knowing the conditions existing in the country, did not either himself introduce a short Bill in the interests of the Free State or suggest to someone else that such a Bill would be wise in securing for the Free State a profit of £300,000 a year. I am sure such a measure would be practically unopposed in either House. However, there is no use in crying over spilt milk. This Bill will, we hope, go through without very much serious opposition, having been altered, of course, in one or two material points that have been mentioned by previous speakers.
To my mind the main weakness in the Bill, the main danger in the introduction of a currency such as is proposed to be set up under this measure, is that there is no limit placed to the issue of legal tender notes. The legal tender notes will be inconvertible. They have no intrinsic value of themselves; they will be based upon the national credit; they are not supposed to have relation to or be maintained by a standard of metallic currency; that is to say, a gold coin basis. The gold basis is, as bankers well know, the most reliable basis in the currency of any country. Most civilised countries have adopted it because it has an intrinsic value and a market value of its own apart from its value as a gold coin. It does not deteriorate and it is not liable to fluctuation such as other commodities. The world's production of  gold barely keeps pace with the requirements of the community, either facturing purposes such as conversion into golden ornaments. In Australia for every pound of gold that has been extracted from the mines 30/- is invested in fructifying schemes. As I have said, the world's production of gold, even an intensive production, is barely sufficient, as has been proved by experience, to keep pace with the demand for coinage and manufacturing purposes, for the general purposes of the community. The stability of gold makes it the most reliable medium of exchange. It is an imperishable commodity and it does not deteriorate except by friction.
When you come to the point that you say, “We will issue a piece of paper and say it is one pound,” you are entering into a different arena. The paper is only valuable if converted. Your note issue, the fiduciary issue of the banks of this country, was always convertible; at the will and pleasure of the holder he or she could at any time give a bank note in at the head office and get a sovereign in exchange. It was immaterial whether you had a pound note or a sovereign in your pocket, because they were interchangeable. That is not so under the proposal made in this Bill. You cannot convert the legal tender note at all. These legal tender notes are inconvertible. You cannot go anywhere with that legal tender note and get a sovereign or anything else by way of redemption. It has a legalised purchasing power, but it is not convertible. If the finances of the country were to fail, if the purchasing power of the note were reduced to ten shillings, five shillings, or one shilling, you could do nothing with that note; it would be merely a piece of paper, whereas, if you had half a sovereign you could always go to a gold merchant and get full value for it.
I say that the weakness in this measure is that there is no limit placed on the issue. The Banking Commission may have advised very wisely, but the Government, in its wisdom or unwisdom, set whatever recommendation was made aside. Senators will recollect what happened in other countries when there was no limit placed upon the  issue of paper currency. Senators will remember what happened in France during the revolution; what happened in Germany and what happened in the case of the French franc. The currency all went the same way, and the Government in their financial plight would at all times resort to this very easy way of dealing with the situation. They generally issued anything from one to ten millions of legal tender notes, and the whole situation for the time was relieved. Of course, the inevitable result was that prices rose, and paper currency became so depreciated that you would require to pay in paper currency possibly from £4 to £6, as the case might be, for an ounce of gold, which, converted into golden coin, would represent £3 17/10. It would pay them better to melt down their golden coin. Eventually they would be left without any resource or backing of gold in the country.
Certain objections were taken to the Bill by previous speakers, but they dealt merely with details. I do think that to strengthen the Bill and to give some assurance for the future, there should be some limit placed upon our legal tender issue. It should be kept in some conformity with the gold standard. You want more than that. I think you require to have some clause inserted in this Bill that the paper issue should be contracted whenever the price of bullion rose above the Mint price. That would, to some extent, minimise some of the dangers that could arise under the Bill as it stands. It would not be a perfect check, but it would be the nearest thing you could get to convertible currency, and it would certainly be approaching a sound currency based on gold, which pretty well all the time maintains itself.
Now we come to the question of the legal tender note being put on a parity with the legal tender note of England. There is also a weakness there. Supposing there were a world war such as we have gone through—and the thing is on the horizon—supposing England is involved, what would be the value of England's paper currency after another five years of continuous war? Her paper currency to-day has no gold basis—to which she is trying to get back —but is based on the credit of the  country. Her resources have been badly strained. But what about another great war supervening upon the one that has just passed? What would England's position be after three, four or five years, replenishing her war chests, and what position would her Treasury notes hold as a medium of exchange? With our notes, under this Bill on a parity with the Treasury notes of England, how would they compare with the notes of England? I think by association with them they would be brought down. I think the quicker we cut adrift from British standards of currency, and base our currency on our good name and resources the more independent we would be. We have deposits of 160 million odd pounds in our banks. Most of that is free of interest; the banks are trading on it, charging 5, 6 and 7 per cent., and a good deal of the profits resulting from it are going abroad. If the Government wants £10,000,000 or £15,000,000 to-morrow and if they made a proper appeal to the people, I think there is sufficient enterprise in the country amongst capitalists and those having money for them to subscribe to that loan. Then our currency would get a very considerable backing, our credit and our fame with other nations would be stimulated and very much enhanced by such a success.
Mr. O'FARRELL Mr. O'FARRELL
Mr. O'FARRELL: I do not propose to enter into any detailed discussion of the Bill, for the very good reason that I know nothing about currency. I am informed that there are very few people in this country who know anything about the subject and that even the majority of bank directors know next to nothing of it. I am encouraged to speak on the Bill by the fact that I am in good company, by reason of the question in the early part of the discussion that Senator Sir John Keane put to the Minister as to what he meant by liquid sound advances. The Minister replied that he had asked him a conundrum, and the Senator went to look it up in a dictionary. The main basis of Senator Jameson's speech, and I think also Senator Guinness's, centred around the question of banking, or, in  other words, how the banks would come out with this new currency. I find that in their Report the Commission stated: “First of all it may be noted that the banking problem, while intimately bound up with the underlying question of currency and monetary standards, is, of course, wholly independent of it. This is a problem, or series of problems, in and of itself.” But the discussion to-day has mainly gone on the lines that banking and currency are one and the same subject and that they must be discussed together, and banking has loomed very much larger than the question of currency in the discussions.
Those of us who know next to nothing about the question are, at all events, fortified in the action we propose to take in voting for the Bill by the fact that the Banking Commission, upon whose recommendations this Bill has been drafted, was composed of eight people, four of whom were representatives of the Irish banks. In addition there was an ex-member of the Commonwealth Bank of Australia, an ex-Irish bank manager, the Chairman, Professor Parker Willis, a noted American authority on finance, and one representative of the Department of Finance. Out of all these there was only one dissentient, Senator Jameson, representing the principal Irish bank. The Irish banks had an opportunity of sending what, I presume, were their ablest representatives to that Commission. Three out of four of these representatives signed this recommendation, and I think to that extent the banks are certainly bound—morally bound at all events—to support the findings. Senator Jameson gives us to understand that the banks have turned down their representatives, and that they are against the Bill.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: The Senator must have taken me up quite wrongly if he thinks I made that statement. I confined my statement with regard to the attitude of the joint stock banks to one particular section of the Bill—the inspection section. I was very careful about that. I made no statement as to the attitude of the joint stock banks with regard to the Bill as a whole.
Mr. O'FARRELL Mr. O'FARRELL
 Mr. O'FARRELL: I am very sorry that I misinterpreted the Senator and, of course, I withdraw what I said. I took it that he said that very strong representations had been made in regard to the Bill. I now take it that it is only in regard to one particular section.
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: On certain points which will come out in Committee.
Mr. O'FARRELL Mr. O'FARRELL
Mr. O'FARRELL: Even although these points, I take it, were recommendations made by the Commission?
Mr. JAMESON Mr. JAMESON
Mr. JAMESON: Certainly. I need not go into that now, Senator.
Mr. O'FARRELL Mr. O'FARRELL
Mr. O'FARRELL: Then the banks have only repudiated their representatives in certain details, but not on the whole, Senator Jameson stressed the very serious defects and the risks in regard to the Bill. He pointed out the manner in which it might affect credit and create alarm, suspicion, and so forth. But all this arises, as far one can see, out of the division of the consolidated note issue among the various banks. If that is the position, I ask the Minister if it would not be possible to dispense with the consolidated note issue altogether and to have nothing but legal tender notes. What is the necessity for consolidated bank note issue? Is it only because there has been a bank note issue in the past, out of which the banks have made, admittedly, a very substantial profit, and through the desire of the Government not to rob them altogether of that profit? I am not sufficiently intimate with finance to know what is the necessity for it, but it seems to the average person that that is the only reason why this consolidated bank note issue is to be continued, with such disastrous results as Senator Jameson has indicated. If it is going to have these results, I think it would be better to take from the banks what they gain by having this note issue, because, according to the Senator, they lose more by the imposition of these regulations.
While condemning the Currency Commission generally, and, above all, because there will be on it nominees of the Government, and that thereby  it will be likely to have political influences permeating it, Senator Jameson, in his own recommendation, admitted a representative of the Government. Of course, the important fact is that the banks will always have a majority and will always have the Governor of the Bank of Ireland as a member. I do not know whether the trading public will think that their interests are safer with the representatives of the banks than if they were in the hands of representatives of the Government, which was elected by the people. The banks are undoubtedly the one strong, prosperous institution in the country at present. Nobody wants to take away from their prosperity or to imperil it in any way. But that prosperity, of course, is paid for by the general public. Senator Jameson pointed out—it was really only a detail, and hardly a point for a Second Reading debate—the extra expense that would be incurred by the Government having to do the printing of notes, bookkeeping, and so forth, and said that this is already done by the banks. That argument is against business experience. The new arrangement is that all this work will be concentrated in one place and done by the one staff. Senator Jameson thinks it would be cheaper to have it done by half a dozen different banks with half a dozen staffs. It was paid for previously. It is being paid for, and the public are paying for it, no matter where it is done. The public have paid for it in the past. They will pay for it in the future, and, in my opinion, they will pay less for it than they have been paying in the past.
The Senator expressed anxiety as to what might happen if this very good and trustworthy Government should pass away and another Government should come into power. This Bill is not going to decide the future as far as that is concerned, because any Government having a majority can at any time, if it wants to, raid the banks, which are bursting with money, as some have alleged. It can very easily pass an Act very much more drastic than this Bill that will enable it to raid the banks and to carry out any financial policy it wishes. Therefore the fears  he has expressed are, in the main, with regard to risks that now exist. These fears are, I think, not likely to materialise. It has been truly stated by Senator Dowdall that people make wild and reckless statements at times when they have no responsibility and when they are not likely to be able to give effect to these statements. The Minister for Finance has very probably, at some time, made as strong and as reckless statements as any of his opponents in the country at present, but to-day he commands the confidence, one might say the almost implicit and complete confidence of the banks, of traders, and of financiers all over the country. If that is the position of the present Minister, I think it will be the position of any Minister that may succeed him.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: Is it not clear from the trend of the debate that the Second Reading is going through, and that the really important points are Committee points? I therefore move that the question be now put.
Colonel MOORE Colonel MOORE
Colonel MOORE: I was about to ask if Senators would agree to come back another day to discuss this matter. It is an exceedingly difficult and technical business. I have no very great knowledge of this matter, like everybody else, except bankers and others who are intimately acquainted with the subject. All my political associates have been urging me to say this and that. I declined because I said I did not know enough about it, and I was not going to plunge into these difficult matters without knowledge. I confess that during this debate to-day I have learned a great deal from Senator Jameson and others who have spoken, and perhaps I know a little more than I did before. I think if Senators had a little time to consider this very difficult matter it would be an advantage. I think we should come back another day to discuss it. We have plenty of time before us.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: I move that the question be now put.
Mr. GUINNESS Mr. GUINNESS
Mr. GUINNESS: Is it not usual for the Minister to reply?
Mr. DOWDALL Mr. DOWDALL
 Mr. DOWDALL: Is it not clear that practically everything discussed has dealt with Committee points?
Colonel MOORE Colonel MOORE
Colonel MOORE: Certainly not.
Question—“That the question be now put”—put and declared carried.
Question—“That the Bill be read a second time”—put and declared carried.
CATHAOIRLEACH: It is suggested, I understand, by those who are specially interested in this Bill and also by the Government, that Wednesday would be a convenient day for the Committee Stage. I also wanted to mention in regard to the state of business that certain legislation which is contemplated may be out of the other House at a date that would enable us to have a meeting before the 1st August, and, as you all know, the Horse Show starts on the 2nd August. There will be a great many Senators, possibly, who intend to be there on public business, and others may be away.
Mr. DOWDALL Mr. DOWDALL
Mr. DOWDALL: In view of the fact that the Committee Stage is being fixed for Wednesday, I would ask that amendments be circulated as soon as they are handed in and that we should not wait to have them printed. If they are put on a duplicating machine, we will have them a day or two earlier, and we will have time to look into them.
CATHAOIRLEACH: I cannot give any undertaking as to when the amendments will be ready. I do not know what the number will be, or anything about them. I think Senator Jameson, who is mainly interested in the introduction of these amendments, might be able to let us know at what time they are to be handed in. Until we know what time they are to be received in the office, I cannot give any promise whatever as to when the Seanad will get them.
Mr. BROWN Mr. BROWN
Mr. BROWN: If Thursday would suit the Minister, it would give us an extra day.
Mr. BLYTHE Mr. BLYTHE
 Mr. BLYTHE: Thursday would suit me.
CATHAOIRLEACH: Very well. We will meet on Thursday and that will give Senators another day. I hope they will not utilise that day in drafting amendments and that we will get the amendments handed in in time for Senators to study them.
Seanad Éireann 9 PRIVATE BUSINESS. CURRENCY BILL, 1927—SECOND STAGE.