REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 919 
by diminishing the reserve of notes usually held in the banking department. This 
was done till the funds of the banking department were wellnigh exhausted, and the 
Bank was in the ludicrous condition of being on the verge of stopping payment with 
nearly seven millions of pounds sterling in specie in its vaults, which the law forbade 
it to touch. The ministry then stepped forward, and authorized the Bank Directors to 
break the law, by issuing more notes without giving security by imprisoning more 
specie; promising that a bill of indemnity for this irregular proceeding should be 
passed at the next session of Parliament. This was done, confidence was immediately 
restored, and the pressure ceased, even before the Bank had had time to exercise its ex- 
traordinary powers. ‘Ten years afterwards, during the crisis of 1857, the same cycle of 
events was repeated. Again the Bank was on the point of bankruptcy, though it had 
six or seven millions of pounds in specie, which it was forbidden to use; again the 
. ministry interfered with a letter of license authorizing a breach of the law, more notes 
were issued without any augmentation of the specie, and the panic then quickly 
subsided. The law still remains upon the statute-book, but it can hardly be said to 
continue in force, as it is always broken whenever an occasion for its exercise arises. 
Our law here in Massachusetts is not so suicidal in its operation as the English 
law; and yet it is worse than useless. For in ordinary times, when the money-market 
is said to be easy, the law is practically inoperative, as it only enjoins upon the banks 
to do that which their own convenience and a due regard to their own credit would 
inevitably lead them to do, even if the law did not exist. On the other hand, in a time 
of pressure and distress, when the banks ought to be able to use every dollar of their 
resources in order to avert impending bankruptcy, the law steps in and locks up fifteen 
per cent of their immediately available funds, saying that no portion of this reserve, 
usually amounting in Boston alone to about four millions, shall be used except under 
the penalty of ceasing to make any discounts, — a penalty which might, and probably 
would, withdraw ten or twelve millions from the circulation, thereby intensely aggra- 
vating the pressure at the most critical moment, before the four millions of specie would 
be exhausted. The English law makes the specie reserve available only for the redemp- 
tion of the circulation, leaving the deposits wholly unprovided for, and thereby subject- 
ing the bank to bankruptcy through a comparatively moderate reduction of the deposits. 
The Massachusetts law makes the reserve equally available for redeeming the circulation 
and. deposits, and is so far wiser than the English enactment; but when the reserve has 
fallen to less than fifteen per cent of this joint liability, the prohibition of discounts, if 
enforced, would make an immediate suspension of specie payments, or of any payments, 
inevitable. During the severe pressure which occurred in the autumn of 1860, the 
