This Bill is entitled an Act to limit the liability of the stockholders of the Bank of Ireland. There is a motion on the Order Paper in my name: "That the Bill be now read a Second Time," and I ask some Senator to move it for me.
Private Business. - Bank of Ireland Bill, 1935—Second Stage.
Leas-Chathaoirleach
I move.
I second.
Leas-Chathaoirleach
In reference to the amendment on the Order Paper in the name of Senator Johnson, I have to rule it out of order under Standing Order 77, because the amendment does not substitute words which state some reason against the Bill being read a Second Times, nor has it the effect of postponing the Bill to some certain date. Standing Order 77 is as follows:
The following amendment only may be proposed to the question:—
(i) To delete the word "now" and to add at the end of the question the words " this day three months" or some other date.
That is, a certain date. The amendment under discussion is in these words:—
To delete the word "now" and to add at the end of the motion the words " on a day not earlier than four weeks after the report of the Banking Commission has been presented to the Oireachtas."
Now, I rule that that amendment is out of order because it does not comply with Standing Order 77.
I, of course, accept your ruling, but I want to point out that there was no motion on the Order Paper up to the time that I sent in the amendment: that is to say, the motion was merely to take the Second Stage. That is a small point. Might I ask whether it would be in order for me to substitute the words "that the Bill be read this day six months"?
Leas-Chathaoirleach
I think that a strict compliance with the Standing Order is necessary in a case of this kind. Seeing that Senator Johnson is conversant with these Standing Orders and is one of the most experienced Senators in this House, I do not think that at this stage I would be inclined to accept an amended amendment of that kind, but it is perfectly open to the Senator to discuss the motion.
The reason why I wanted a specific proposition and not merely a negative was that I desired to emphasise the importance of deferring the consideration of this Bill while the Banking Commission is sitting. It seems to me to be unfortunate that a Bill dealing with the Bank of Ireland should be introduced into the Oireachtas at a time when a Banking Commission is discussing and examining and will some day report upon the future of banking and of banking organisations in this country. Now it is quite possible—I have not examined the dates—that, in accord with the Standing Orders relating to private Bills, notice of this Bill was given before the Banking Commission was set up. If that were so, it is a satisfactory excuse, but the Banking Commission having been set up it seems to me to be quite reasonable and proper that any change of the law relating to banks in this country or to a bank in this country should await the report of that Commission.
Now, most of the members of the Seanad will be aware that it is only five years since the Bank of Ireland Act was passed, an Act promoted by the Bank of Ireland to considerably enlarge its powers and to remedy certain defects which it believed at that time impeded its activities. During the evidence given before the Joint Committee that considered that private Bill, Senator O'Hanlon gave expression to the view that it would, as a matter of course, be many years before the Bank of Ireland would come to the Oireachtas again with a Bill, and the promoters of the Bill did not dissent from that view. But now we have in 1935 another Bill dealing with the Bank of Ireland, and with provisions governing the Bank of Ireland that might well have been inserted in the 1929 Act, because the matter was referred to by the promoters of the Bill before that Joint Committee, and notwithstanding the fact that they were quite well aware the grievances they now protest to be suffering from existed at the time that the old Bill was being promoted.
This Bill has one definite object. It is to limit the liability of the stockholders of the Bank to the amount of their stockholding. This is found in Section 2 of the Bill, which provides:
No past or present member of the Bank shall, in the event of a winding up, be liable to contribute towards the debts or liabilities of the Bank to an amount exceeding the amount, if any, unpaid on the stock of the Bank held by him at the date of the commencement of the winding up or within the period of twelve months prior to that date subject as in the next following section.
Then it goes on to point out that bank notes are, of course, exempt and that the liabilities referred to are debts due by the Bank and the deposits of depositors. I should say that one of the objects of the 1929 Bill was to increase the capital stock by resolution: that is to say, that it would not be necessary to come to Parliament. That Act also removed certain restrictions upon borrowing. The arguments of the promoters of the old Bill in that respect, as stated by Mr. Dickie, K.C., were as follows:—
"Every stockholder in the Bank of Ireland is liable for the last farthing he has if the Bank goes smash—for every single debt due by the Bank.
The position with regard to the Bank of Ireland is this: that if I hold £1,000 of the Stock and you hold £12,000 of the Stock you would bear 12 times as much of the loss as I would. So that the man who has most money in the Stock would have to bear his proportion of the loss in proportion to the amount of the Stock he had. Consequently the Governors who are managing this business are concerned to see that the business will be done properly because they themselves are more liable than anyone else. I would not call these things privileges of the Bank but they are matters that arise with regard to it and would be very useful, of course, for the creditors if the Bank were not able to pay."
Then we come to the important point:
"The new stock that will be issued after this Bill is passed will be under exactly the same liability in every respect as the old stock. No difference will be made in regard to it. That is the way the matter stands with regard to the stock."
In arguing for the Bill of 1929, the promoters laid stress on the fact that the liability of stockholders was unlimited and that, therefore, the depositors and creditors were specially insured against the possibility of loss. The argument that was held to be valid in 1929 and that was eloquently advanced in favour of the Bill then is thrown aside in 1935. The argument as to the importance of having, as governors and directors, stockholders who would manage the Bank efficiently and carefully because of their unlimited liability will, if this Bill is passed, go to the wall. It will be no longer necessary to have careful management for that reason, as the liability of the directors will, under this Bill, be limited. If there was any validity in that argument in 1929, it is a very strong argument against the present Bill.
The general purport of the former Bill was, and of this Bill is, to bring the Bank of Ireland into equality regarding privileges and obligations with joint-stock limited liability companies carrying on banking business. That is more or less implied in an argument which has never yet been stated and which I had hoped to have heard in favour of this Bill. There was nothing, so far as I can find out, to prevent the Bank of Ireland, at any time since the Companies Acts were passed, accepting the obligations that the other banks with limited liability undertook. Certain privileges appertained to the Bank of Ireland. I suggest that these privileges resided in the Bank because of the ultimate security every creditor had in the fact that the people who were the owners of the stock were liable to the last farthing of their own property if the Bank went wrong. Because of the strength of that position, the Bank has retained, to some extent, those privileges up to date, though it does not enjoy them to the same extent as it formerly did. On the ground that there is a Banking Commission sitting, there is good reason for postponing consideration of this Bill. If the arguments in favour of the 1929 Bill were valid, they would lose their validity if this Bill were passed.
Two other points are of importance, inasmuch as there is no provision in the Bill to cover them. We are on the point of passing a Bill dealing with nationality and citizenship. It seems to me inevitable that the laws governing the Bank of Ireland will, at some near date, require to be amended in consequence of the passing of that Bill, as other enactments will have to be amended to bring them into conformity with that measure. At present, the Charter governing the Bank of Ireland provides:
"We"—that is, the King giving the charter in 1783—"do ordain and appoint that no person shall at any time be capable of being chosen a governor of the said corporation unless he shall at the time of such election be our natural born subject or naturalised."
It is obvious that, with the passing of the Bill dealing with nationality, that provision would have to be modified. That is a further argument in favour of the postponement of this Bill.
Again, there is the question of the declaration of allegiance which, I think, still holds good. Every governor and every director of the Bank of Ireland must, on election, make three declarations, one of which is—it was at one time an oath but it has been modified —a declaration of allegiance to the Crown. In view of our recent history, that ought not to be a condition in the case of any person who is a citizen and is otherwise qualified to become a governor or director of this Bank. That is a point which will have to be dealt with in any legislation affecting the Bank of Ireland.
In view of these circumstances, it seems to me reasonable and proper that the discussion of this Bill should be postponed. Let it be brought up again when the Banking Commission shall have reported and when we know what the intentions of the Government are regarding the future of banking in this country. The consequences of the Bill dealing with nationality will then have been made clear and this measure, as well as other statutes, can be amended in accordance with the requirements of the nationality legislation. I oppose the Second Reading of this Bill with a view to its re-introduction in another form, if necessary, when any argument in favour of the removal of the unlimited liability of stockholders can be adduced.
Leas-Chathaoirleach
I take it that the Senator's speech is a speech on the motion before the House and is not merely an argument for a postponement of this stage of the Bill. The Senator's speech is a speech against the Bill?
Yes.
I had no intention of speaking on this stage of the Bill. I understood that the arguments in favour of the Bill were to be put forward by somebody else. Since Senator Johnson has made a strong speech against the Bill, it is well that somebody who knows the reasons for the Bill should state these reasons and the object of the Bill to the House. Things have occurred since 1929 which the Senator did not mention. In the year 1929 the Bank of Ireland was an unlimited liability company and was not subject to corporation profits tax. The Government has recently passed an Act which has done away with that exemption. So long as we were an unlimited liability company we were not subject, under the law, to corporation profits tax. The Government have, however, caused a measure to be enacted which makes us liable for corporation profits tax, though we have unlimited liability. Not only did we suffer the penalties of that Act but we were given an extra year of it, and the corporation profits tax, instead of being 5 per cent., was increased, so far as we were concerned, by 50 per cent. to 7½ per cent. That tax was extremely heavy on the Bank of Ireland and the situation as regards unlimited liability was entirely altered.
The question of limited liability, so far as an institution like the Bank of Ireland is concerned, is really not of great importance. If the Bank were an institution that, in the opinion of the country, was in the least likely to be wound up at any time and the stockholders called upon to pay, it could not exist as it is at present. The whole country knows that the management of the Bank of Ireland keeps its funds in such a condition— while revealing particulars of where its funds are placed—that stockholders of the Bank will never be called upon for such a contribution. Everybody who knows how the Bank of Ireland is managed, the publicity that attaches to the placing of its funds and to the auditors' comments, knows that this question of limited liability is a theoretical one. When we compare the position of stockholders of the Bank of Ireland with that of shareholders in the joint-stock banks, we find that the stockholders have paid up the entire amount of their holding. There can be no further calls in respect of their stock. Therefore, only in respect of deposits and notes can they be subject to any further liability in the event of winding up. The other joint-stock banks have a still existing liability in respect of their shares. If the other joint-stock banks were to be placed in the same position as the Bank of Ireland in respect of their shares, it would mean a very heavy demand upon their shareholders. Therefore, it seems to be reasonable for the Bank of Ireland stockholders to say that they should be placed in the same position as regards limited liability as the shareholders of the other banks. Why the Bank of Ireland brings forward a proposal which Senator Johnson says it did not put forward in 1929 is that the reasons for remaining in the position of an unlimited liability company have been removed. Heavy taxation has been placed upon the Bank and it is right that the stockholders should get the benefits of the situation as well as its disadvantages.
Another reason is that the stock of the Bank of Ireland is a trustee security. We have not many securities of that class in the Free State. It is extremely difficult for trustees in the Free State to get trustee securities and yet there is no question whatever that it is a handicap on the stock of the Bank of Ireland when a trustee looks at it and sees the name "Unlimited Liability Company." Therefore, it is advisable, both in the interests of the State and of everybody else that stock like the Bank of Ireland stock should be made available for all trustees. There are very large amounts of the Bank of Ireland stock at the present moment that will undoubtedly benefit and if the Oireachtas passes this Bill it will make it a stock which will be much freer and easier to deal in. These are some of the arguments in favour of this Bill.
The Bill, I believe, has been carefully examined—and there are those in this House who can say whether it is not so—by the legal advisers of the Government, and they are advised that there is no hidden motive in this Bill, that it is exactly what you see on the paper, and that there is nothing else in it. I dare say that we will hear from somebody connected with the Government whether or not they see any reason why this Bill should not be passed. Now, with regard to the question of the liability of the Bank as regards notes and deposits, all banks, of course—the Bank of Ireland and other joint-stock banks—have an absolutely unlimited liability on their stockholders to pay up for all the notes. There is no question whatever about that. An alteration in the wording of the Bill itself has been suggested by the Government in order to make that absolutely clear, and of course the motive behind the Bill is to make it clear. I may say, however, that the wording which was in the Bill, in which the Government suggests a slight alteration, was taken word for word from the Act of 1908, which was the Act that imposed on the joint-stock banks the liability for their notes. Therefore, as the Bank believed that the same liability was being kept on the stockholders of the Bank of Ireland as on the other, the same words were adopted. Personally, however, I am inclined to think that the amendment suggested here would be better. Perhaps I might be in order if I read it. If Senators will look at Section 3 they will see that the wording in the Bill is as follows:—
"In the event of the Bank being wound up every present and past member shall, subject to the provisions of this section, be liable to contribute towards payment of the bank notes."
The amendment proposed is to insert, in page 3, line 1, after the word "contribute," the words:
"without limit rateably in proportion to their respective interests in the stock of the Bank."
As a layman, I say that those words are better. They make it clearer than the words in the Act of 1908, and I think the House would be very wise in adopting that suggested amendment.
As regards the Bank of Ireland, compared with the other joint-stock banks, when this Bill becomes law the Bank of Ireland will be practically in the same position as the other banks. There will be three respects in which they will differ. It will not be regulated under the Companies Act, its stock will continue to be a trustee security, and it will have no new liabilities on its capital. I notice that Senator Johnson said that under the present constitution of the banks, laid down by the Oireachtas, any new shares that may be issued by the bank will be issued free of all liability in exactly the same way that our present stock stands. I do not know where Senator Johnson got his information.
I simply read from Mr. Dickie's statement before the last Committee.
I imagine that the situation is that the Bank of Ireland got leave to issue fresh stock. I do not think anything was said as to the conditions to be applied to that stock. If the Bank of Ireland create fresh stock they will offer it on the conditions to be prescribed when the stock is created. There is nothing binding on them to say they can issue stock with no liability whatever. They will be able to issue stock and put on any conditions they like—say, £5 stock with £1 paid up, or anything they choose.
I quoted from Mr. Dickie's assurances to the Oireachtas Committee in 1929. He was speaking for the Bank and its Directors.
I understood Senator Johnson to say that the conditions of any new stock which would be issued by the Bank of Ireland would be the same as the conditions of the present issued stock.
I quoted Mr. Dickie in these words: "The new stock that will be issued if this Bill is passed will be under exactly the same liability in every respect as the old stock. No difference will be made in regard to it." That is what I said in quoting Mr. Dickie.
The Senator was quoting somebody's speech.
I was quoting his argument.
An argument, but not an Act or a law.
I was quoting Mr. Dickie's plea, and the old Bill was passed upon such statements as that. He was explaining the case of the Bank to the Committee of the Oireachtas, and those were his words.
Does the Senator deny that the Bank of Ireland can issue stock with any conditions it likes?
I do not deny anything.
Well, then, perhaps I may go on. The Senator's argument was that the Bank of Ireland could not issue a stock which would have any liability on it and that all the stock they would issue in the future, if we pass this Bill, would be a limited stock. That is what I take the gist of the Senator's argument to be.
Perhaps I may be permitted to intervene again. My argument is that whatever was stated by Mr. Dickie was stated for the purpose of persuading the Committee of the Oireachtas to pass the 1929 Act. If these statements were not correct, then the Act was passed without full frankness. If Senator Jameson, with his knowledge, is saying that Mr. Dickie was wrong, well, then, the Committee of the 1929 Oireachtas was misdirected.
That is a piece of special pleading that I do not propose to deal with further. I have definitely asked the question whether or not the Senator believes that the Bank of Ireland, under this present Bill, cannot issue stock with liability on it. I understood that the weight of the Senator's argument was that, because of something said there, the Bank of Ireland could not issue stock that was different in any way from the present stock.
I said nothing on my own authority at all. I only quoted from Mr. Dickie.
But that is the argument the Senator drew from it.
Leas-Chathaoirleach
I should like to say that Senator Johnson has already spoken once, and I would call his attention to the fact that the law does not depend upon what Mr. Dickie said but upon the Act of Parliament, which is open to inspection. Senator Jameson will proceed.
I thought, Sir, that I ought to deal at length with that point, because it is of importance to know that one of the powers the Bank got in recent legislation was the issuing of stock, and I did not want the impression to go out that the Bank of Ireland could not issue stock which was similar to the stock issued by the other joint-stock banks. As regards the Bank complying with the Companies Acts in all matters necessary to safeguard the interests of its shareholders and creditors, the only difference that will continue to exist is that the Bank is not required to add the word "limited" to its title. I believe that that is so. I do not think that the Bank of England adds the word "limited" to its title, and I believe that that is the only difference that there will be in regard to that part of the matter. As regards the differences in the safeguarding of the interests of the shareholders and the creditors, I do not think Senator Johnson seems to value very much the interests of the shareholders of the Bank. Their liabilities are what he is mainly concerned with. There are several things that the Bank Board have to consider. I admit that in this instance, because of penalties which have been put upon their shareholders, they are trying to get their shareholders into a better position and into a position which will in no way influence or damage in any way the rights and prospects of the depositors and trustees. They are interested in their shareholders, as very heavy penalties have been put upon the shareholders by the Government, and they believe that the passing of this Act will make the shares more negotiable amongst the trustees. That is, practically, the gist of the whole matter.
I cannot follow Senator Johnson into Aliens Acts, and into whether or not the statements which we make when we take office annually, that we are going to be loyal to each other, and all the rest of it, mean that we should hold up the Bill until all these things are considered. I would ask the Seanad to consider that if it is found necessary, when we come to deal with aliens and the holdings of different people, we can modify the Bank regulations just to suit any new Acts that come up. I have already referred to the benefit to the Bank—and I shall not refer to it again—of having the word "limited" applied to them as it is to all the other joint-stock banks. It is a queer thing but we know that, notwithstanding the fact that we often think that Irish banks and Irish securities are depreciated, it is a very strange thing and shows the confidence of the people in this old Bank that it is the only bank in the whole list of trustee securities which had unlimited liability on its shareholders and yet it has been left all this time on the trustee list. It would be a very serious disaster, however, if for any reason like that someone should get up and say that it should be taken off the trustee list. It has been a great proof of the trust of everybody in the Bank that in spite of that we have always been left on the trustee list. What we are now asking the Seanad to do is to remove the anomaly and let the Bank of Ireland stock in future be of the same nature and class as every other trustee stock on the list.
I think it would be interesting for the Seanad to note our position as compared with the other joint-stock banks. Anyone connected with banking work in regard to deposits, payments, etc., will know that the bank works on averages—that is to say, that you work on the average liabilities that you have to meet at any one time. All banks keep a certain average and must keep a certain average—an average of their ready resources to meet any such demands. If you take the paid-up capital of the Bank of Ireland, it represents 7 per cent. of its deposit liabilities while the paid-up capital of all the other banks is 3¾ per cent. Senators will have to turn their minds to the manner in which the banks are worked. They are worked with the object of always keeping available sufficient money to meet any possible demands and that is one of the objects we have to keep in mind. Our paid-up capital is all invested in a security of the Bank of England, and we have to keep in the Bank of Ireland, like our Currency Commission, an enormous amount of money to meet immediate demands. Therefore, our bank money is invested in such a way that it is always available and can always be got at.
Looking through the old Acts, I found a strange thing, namely, that as long as our money is left there, all our creditors have a right of action against the British Treasury to recover the money we have in the British Treasury. It is a very queer old Act, but it exists at present. The creditors of the Bank of Ireland, if we do not pay them, can go to the British Treasury at the present moment and get their claims paid by the British Treasury. That is an ancient Act, which I think even Senator Johnson does not know of, but it is there. On the whole, I do not know that I can say much more about the Bill than is contained in the Bill itself. You know the wording of it. Section 2 is the one which limits the liability and puts us in exactly the same position as the shareholders of other joint-stock banks. Section 3 is merely a section which maintains the full liability of the shareholders to pay on the notes.
Since the Currency Commission was set up there have been a good many changes. One of these changes is that all the consolidated bank notes which we get from the Currency Commission at present are covered by liquid securities in the hands of the Currency Commission. Therefore, our liability, as regards all our consolidated bank notes, is practically nil. For the legal tender notes which we get we have to supply pound for pound British legal tender, so that every note we have got at the present moment is covered completely without any liability whatever on the shareholders of the Bank. I have told you how, in the drawing of the Bill, words were taken out of the Act of 1908 which created the conditions of the present limited joint-stock banks and with a slight alteration, which is suggested by the law officer, the conditions will be just the same as they were. I cannot think of anything more which the Seanad might wish to know about the Bill. It affords, I might say, some slight recompense to our shareholders for the amount of money which it seemed good to the Government we should pay under the corporation profits tax. I have tried briefly to explain to the Seanad what the Bill is about and I hope that Second Reading will be agreed to.
I do not want to say very much on this Bill but I think it is due to the House that I should explain that the Government are not objecting in any way to this Bill going forward to Committee. Senator Jameson has explained practically every point that I could put forward. I can understand Senator Johnson's anxiety in many ways about a measure of this kind and I think it is reasonable that all such views should be aired and explained. I would, however, point out that the Bill will go to a Committee of the House—I take it that will be the procedure—and that any points that arise will be dealt with there. There are very definite reasons why we might consider it wise not to object to this Bill. Senator Jameson has already pointed these out. The first is that the Bank of Ireland position has very considerably changed owing to the withdrawal of certain privileges— I refer to put it that way rather than to say that penalties have been imposed on the Bank. I do not consider these were penalties, because what happened was that there was a withdrawal of special privileges which the Bank enjoyed in contrast to other banks in the country. I think that any officer or director of the Bank of Ireland will agree that that is so. There was a withdrawal of the privilege of exemption from the corporation profits tax which the Bank had enjoyed previously and that meant a considerable amount to the Bank.
Then there was the question of the position which they occupied under the consolidated note issue. I have a few particulars here with regard to that. The withdrawal of exemption from corporation profits tax has resulted in an increase of about £60,000 per annum in the Bank's tax assessment from 1931 onwards. The Bank of Ireland has suffered other disabilities since the establishment of the Free State, the most important of which was that arising from the operation of the Currency Act of 1927. Prior to that Act, the Bank had an unsecured note issue amounting to an all-Ireland figure of £3,738,000, on which duty was paid at the rate of 7/- per cent. per annum. Following the passage of that Act, the Bank's share of the secured consolidated note issue was £1,760,000, on which duty was payable at the rate of 30/- per cent. per annum, increased in 1932 to 60/- per cent. per annum. The duty on its share of the consolidated note issue now amounts to £52,800 per annum compared with £6,160 on an issue of similar amount prior to the passage of the Currency Act. In many respects the Bank of Ireland has been put on a more equitable basis as compared with the other banks than formerly existed. That is the main consideration we have in mind when we are raising no objection, on this or any other stage, to their getting this limitation of their liability.
The question of the trustee stock is also an important one from the State point of view, but I would suggest that these matters can be dealt with in Committee and that Senator Johnson should withdraw his objection to the Bill and let it go to Committee, where these matters, which are, after all, Committee matters, can be threshed out. The other points which he raises will, no doubt, have to be dealt with legislatively either by a Private Bill of the Bank of Ireland or by a Government measure. I presume it will be by a Private Bill. That is the question of the oath of allegiance or the other implications in the original Charter of the Bank, and also the question of control. The Citizenship Bill and the Aliens Bill may have certain reactions with regard to the Bank's position. These are matters that can be dealt with legislatively either by a Private Bill of the Bank or otherwise. I quite sympathise with Senator Johnson's anxiety, and naturally, when there is a Banking Commission sitting, one would say that this is a matter that might well have been deferred until the Banking Commission had reported. However, the attitude of the Government to this measure is as I have stated, and I hope Senator Johnson will allow the Bill to go to Committee.
I hope the Seanad will not follow the lead set up by Senator Jameson and Senator Johnson and go in detail into the merits or otherwise of the Bill at this stage. The practice in this House has been to welcome rather than to discourage the introduction of Bills of a private character, and I do submit that that is a practice which might usefully be followed on the present occasion. If there was any added reason why the matter should be referred to a Joint Committee without further discussion, the very matters raised by the Senators themselves should supply that added reason. They were matters which might be usefully investigated by a Joint Committee. I accordingly submit that the House would not be justified, without very ample reasons indeed, in withholding a second reading from this Bill, and that reading, I hope, will be given without further discussion.
Question put and declared carried.
I move:—
That it is expedient that a Joint Committee of both Houses be appointed to consider the Bank of Ireland Bill, 1935, being a Bill entitled an Act to limit the liability of the stockholders of the Bank of Ireland.
I second.
Question put and agreed to.
Ordered: That a Message be sent to the Dáil desiring their concurrence.