Security in United Kingdom
Security of note issue
No security was ever required to be given for the local issues in the United Kingdom. The provisions of the acts of 1844-1845 which compel the Irish and Scottish banks to hold specie against the notes issued beyond the legal limit, do not make the coin held a security for them. The legislation of 1879 which made the note issues a first charge, with unlimited liability, on the total assets of the joint-stock banks which accepted the principle of limited liability for the rest of their business, has been the only recognition by the state of the duty to the note-holders of rendering them secure. It has been a real disadvantage to England that this duty has never been sufficiently recognized, and that the provincial note issue, which is a very convenient power for a bank to possess, and incidentally a considerable advantage to its customers, has been swept away without any attempt being made to remedy its deficiencies. There may be objections raised to a note circulation secured by the bonds of the government, but the security of the note issues of the national banks of the United States made against such bonds, has scarcely ever been questioned.
A different policy was followed by Sir Robert Peel in Scotland and in Ireland from that which he established in England. By the acts of 1844-1845 the Scottish and Irish banks were allowed to exceed their authorized issues on holding specie to the amount of the excess, and no restrictions were placed on amalgamations among banks in these countries. In Scotland and in Ireland notes for less than £5 continued to be allowed. The result has been that the ten large banks in Scotland, and six of the nine banks in Ireland, possess the power of issuing notes. The large proportion of local branches in these countries has been greatly assisted by this power.
Originally, besides the Bank of England, nearly all the provincial banks in England and Wales possessed the privilege of issue. These banks continued their operations as previously during the time while the Bank Act was discussed in parliament. When the arrangements which that act created were made public, nine banks, of which eight were private and one was a joint-stock bank, ceased to issue their notes prior to the 12th of October 1844, when the act came into operation. Of these, the Western District Joint-Stock Banking Co. was dissolved, one of the private banks was closed, the remaining seven issued Bank of England notes and were allowed certain privileges for doing this. By the act of 1844 the maximum circulation of the English issuing banks was fixed at the average circulation of the twelve weeks before the 27th of April 1844.
Source: Encyclopedia Britannica (1911)
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