Hamilton to Merivale (Permanent Under-Secretary)

I am commanded to acquaint you for the information of
Secretary Sir E. Bulwer Lytton that the Lords Commissioners of
Her Majesty's Treasury have had under their consideration your
further communication on the subject of the Charter proposed to
be granted to the Bank of British Columbia dated the 14th inst.

I am directed to state with reference to the observations
which appear to call in question the accuracy of Their
Lordships assertion regarding the introduction of the clause
providing for the revocation of the Charter in the event of
breach of conditions in all recent Colonial Bank Charters,
that the impression of My Lords is that the Clause on one
of equivalent import, was first inserted in the Charter of
the Oriental Bank granted in 1850, and has been introduced
into all subsequent charters incorporating new Banking Companies
in London for carrying on the business of banking in the
Colonies. It is true that it was not introduced into Charters
granted previously to that date; neither was it introduced
into the supplemental charters granted to the Bank of
Australia in 1856, for the obvious reason that the original
Charter of that Coporation is still in force, and the
supplemental Charter for extending it's powers did not touch
the clauses relating to it's original Constitution. For the
same reason it is probable that if a supplemental Charter
had been granted to the Colonial Bank in 1855, as supposed by
Sir E. Bulwer Lytton, it would not have contained the clause
in question; but he will find on inquiry that he is mistaken
in referring to the case of that Bank, as no such charter passed
the Great Seal.

With respect to Sir E. Bulwer Lytton's observation that he
is not aware under what circumstances the clause in question
was first adopted, My Lords have only to state that the explanation
of the circumstances afforded in the Letter of this Board of the
13th Ultimo is correct; but if he desires any further information
on the point, they will endeavour to procure it, if he will be
so good as to inform them of the points in respect of which that
explanation is considered deficient.

My Lords feel it right to observe, with reference to the
allusion in your Letter to the responsibility of the Secretary
of State for the fitting exercise of the powers of the Crown in
Colonial Affairs, that powers are reserved in these Charters to
the Secretary of State, and that their operation in the Colonies
is subject to Local laws; but independently of the control which
devolves upon this Board generally in all Matters of a financial
character in the Colonies, it should be borne in mind that the
Charters in question are granted not to Colonial Bodies, but to
persons associated in London for the purpose of carrying on the
business of banking in the Colonies, and such Charters are not
confined to companies associated for Banking in the Colonies, as
similar ones have been granted to the Bank of Egypt and the
Ottoman Bank.

The regulations for the government of Banking Companies of
this class were originally framed, in concert, by this Board and
the Board of Trade, and the responsibility of enforcing the
principal requirements of the Charters devolves upon the Treasury
by express provisions contained in the Charters.

My Lords consider it right therefore that they should be
the organs for communicating to the Queen any breach of the
conditions of the Charters; and indeed whether the clause existed
or not, any proceedings for their revocation in the event of such
breach of conditions must necessarily emanate from this Board.

Their Lordships believe that the knowledge of the existence
of a summary power of revocation on legal proof of a violation of
the conditions of the Charters, has facilitated the exercise of
that control which is legally vested in this Board; and,
independently of all question regarding Departmental functions,
their Lordships think that that beneficial effect might be
weakened if, by the insertion of the coordinate authority of
the Secretary of State in the matter, the impression were allowed
to arise that it would be open to a delinquent body to appeal
from one Department to the other. Their Lordships are also of
opinion that the abandonment of a provision, to which no objection
has been raised by the bodies affected by it, would be detrimental,
and might fairly be objected to by Banking Corporations which
come under it's operation, when they found that rival institutions
were exempted from like penalties.

For these reasons My Lords consider that it would be highly
impolitic to omit the clause from future Charters; but if, on
further consideration Sir E. Lytton Bulwer maintains his
objections to it, they will be willing, in deference to him,
and on his responsibility, to strike it out of the Draft.

They cannot, however, consent to fetter it by the
introduction of the Novel proviso suggested by him, for which
as My Lords believe, there is no precedent in any Crown Charter
or Act of Parliament.

I am, at the same time, to state that My Lords have had under
their consideration the suggestion in your Letter of the 20th
December last, for the insertion of a provision, like that in the
Banking Companies Act, Cap 91 of last Session, "that the Bank
(query Shareholders) shall not be entitled to limited liability
in respect of Note issues" on this point I am to observe that
while the principle of unlimited liability was maintained by
Parliament in respect of Banking Companies in the United Kingdom,
the opposite principle was observed of limiting the liability of
Shareholders of Companies incorporated for Banking in the Colonies
to twice the account of their Shares. At the same time, precautions
were introduced, which are not required in the case of Joint Stock
Banking Companies in the United Kingdom, for restricting the amount
of liabilities to be incurred by Colonial Banks to three times
the amount of the Capital, and latterly the additional requirement
has been enforced of a maintenance of a reserve of Specie
equal to one third of the Notes in circulation. Parliament has
now permitted the adoption of the principle of limited
liability in the case of Joint Stock Banks, with an exception
regarding the Note issues, but without any provision regarding
the proportion of subscribed capital to debts, or other
safeguards, which are enforced in the case of Colonial Banks.

It does not appear to My Lords that the circumstance of
this relaxation of the principle hitherto observed in Imperial
legislation on the subject, affords of itself any ground for
altering the constitution of Colonial Banks; and as My Lords
are led to believe that the introduction of a new principle
regarding the liability of the Shareholders would impede the
development of a system, which has hitherto worked very
successfully, they are not disposed to recommend the adoption
of the provision suggested by Sir E. Bulwer Lytton.

At the same time, Their Lordships would observe that they
are generally favourable to provisions for ensuring the
convertibility of promissory Notes circulating as Money, but
they think that if the Royal Charters granted to Companies
fail to provide perfect security in this respect, it may be
obtained by local encactments, as in the case of Canada,
requiring the deposit of securities with a public functionary
for all Notes in circulation exceeding the amount of Specie
held by the Banks.