a 



HANK; I1ANKKU: HANK 



BANK; BAXKKK; BANKING. 



hut it was vo restore cnxiit. tn resuscitate confidence, to set loose the 

 circuUiion of the country. which, u it were, was frown by farm. 

 Penan* who bad means of their own, and securities to offer, imnie- 

 duu-ly found available the assistance placed at their disposal in conse- 

 queue* of this measure. eo u to be able to carry on their DMBMi 

 without further difficulty. In fact, erery body eeeing that the con- 

 ility of the bill of exchange was no longer at harard, or matter of 

 difficulty, ami that for eound commercial paper there were ample means 

 of cWm.nl, confidence returned; trade gradually fell back in: it.- 

 u*ual *K~J : the interference of the government, in fact, prevented 

 a general and oontemporaneou* failure from inability to meet immediate 

 demand*, not frum inaohrency. 



At the time at which the letter WM issued, there were eight million* 

 of bullion in the bank ; the foreign exchange* had turned ao a* to be 

 decidedly in favour of this country, ao that an influx of bullion wai well 

 assured. Now for nine months the drain had been going on ; and it 

 wu only to the operation of the Act of 1844 that the country wu 

 indebted for the poaMeaion of that maa* of wealth after such a long 

 process of exhaustion ; not above a quarter of a million of bullion was 

 purchased by the Bank during the summer; in fact, it wu to the 

 operation of that Act during the early part of the year, that the country 

 was saved from the necessity of a suspension of cash payment*, one of 

 the moat distressing calamities that can befal it; for, though on the 

 25th of October, the bullion in the issue department was 7,865,0001., 

 . reserve was 1,U4,611. : and though the Court of Directors by 

 a formal resolution conveyed to the government their conviction. Hint 

 as far as the Bonk was concerned they could comply with the provisions 

 of the law and maintain their position, yet at the game time they con- 

 fessed that if an application for assistance came tu them from the great 

 provincial bank*, or from other quarters, they could not grant the 

 accommodation, and that they might possibly be obliged to curtail the 

 i they ^^ already given. 



The next occasion of monetary crisis which befel this country wan 

 in 1857. As we have observed, all panics in this country are found to 

 be preceded by a withdrawal of bullion from the coffers of the Bank. 



The following table will show the relative amounts of bullion and 

 reserve in the Bank, and the rate of discount during the latter half of 

 the year 1857, the panic or pressure having occurred in November of 

 that year. 



Now one indication of the difference in the state of the cases of 1847 

 and 1857 is the following. It will be found on closely comparing the 

 two periods that the 25th Sept., 1847, held an analogous position as 

 regards the progress of the panic of that year with lUth Oct., 1857, as 

 regards that of the latter year. But the state of the bullion and 

 reserve was a* follows in the two years : 



So that with the same bullion and the same reserve, virtually the rate 

 of interest had sustained an increase of no leas than 21 pur cent., but 

 it is necessary to bear in mind that the country had been accustomed 

 for the whole period of the Russian war to rates of 6 and 7 per cent, 

 which were higher than ever had been known previously ; therefore 

 there is not so much room for astonishment as if the rise hod been at 

 once from 5;. Before going further into the comparison between the 

 two periods it will be necessary to trace the riae of the panic of 1857, 

 and point out what was the conduct of the Bank and the Government 

 in regard to it. In the month of August of that year the Bank had 

 not had any reason to apprehend any necessity for taking measures 

 . cnt the efflux of bullion. The prospects of harvest were very 

 K'--' ; there was no apprehension that commerce at that time was 

 other thaa sound. The merchants, it was true, were importing, not- 

 withstanding the enhanced prices caused by the war, but they had done 

 the same successfully in the same circumstanocs in the previous years. 

 Things were in thu state up to Sept 15, when news arrived from 

 America of the great depredation of railway securities to the extent of 

 10 or 20 per cent., it being supposed that American securities to the 

 value of 80 millions sterling were held in this country. The Ohio 

 Life and Trust Company, which acted as bankers to a very Urge 



country to America, in 1856, was 21,476,0001., of winch much was 

 unpaid at this time. In the beginning of October, further accounts 

 : aerie* stated the artisans to be falling out of employment I 

 discounts had risen from 18 to 24 percent. On the 7th, news came 

 of the suspension of the banks in 1'hiladelphia and Baltimore. On tlin 

 8th, the bullion was fast leaving the Bank of England ; its dis. 

 and advances were as high as 11,648,0001. The rate of d 

 raised to 6 per cent, the rate at Hamburg being 7}; nnd on th. 

 the Bank rate was raised to 7 per cent., which was further rai 

 the 19th to 8 per cent. ; but in the meantime, further bad n v. 

 from America, where many additional failures had taken place. 

 Bank of France had lost in one week upwards of one million uteri ing. 

 On the 20th Oct. an application was made to the Bank of Rngl:< 

 assistance from the Borough Bank of Liverpool, but upon terms that 

 were inadmissible, and were rejected. On the 20th, a deputation came 

 up from the Western Bank of Scotland. In.' 



;..-.., OHM!., their issue of notes 480,0001., bills disco' / . 



of which it was estimated 970,0001. would not be paid at mat 

 and loans on open account having been mode to 2,660,00. 

 a large quantity of liabilities falling duo in London, the K.uk !' 

 England declined to undertake the responsibility of helping 

 through their difficulties. They were supposed to have lo. 

 largely from the failure of American houses with whom tin., 

 involved. There was at this time a run on the banks in Irvlm. 

 on the 5th Nov. the rate of discount was raised to 9 per cent. ; tin < 

 having been on the 30th Oct., a demand for assistance from 

 banks in Scotland, and 50,000 sovereigns had been sent down 

 bonk there, and 80,000 to Ireland. Between the 6th and the Imh 

 Nov., took place the failure of Dennistoun's house, whose acceptances 

 were supposed to reach nearly 2,000,0001. Also on the 9th, thu 

 Western Bank of Scotland stopped, the failures in Lon<l> i 

 on the increase, and the discount wan raised to 10 per cent. < In 

 the 10th a leading discount-broker's house applied to the Bank for 

 accommodation, to the extent of 400,0001. The City of Glasgow 

 Bank suspended. The discounts and advances nt the Bank <!' 

 England for that day were 1,116,0001., and on that day and the next 

 there was sent down to Scotland gold to the value of one million 

 sterling, to enable the banks there to strengthen their tills.* The 

 run on the banks in Ireland was on the increase. On the lltli, 

 Sanderson & Co., large bill brokers (who had stopped payment in 1847, 

 but had afterwards paid every one, and recommenced business) . 

 their deposits being supposed to be four millions, and their lia i 

 on bills of exchange five million*. 



On the 12th, about three o'clock, the Bank received a letter signed 

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

 informing the directors that if they should be unable in the erne 

 to meet the demands for discounts and advances upon MI 

 securities without exceeding the limit-! ,,f their circulation pr. 

 by the act of 1844, the government would propose to Parliament :i bill 

 of indemnity for any excess so issued, and expressing an opinion th.it 

 the rate of discount should not be reduced below the existii 

 (10 per cent.). At that time the bullion was 6,524,0001.. and thu 

 reserve 681,0001.; the Bank having sold 8,000,0001. of goven 

 securities, besides exchequer bills. But there had been for some 

 continued pressure on the Bank for accommodation. On the 24th of 

 October, the loans and advances were 10,100,0001. ; on the :"th of 

 November, they had risen to 12,808,0001. ; on the llth, th, ; 

 16,900,0001. ; and after the issue of the letter they went on increasing 

 until they attained the maximum, on the 21st of November, wh. 

 were 21,600,0001. : exceeding the amount of the deposits, which were 

 20,828,0001. But for the aid of the Treasury letter, the Rink would 

 not have ventured to carry the accommodation given to the mercantile 

 community so high. What then was the practical operation of the 

 letter ? It was this : it enabled the Bank to transfer from the issue 

 department to the banking department such a quantity of notes as 

 might be sufficient to meet the emergency, whatever that quantity 

 might be. The Bank took actually from the one department to th 

 other 2,000,0001. in union, and thus they hod so much additional 

 of discounting and advancing upon securities. In point of fact, not 

 quite 1,000,0001. of this sum was needed, or used; because, as * 

 the commercial world became aware that the letter was iasin 

 that the supply was unlimited from whence to obtain accomm 

 to those who had good securities to offer, or good bills to be discounted, 

 confidence began to revive; the fears for the 

 paper subsided, and the panic might be said to have passed 

 This was the mode in which the issue of the 1< 1 : in other 



words, this was the advantage gained by violating the Act of Par- 



What was the advantage of having adhered to it up to that time T 

 The answer is, that if the bullion had beeu much lower than it was on 

 the 12th, and had borne any appearance of going lower still, the Bank 

 would not have ventured, even with the letter in their hands, to go on 

 making the subsequent advances which they did, for in such case they 

 would nave felt that it became necessary to provide for the convertil tility 



* The prewure from tbe Scotch Bankt was alo an clement In the panlo of 

 1847. See 3 ' Hanmrd'* Debate*, ' TO). 95, col. 398. 



