THE FUTURE OF NATIONAL BANKING. 493 



merit are separately managed, and of the latter the directors have no 

 control. Professor Price says that it is not a department of the hank 

 in any sense ; that " it is a self-acting institution of the state, work- 

 ing on the bank's premises, by rules laid down by the state, and abso- 

 lutely beyond the control of the directors." 



If the terms of Peel's act were at all times rigidly adhered to, this 

 description of the operation of the issue department would be correct. 

 As a matter of fact, however, they are not adhered to, but are sus- 

 pended in times of financial stress, and the directors assume control of 

 the issue department for the relief of the strain upon the banking de- 

 partment and the business community. Three times since the adop- 

 tion of the act has its operation been suspended. The supposition that 

 a " suspension of the act " involves a suspension of specie payments is, 

 perhaps, still common enough to warrant an explanation of its true 

 nature. 



The Bank of England is the custodian of the principal portion of 

 the reserve of all the banks and bankers of England, and to it the 

 latter must look for money to meet the excessive and unusual demands 

 that are made upon them in time of panic. At such times, therefore, 

 a rapid inroad is made upon the bank's supply of gold, and, if the act 

 of 1844 continues in force, a point is soon reached where the directors 

 are compelled, for self-protection, to cease discounting even upon the 

 best securities. Whenever the strain becomes unendurable, an appeal 

 is made to the Government, through the Chancellor of the Exchequer, 

 to suspend the act. If granted, the legal restrictions upon the bank's 

 note-issues are removed, and the directors are authorized largely to 

 increase their issue without reference to the amount of bullion in their 

 vaults ; the effect of which is that for the time both departments of the 

 bank are under the management and control of the directors. They 

 are not likely to use this privilege recklessly, for the obligation to 

 redeem their notes in gold on demand remains in full effect. More- 

 over, for some reason not wholly apparent, it has become a custom so 

 far as three instances can make a custom for the Government to stipu- 

 late that the bank shall charge a very high rate of interest, say ten or 

 twelve per cent, upon the extra note-issues, the profit thereon to go to 

 the state. The result of this is* that prudence and self-interest com- 

 bine to make the directors use the powers conferred upon them most 

 sparingly, and they do so. In but one instance has there been an over- 

 issue. This was in 1857, and to the extent of eight hundred thousand 

 pounds. In 1847 and in I860 the fact of suspension proved sufficient 

 to allay the panic and to avert, at least, its worst consequences. 



A recent writer recommends the mechanical and local separation 

 of the issue department from the Bank of England to a Government 

 office, as tending to the propagation of clearer ideas on the subject of 

 note currency. No suggestion is offered as to the way in which relief 

 could be afforded in emergencies similar to those which have hereto- 



