811 



BANK ; BANKER ; BANKING. 



BANK; BANKER; BANKING. 



842 



unfavourable to this country ; and the Bank has been enabled, it is 

 alleged, under the operation of the Act, to give much greater accommo- 

 dation to the mercantile community, and also to various banks, by 

 means of discounts and advances upon securities, in seasons of monetary 

 crisis, than it could have done if it had been left without the support 

 of the Act, in which case it must have regarded solely the security of 

 its position as a mere banking establishment. The convertibility of 

 the note is put beyond question, it will be observed ; because it is 

 hardly possible to conceive a drain upon the treasure in the Bank to be 

 carried so far as to reduce the outstanding notes below 14,000,000?. 



It may be well to mention here, that when the bullion in the 

 Bank of England is spoken of, the bullion in the issue department 

 is intended. When persons speak of the reserve of the Bank of 

 England, the aggregate amount of the notes and coin in the banking 

 department is intended. In ordinary times, the Bank thinks the right 

 course is to keep a reserve to the amount of one-fourth of the deposits 



C:ed by bankers, merchants, traders, and private customers in their 

 da. It is the practice for the London banks, instead of keeping 

 in then- own tills the whole of the sums which they regard it to be 

 right to have constantly under their control in order to meet the 

 demands of their customers from day to day, to keep a portion of those 

 sums in the Bank of England. The Bank also opens drawing accounts 

 with merchants, traders, and others, upon which they draw cheques, 

 and pay in such cheques as come into their hands, in the same way as 

 in the case of an ordinary bank ; and for persons keeping such drawing 

 accounts the Bank discounts bills of exchange, provided they have on 

 them the name of two or three persons of approved credit, and pro- 

 vided that in case any one of the persons whose names are on the bill 

 fail before the bill has arrived at maturity, the Bank shall be entitled 

 to demand and receive the amount of the bill from the person for 

 whom it was discounted : this the Bank has no legal right to enforce, 

 but in case compliance is refused, it closes that person's discount 

 account, and declines to discount for him in future. 



The deposits in the Bank consist of the government balances, which 

 rise from small amounts at one period of the quarter, up to five or six 

 millions higher at another period of the quarter, and then again sub- 

 aide to a low condition. The private deposits consist in a great degree 

 of the reserves of the London banks, being the amounts which those 

 banks require to have always at hand to work their own business. 

 The rest consist of the deposits of merchants, traders, and others who 

 have drawing accounts with the Bank. Of late, many old forms which 

 stood in the way of persons desirous to open such accounts have been 

 abolished ; cheques are no longer limited to a minimum of 10?., but 

 may be drawn of any amount ; and every class of banking business is 

 conducted for the private customer with ease and despatch, the Bank 

 taking charge of Exchequer Bills and bills of exchange, of the collection 

 of bills of exchange, receipt of dividends, &c. 



Plate, title-deeds, &c., may be deposited by customers for safe cus- 

 tody. The Bank allows no interest on deposits of money, but, on the 

 other hand, looks to the average balance of the customer's account as 

 the source of repayment for the trouble and risk of keeping it, &c. ; 

 and in this respect is not more exacting than ordinary bankers, as no 

 particular sum is required to be lodged on opening an account : the 

 party must be known to be respectable, and in a position to require a 

 banking account. The Bank has a printed code of regulations, under 

 which drawing accounts are managed. No one is allowed to have a 

 discount account who has not a drawing account. 



Having premised these explanations, what we have to say respecting 

 the two occasions of monetary crisis which have occurred since the 

 Act of 1844 came into operation will be rendered somewhat more 

 readily intelligible. It is the more important to the reader to be made 

 acquainted with some of the leading particulars of these panics (as they 

 are called), because each of them has occurred during the present law ; 

 each of them was met by the singular expedient of a government 

 authorisation to the Bank to violate that law ; and because it is not 

 easy to meet with accounts of either of them, especially that of 1847 ; 

 and, in fine, they are most advantageously studied when taken in con- 

 nection, and the course which events took on each occasion brought 

 closely into comparison and contrast. 



All panics in this country have been preceded by the symptom of a 

 gradually increasing withdrawal of bullion from the Bank. In the 

 summer of 1846 a drain of this kind began to be perceivable ; partly 

 owing to the vast amounts required for the payment for the impor- 

 tations of com and flour from abroad, and partly due to the construc- 

 tion of numerous railways then going on. Then the harvest of that 

 year failed, and the potato crop failed, and the cotton crop failed 

 therefore it became necessary again to import com largely : there was 

 besides, a still continuing demand for capital for railways, accom- 

 panied by a decline in the exports of manufactured goods. A heavy 

 drain of gold therefore set in, and went on increasing up to January 

 1847, the bullion in the Bank having, until that time, sufficed to meet 

 tile demands on it, without ever having been reduced so far as t< 

 create alarm. But hi that month the drain steadily increased; the 

 rate of interest in the general market was rising ; the Bank raised iti 

 rate, which had been 3 per cent, since the middle of 1846, to 3J, ant 

 then to 4 per cent. ; it was not until April that they raised it to 5 per 

 cent. The dividends were paid in July, and on July 30th the notes ou 

 with the public read 18,900.000?, On August 5th the Bank raised th 



ate of discount to 5J per cent., as their minimum rate for short bills; 

 nd then began failures of various great commercial houses, at first of 

 hose chiefly who were engaged in the corn trade, the price of corn, 

 laving fallen 50 per cent, between May and September in that year. 

 Several of the fallen houses, however, were stated to have been for 

 ome time in an unsound state. In September the pressure on the 

 5ank for advances went on increasing, and early in that month the 

 Sank had declared its readiness to make loans at 5 per cent., until the 

 4th of October, on the security of government stock. On that day 

 he dividends are payable. On the last two days of September the 

 advances were 149,000?. and 362,000?. respectively; but on the 2nd of 

 )ctober it was found necessary to declare that it was impossible to 

 ncrease the amount of advances, and that the advances already made 

 must be repaid before the day for the next payment of dividends. The 

 vhole commercial world was seized with alarm ; confidence began to 

 "ail ; and, as has been observed, " the consequences of sudden alarm 

 3annot be measured ; they baffle all ordinary calculation. Cash is then 

 withdrawn, not because the circulation is excessive, but by the country 

 .tanks and the town bankers, for the purpose of meeting possible 

 demands upon them, and by the community at large, either directly 

 rom the Bank of England, or indirectly through the former channels, 

 '.or the purpose of hoarding, from the dread of some imaginary or con- 

 tingent danger. In such a crisis, every reduction in the amount of 

 bank paper is so far from checking the drain that it aggravates the 

 ;eneral distress." (Lord Overstone's Pamphlet, 1844.) It was stated to 

 je quite impossible to repay the advances as required (they were, how- 

 ever, so repaid) ; there was, in fact, a general inability to meet com- 

 mercial engagements, as it seemed ; yet the Bank had gone farther 

 in granting accommodation than they had done in the autumn of 1839, 

 also a period of panic or collapse of confidence, arising, however, out of 

 an unprecedented drain for the purchase of foreign corn, but unac- 

 companied by any severe pressure upon the commercial and mercantile 

 interests. On the 1st of October, 1839, the notes and Bank post bills 

 in the hands of the public were 16,800,000?. ; on the 2nd of October, 

 1847, the whole amount of notes and Bank post bills in the hands of 

 the public Wiis 19,500,000?. On the former day the Bank held private 

 securities to the amount of 13,290,000?.; on the latter day the amount 

 was 21,260,000?. There was therefore, it may be said, an increase to 

 the extent of 8,000,000?. in the accommodation afforded by the Bank iu 

 1847 as compared with 1839. How was this accommodation afforded ? 

 The Bank is the bank of the government, with which the government 

 constantly has a drawing account, and sums paid on account of 

 Customs, Excise, and other taxes are immediately lodged in the Bank. 

 Accordingly, towards the end of each quarter, when the dividends ou 

 the government stock are payable, the government balances in the 

 hands of the Bank greatly accumulate, and the Bank takes advantage 

 of this circumstance to extend accommodation to the public, by lending 

 out sums on securities, to be repaid before the time when the dividends 

 become due, and when the money will be wanted to discharge them. 

 When the Bank makes loans of this kind, for a period determined by 

 its own convenience, and not by the desire of the borrower, the prac- 

 tice is to make them at a lower rate of interest than the then rate of 

 discount. On the whole, then, there was no want of accommodation on 

 the part of the Bank, where no bill was ever, during the whole of tho 

 pressure, refused discount, which would have been discounted in an ordi- 

 nary season and under usual circumstances, though the whole demand 

 for discount was thrown upon the Bank ; the difficulty arose from the 

 wholly anomalous and abnormal circumstances arising from an expen- 

 diture in the purchase of foreign corn of no less than 33,563,476?. 

 within the previous fifteen months, of which 14,240,000/. had been 

 paid between July and October ; whilst during the same fifteen months 

 80 millions or 90 millions had been abstracted from other pursuits to 

 be expended on railways. Moreover, the country bankers had required 

 large quantities of bank notes, in order to be provided, not so much 

 against the demands of their note holders, as of their depositors. The 

 Scotch banks especially, with their enormous deposits, were obliged to 

 make heavy drains of gold ; and it was in evidence that all this was 

 much aggravated by the hoarding of gold and notes to a very large 

 extent in the hands of individuals. 



On the 25th of October, the government thought fit to interpose, 

 and a letter was addressed to the Governor and Company of tho Bank 

 by the First Lord of the Treasury and the Chancellor of the Exchequer, 

 recommending and advising the directors, if it should become necessary 

 for the accommodation of the public, to advance their notes upon 

 approved security ; and that if thereby the Act of 1844 should bo 

 infringed, the government would apply to Parliament and ask for an 

 indemnity for those who had violated the law, and for the ministers 

 who had advised it. The government also mentioned the rate of 

 interest, viz., 8 per cent., at which these advances ought to be made. 

 As soon as the letter became known the panic at once ceased. 



The rate of interest at this time, it is to be observed, was in general 

 higher than that (especially considering the commission) charged by 

 bill-brokers, and which must be added to their nominal rates of dis- 

 count ; interest was at from 6 to 7 per cent, in Hamburg, and not 

 much lower throughout Germany : the rate of 7 per cent., obtained at 

 New York, and in the United States generally the rate was upwards 

 of 7 per cent. The object of the government interference was not the 

 vain hope of creating capital, still less to buoy up a fictitious credit, 



