TRANSACTIONS OF SECTION F. 587 



Prompt and decisive action was absolutely necessary; but, had time for reflec- 

 tion been available, it is possible that less drastic measures would have sufficed. 

 The closing of the Exchange was not tiie only event of first-class importance on 

 that memorable Friday, liill-brokers were in the habit of borrowing largely 

 from the Joint Stock Uanks upon the security of the foreign bills tliey hola. 

 During this week some of the banks called in their loans from the bill-brokers, 

 who were forced to have recourse to the Bank of England either to borrovv there 

 or to discount their bills. The sums involved were large. In normal times it 

 is supposed that the Joint Stock Banks lend about 100,UOO,000;. to bill-brokers 

 in the form oi credit at call or short notice. In the ten days ending August 1, 

 the Banlc of England's holding ot ' other securities ' increased by 31,700,000^., 

 the greater part of which is understood to have represented loans to the bill- 

 brokers to meet the calls on them by the Joint Stock Banks. These large 

 demands on tlie Bank of England were one cause of the rapid ri.se in the Bank 

 Rate, which after being 4 per cent, for one day (Thursday, July 30) was doubled 

 on Friday and was increased to 10 per cent, on Saturday, August 1. Concur- 

 rently with the difficulties of the bill-brokers there were the even greater ones 

 of the accepting houses. These institutions in effect guarantee that a foreign 

 bill (arising out of a trade transaction either between this country and a foreign 

 country or between two foreign countries) will be met at maturity. It le 

 largely by this device that London is the financial centre of the world, and it 

 is estimated that one half of the world's foreign trade is financed by British 

 credit. The acceptances current at this time of the accepting houses and 

 foreign banks in London amounted to between 300,000,000^. and 350,000,000/., 

 while those of the Joint Stock Banks are known to have been about 70,000,000/, 

 But, just as in the case of the stock-brokers, remittances were not forthcoming 

 or were delayed or could only be made with great difficulty. London early in 

 the crisis began to call in credit. All the available bills on London were quickly 

 purchased by foreign debtors for transmission to London. New bills were not 

 forthcoming, and there were great difficulties in procuring gold for shipment, 

 in some cases it was impossible. In these circumstances the position of the 

 accepting houses was one of extreme hazard, and, as Mr. Franklin says, ' the 

 immediate effect of the outbreak of hostilities was to break down the whole 

 fabric of foreign exchange throughout the world.' On Sunday, August 2, a 

 proclamation was issued which postponed payment of bills of exchange (other 

 than a cheque or bill on demand) if accepted before the beginning of August 4 

 for a period of one calendar month from the date of its original maturity. On 

 Monday, August 3, an Act, known as the Postponement of Payments Act 

 (4 & 5 Geo. 5, c. 11) was passed which authorised the King to suspend tempo- 

 rarily by proclamation other payments besides bills of exchange. 



So far the dramatic events of Friday, July 31, and Saturday, August 1, have 

 been considered from the point of view of the reaction of the crisis on credit as 

 regards foreign remittances. There remains the position in relation to internal 

 credit. It appears that the Joint Stock Banks, or some of them, expected and 

 prepared for considerable internal demands from their depositors. Mr. A. H. 

 Gibson says that ' the direct effects of the War on credit, as measured by the 

 attitude of the British public during the early stages of the crisis, show that 

 the loss of confidence was extremely slight. There was no run on the Joint 

 Stock Banks or on the Savings Banks, and what degree of hoarding of gold 

 took place at the commencement of the crisis was probably due to the lead 

 given by some of the Joint Stock Banks paying out Bank of England notes 

 instead of gold. This action caused a large number of people to whom notes 

 had been paid to take them to the Bank of England to change them into gold 

 which was required for holiday purposes. Almost without exception the reports 

 of the Savings Banks for the year 1914 prove how trivial had been the influence 

 of the crisis on their accumulated funds, the main influence having been a slight 

 check to new business.' There was a somewhat general apprehension prior to 

 the issue of new Treasury Notes that, where a creditor insisted on payment 

 in the form of legal tender, there might not be sufficient legal tender to meet 

 all demands. The figures showing the loss of gold from London to the provinces 

 show that there were considerable internal demands for gold, the gold lost by 

 the Bank of England from this cause having been 1,213,000/. during the week 



