845 



BANK; BANKER; BANKING. 



BANK; BANKER; BANKING. 



810 



of the note ; and it was the provisions of the Act which prevented the 

 Bank from issuing more notes than in the proportions to the bullion 

 which the law requires, and so gold would have gone out faster by the 

 action of the foreign exchanges, and the directors would have been left 

 with less gold as the panic increased. The Act therefore secured for 

 the public the power in the Bank to give more aid at the time when 

 the pressure was the severest than it otherwise would have possessed, 

 and thus rendered the directors more careful in securing and retaining 

 the bullion than they were before 1844, and enabled them to resist the 

 influence and pressure which the mercantile community would other- 

 wise possibly exert upon them with success, and which would end to 

 lead them into less judicious courses, or at least leave them less free to 

 act on their own discretion than now they are able within the statutory 

 limits to act. The authorities of the Bank appear to consider the 

 statute to operate, not as a clog, but as a support, not as a hindrance, 

 but as an aid. It is material however to observe the state of the 

 foreign exchanges during this period ; because, through the whole of 

 it, they were not, according to the best authorities, such as apparently 

 to pay for sending gold abroad. Thus, on the 10th of November, the 

 exchanges were : Hamburg, three months, from 13'12tol4; Amsterdam, 

 short, from 11-16 to 19 ; Paris, short, 25'35 to 45 ; and therefore the 

 Bank was freed from any apprehension that the advances they made in 

 consequence of the Treasury letter could have any adverse effect on the 

 foreign exchanges with this country. The American exchanges how- 

 ever were very unfavourable to this country during all this time, and 

 the exchange would have given a large profit on the transmission of 

 gold ; but on the above day, the failure of the American banks being 

 known here, there was very little probability of gold flowing from this 

 country to America : indeed, the distrust between the two countries 

 was such, that gold both came and went. Both the Bank and the 

 commercial world, there is little doubt, governed then* conduct in the 

 middle period of the pressure, that is, after it was undeniable that 

 there was an actual stagnation of credit and confidence, by the con- 

 viction that a letter would be issued, as had been done in 1847, and 

 that accounts for the contrast between the two panics : in 1847 there 

 was more of alarm, and of unreasonable alarm or panic ; in 1857 there 

 was greater commercial distress, but less panic. In the former year, 

 however, the letter was issued at such a period of the pressure that it 

 never became necessary to act upon it so as to exceed the limit of issue 

 laid down by the statute. In 1857, but for the expectation of the 

 letter issuing, the Bank must have refused to discount considerably 

 before the 12th, and would have protected themselves by retaining the 

 notes as they came in from the payments of the bifls already dis- 

 counted, or, as it is called, the run off of the discounts. Some of the 

 indications of alarm respecting the state of monetary and business 

 affairs in London during this period may be mentioned. Well-estab- 

 lished solvent houses were found bringing their bills to be discounted 

 by the Bank, who were known not to be actually pressed for money ; 

 but the apprehension of being left without the means of meeting future 

 possible pressure made them lose no time in realising their securities. 

 The London bankers' deposits the Bank of England being the bankers' 

 bank, where they keep the larger portion of their cash reserves very 

 much increased all through the alarm period. The same was found to 

 be the case of the merchants' and traders' deposits. This is a decided 

 symptom of alarm, at least since the Act of 1844. In the last quarters 

 of the years 1838 and 1839, which were periods of prosperity and of 

 pressure and distress respectively, the deposits of the London banks 

 with the Bank of England were 812,000?. and 615,0001. respectively, 

 showing the deposits to have sunk materially during the period of 

 In periods of apprehension and collapse of credit, everyone is 

 urged to contract his operations, and endeavours to draw in his 

 resources, in order to be prepared as much as possible for any demands 

 that may come upon him ; and the bankers are content in such a 

 season to forego the usual profits that they make on then- deposits 

 rather than be without the means of answering any amount of demand 

 that it is at all probable will be made upon them. Accordingly, instead 

 of discounting bills, as usual, with their deposits, the bankers very 

 generally discontinued giving discounts between the 9th and 12th of 

 November, and the whole of the discounting of London nearly centered 

 in the Bank of England, another proof of apprehension. The bankers' 

 deposits with the Bank at the close on the 12th read 5,458,000?., and 

 subsequently, and before the end of the year, the amount rose beyond 

 that sum : and between the 7th and the 19th of Nov. the balances of 

 merchants, traders, and private persons in the Bank books were 

 increased by one million. Another symptom of alarm is found in this, 

 that consols continued to rise during the most critical moments of the 

 period, which is attributed to timid persons withdrawing their deposits 

 from banks in order to have the better security of the government. 



If the letter had not issued, what would have been the consequence ? 

 The Bank must have refused to discount any more bills ; this would 

 materially augmented the alarm of the London mercantile com- 

 munity. It is probable that the demands of the depositors and 

 creditors of the banks in London would have increased upon them so 

 much as to have compelled them to withdraw portions at least of their 

 deposits from the Bank of England. Now, as the Bank had been 

 employing largely these bankers' deposits in giving accommodation by 

 the discounting of bills, unless the notes had come back to the Bank by 

 the running off of the discounts more rapidly than the bankers' claims 



for their money increased upon the Bank, it must have stopped payment 

 in the banking department. Then, persons having acceptances to meet 

 payable at their bankers, on the supply of notes being stopped at the 

 Bank of England, would have been unable to have met those accept- 

 ances, and widely-spread failures would have ensued. It seems clear 

 that this must have been the result, inasmuch as the Bank had only at 

 that time (without the letter) power to pay away about 2,000,000?. ; 

 that was the whole that it had the power to pay away, whether at 

 the Bank or at its branches all over England. It was assuredly not 

 in a condition to answer the claims that not very improbably might 

 have been made upon it by bankers and other persons, and it must 

 therefore have suspended payments in the banking department. But 

 even this would not have affected practically the question of the con- 

 vertibility of the Bank note, because by the operation of the Act of 

 1844, to insure that, the Bank had nearly 7,000,000?. in the issue depart- 

 ment. It must be borne in mind, however, that the Bank would not 

 have acted as it did in giving assistance to the mercantile community, 

 but for the impression that at the worst what had taken place in 1847 

 might occur again ; it would still, it appears, have considered it to 

 be its duty to make common cause with commerce, but it might 

 both have raised its rate of discount earlier and have diminished the 

 eckeance of the bills discounted, and possibly might have succeeded 

 without the aid of the letter, but for the unexpected demand from the 

 banks in Scotland to an immense amount for sovereigns, which demand 

 had the effect of a foreign demand in this respect, that the sovereigns 

 could not be expected to return to this country, and therefore were 

 so much abstracted from the English circulation. 



In another view the effect of the letter was to place the Bank in 

 excess of its statutory issues by 2,000,000?. for the whole period, from 

 13th Nov. to 24th Dec., both days inclusive ; on which day the 

 2,000,000i. was returned to the issue department, and the Bank found 

 itself in a position to lower the rate of discount below 10 per cent. 

 The whole sum advanced to the public by the Bank between the 

 12th Nov. and the 1st Dec., 1857, was 12,645,000?. The course of the 

 rates of discount for 1858 was the following : 



The Bank rate which in November 1857 was 10 per cent., as has 

 been said, had been reduced between that date and the end of Decem- 

 ber to 8 per cent, was in January, 1858, varied to 6, and eventually to 

 4 per cent., until on the llth of February, it was 3 per cent. Then the 

 Bank of France having reduced its terms of accommodation to 4 per 

 cent., the influence of the change was felt in the continental cities, and 

 the average terms for accommodation at Hamburg had in the interval 

 fallen to 1J and 2 per cent. ; at Amsterdam to 3^ per cent. In the 

 course of September and October the Bank of France had adopted the 

 rate of 3 per cent. Early in December the Bank of England reduced 

 its terms of discount to 2 4 per cent. 



As in 1847, a vast number of fictitious bills were discovered by the 

 panic of 1857 to be in existence : the number was supposed, however, 

 to be much greater in the latter year, and by many persons this \vas 

 said to be an effect of the new mode of banking under which the Joint 

 Stock banks took money on deposit accounts from persons who put 

 small sums into their hands for the sake of the interest which these 

 banks pay upon such accounts, in fact, using those banks, not for the 

 ordinary purposes of banking, but as a medium of investment ; the 

 effect of which was said to be, to cause the bankers aud their brokers to 

 be less cautious as to the character of the bills they discounted, inas- 

 much as the deposits being placed with them at call, and also 

 bearing interest, it became essential for the bankers to employ the 

 money immediately, and therefore, without having the same opportunity 

 for circumspection and inquiry, as is had in ordinary banking trans- 

 actions. On this we shall have some remarks to offer under the head 

 of Joint Stock Banks. But it was the complaint in 1847, as it also 

 was in 1857, that persons having good mercantile bills to offer, 

 respectable persons, could not obtain the means of converting them 

 into money. There was no question in that year, any more than in 

 1857, as to the convertibility of the Bank note. It is believed to be the 

 meaning of Parliament in the Act of 1844 to make the bullion in the 

 issue department, and also the securities there placed, responsible to 

 the holders of notes, and available in support of the notes with the 

 public, exclusively of the claims of the depositors in respect of their 

 deposits, as such, in the banking department. 



One principal effect of the Act of 1844 is this : it enables every 

 person to convert into Bank notes any amount whatever of bullion 

 that he may choose to carry to the Bank, and authorises the issue of 

 notes besides to the extent of 14 millions sterling upon security ; or 

 any one taking his bullion to the Bank may receive back the value in 

 gold coin at the rate of 3?. 17s. 9c/. an ounce, a charge of IJrf. an ounce 

 being in addition made by the Bank as remuneration for the loss of 

 time and the trouble of getting the gold turned into coin. The reason 

 why the sum of 14 millions was fixed upon by the framers of the Act, 

 was the following : Previous to 1844 the circulation of Bank of England 

 notes seldom reached 20 millions or fell so low as 16; and therefore 

 Sir R. Peel assumed that the circulation which was necessary for the 

 country, and which could not be materially reduced in any ordinary 

 state of society, was about 14 millions. This amount the Bank was 

 allowed to issue upon securities ; and it was also provided that, in 

 case of the note-issuing banks ceasing to issue, the Bank might, by order 

 in council, be authorised to issue on securities to two-thirds of the value 



