BANK. [263 of justice towards the Bank to interpose, and to shield it from a catastrophe towards which it had been hurried through yielding to the solicitations for assistance made by the Government. On Saturday, the 25th of February, only 1,270,000l. in coin and bullion remained in the coffers of the Bank. On the following day an order in council was issued, prohibiting the directors from paying their notes in specie until the sense of parliament could be taken on the subject. The promulgation to the public of this order being accompanied by assu rances of the affluent circumstances of the corporation, as well as by a declaration on the part of the leading bankers and merchants of London, pledging themselves to receive bank-notes in payment of any sums due to them, failed to make any injurious impression. A committee of the House of Commons was immediately afterwards appointed to inquire into the affairs of the Bank, which committee reported that a surplus of effects to the amount of 3,825,8901. was possessed by the corporation over and above its capital of 11,684,8001. then in the hands of Government. nature. The circumstances by which the suspension of cash payments was rendered necessary were altogether of a political In the contest then carried on, which, with only a few months' interval in 1801 and 1802, continued until 1815, and which involved the country in expenses of unparalleled magnitude, it was considered indispensable for the government to be provided with a powerful engine for carrying on its financial operations, and it was thought also to have been necessary, under those circumstances, to remove from the engine thus employed the ordinary responsibilities which should attach to a banking establishment. The Minister, on the second renewal of the Restriction Act, prevailed upon parliament to continue its duration until one month after the conclusion of war by a definitive treaty of peace. The period thus contemplated having arrived at the close of 1801, it was found necessary, in consequence of the unsettled state of affairs, to prolong the act for a further period; and the war having soon after recommenced, the restriction was again continued until six months after the ratification of a definitive treaty of peace. The financial operations of the Government having been continued upon a most enormous scale up to the very moment of the treaty of peace in 1814, the Bank, which had seconded those efforts, and had made no preparation for so total a change of system, procured the renewal of If this question had at that time the Suspension Act until the 5th of July, been settled with a view to the public 1816. good, we may venture to assert that the Restriction Act would not have been renewed. Commerce was again allowed to flow into its natural channels,-we found anxious customers, at high prices, for goods which had before been ruinously depressed, and it became as impossible to keep the gold out, as it had, under the contrary circumstances, been to retain it within the kingdom. re At Had the Bank of England at this time contracted its issues in only a very trifling to their full value, measured by the price degree, its notes would have been restored of gold, a fact which can hardly be doubted if we consider how large a proportion of their depreciation was covered under a directly opposite course of proceeding. At the end of 1813, the amount of Bank of England notes in circulation was 23,844,050l., the price of gold was 51. 10s. per ounce, and the depreciation of Bank-paper consequently amounted to 291. 4s. 1d. per cent. the end of 1814, the Bank issues were increased to 28.232,730., and the price of gold had fallen to 41. 6s. 6d. per ounce, so that the notes were depreciated only to the extent of 9l. 19s. 5d. per cent. notes actually experienced, amounting to The rise in value which Bank of England 19l. 48. 8d. per cent., or nearly two-thirds of their depreciation, was occasioned, in the face of an increased issue of more than 18 per cent., by the great quantity of gold poured into the country at the reopening of our commerce, and no doubt also in some degree by the diminished This state of things could not last long. circulation of the notes of country bankers. Gold can never continue to circulate in the presence of an inconvertible paper currency, and an opportunity, the best that could possibly have offered for extricating ourselves from a false position, and for restoring our currency to a sound and healthy state, was suffered to pass unimproved. The reason for this neglect is sufficiently obvious. The Bank directors, however blameless for the state of things which first caused the restriction, soon found that measure productive of enormous profits to their establishment, and were anxious to prolong its operation by every means within their power; and the ministers, who had still large financial operations to make, found it most to their convenience to effect them in a redundant paper currency. Except at the very moment of its enactment, the Bank Restriction Act was for some time so little needed for the security of that corporation, that its notes, during the first three years of the system, were fully on a par with gold, and sometimes even bore a small premium. In less than seven months after the Suspension Act was first put in force, the directors of the bank passed a resolution, in which they declared that the corporation was in a situation to resume with safety making payments in specie, if the political circumstances of the country did not render such a course inexpedient. After a time, the suspension was found to be so convenient and profitable to the Bank, that the wish to recur to cash payments was no doubt abandoned by the directors. In 1801 and the following year, Bank notes, owing to their excessive quantity in circulation, fell to a discount of 7 to 8 per cent., but partially recovered in 1803, and remained until 1810 within 2 or 3 per cent. of par. In the year last mentioned the depreciation occurred which led to the appointment of the celebrated Bullion Committee. The issues of the Bank, which on the 31st of August, 1808, were 17,111,2907., had increased to 19,574,180l. in the following year, and on the 31st of August, 1810, amounted to 24,793,990l., being an increase of about 45 per cent. in two years-a cause quite sufficient to account for their depreciation. In 1811 the circulation was diminished to 23,286,850l., and the discount was re | duced to 7 per cent. A further issue again depressed the value of Bank notes, as compared with gold: on the 31st of August, 1814, the amount in circulation was 28,368,290l., and the depreciation amounted to 25 per cent. It is seldom that cause and effect can be thus clearly shown in relation to each other. In consequence of the material fall in the value of agricultural produce, which took place in 1813 and 1814, such serious losses were sustained by the country bankers in various parts of the country, that in 1814 and the two following years 240 of them failed; and the general want of confidence thus occasioned, so far widened the field for the circulation of Bank of England notes, that although the amount of them in circulation increased, in 1817, to 29,543,780l., their value relatively to that of gold was nearly restored. In 1817, having accumulated nearly twelve millions of coin and bullion, the Bank gave notice, in the month of April, that all notes of 11. and 21. value, dated prior to 1816, might be received in gold. In the September following, a further notice was given that gold would be paid for notes of every description dated prior to 1817. The effect of these measures was to drain the Bank of a large portion of its bullion, so that in August, 1819, no more than 3,595,960l. remained in its coffers, and an act was hurried through parliament to restrain the Bank from acting any further in conformity with the notices here mentioned. In the same year the bill was passed, commonly known as Mr. Peel's Bill, which provided for the gradual resumption of cash payments. Under the provisions of this law, the Bank Restriction Act was continued in force until the 1st of February, 1820; from that time to the 1st of October in the same year, the Bank was required to pay its notes in bullion of standard fineness at the rate of 41. 1s. per ounce from the 1st of October, 1820, to the 1st of May, 1821, the rate of bullion was reduced to 31. 19s. 6d. From the last-mentioned day, bullion might be demanded in payment for notes at the Mint price of 31. 178. 104d. per ounce; and on the 1st of May, 1823, the current gold coin of the realm might be demanded. The provisions of this act, as here mentioned, were respectively anticipated in point of time, and on the 1st of May, 1821, the Bank recommenced the payment of their notes in specie. One of the provisions of this act arose out of a suggestion made by the late Mr. Ricardo, which appears calculated to afford every requisite security against the evils to which any system of paper currency is exposed. The effect of Mr. Ricardo's plan would have been to exclude a metallic currency, with the exception of what might be necessary for effecting small payments, by making Bank of England notes a legal tender, with the obligation imposed on the directors to pay them, on demand, in gold bars of the proper standard, and of a weight not less than sixty ounces for any one payment. This provision, which was temporarily adopted in Mr. Peel's bill, would effectually prevent any depreciation of the notes, and might have a peculiarly good effect in all times of political panic, when the greatest part of the mischief arises from the numerous holders of small amounts of notes, and who, on the plan proposed, would be unable, individually, and without some extensive combination for the purpose, to drain the Bank of its treasure. No good reason has ever been yet given to the public against the permanent adoption of this economical suggestion. On the 22nd of May, 1832, a Committee of Secrecy was appointed by the House of Commons to inquire into the expediency of renewing the charter of the Bank of England, and into the system on which banks of issue in England and Wales are conducted. On the 11th of August following this Committee delivered its report, which was printed by order of the House, and it is to this report, with the evidence and documents by which it was accompanied, that the public is mainly indebted for the establishment of consistent and sound principles upon the subject of banking. Containing, as it does, the opinions of our first authorities in matters of political science, and the recorded experience of practical men, this paper was of the greatest advantage to the members of the legislature while discussing and determining the provisions of the act which received the royal assent on the 29th of August, 1833, for renewing the charter of the Bank of England for ten years from the 1st of August, 1834 (3 & 4 Wm. IV. c. 98), a brief analysis of which act it may be advisable here to insert; and we shall afterwards insert the provisions of the Bank Charter Act of 1844. The act of 1833 provided that no association, having more than six partners, shall issue bills or notes, payable on demand, in London, or within sixty-five miles of that city, during the continuance of the exclusive privileges granted to the Governor and Company of the Bank of England. But associations, " although consisting of more than six persous, may carry on the trade or business of banking in London, or within sixty-five miles thereof, provided they do not borrow, owe, or take up in England any sum of money upon their bills or notes payable on demand, or at any less time than six months from the borrowing thereof, during the continuance of the privileges granted by this act to the Governor and Company of the Bank of England." All promissory notes of the Bank of England, payable on demand, issued at any place in England, out of London, where the business of banking shall be carried on for or on behalf of the Bank, must be made payable at the place where such notes are issued; and it is made unlawful for the Governor and Company of the Bank of England, or for any person on their behalf, to issue, at any place out of London, any promissory note payable on demand, not made payable at the place where the same is issued. § 6 provided that Bank of England notes shall be a legal tender except at the Bank and its branches. § 7 exempted from the usury laws bills not having more than three months to BANK. [266] capital stock of the Bank from 14,553,000l. to 10,914,750l., by dividing amongst the proprietors the sum of 3,638,250l., at the rate of 251. for every 100l. stock; and §§ 11 and 12 exempted the governor, deputy-governor, &c., and proprietors, from being disqualified by such reduction in the amount of their stock. By § 13 the Bank, in consideration of the privileges given it by this act, was required to deduct 120,000l. annually on the sum payable to it for the management of the funded debt. § 14 continued to the Bank the privileges conferred on it by 39 & 40 Geo. III. c. 28, and other acts, except in so far as they were altered by the present act, such privileges to be subject to redemption "at any time upon twelve months' notice to be given after the 1st of August, 1855;" and upon repayment by parliament of the sum of 11,015,100l., due from the public to the Bank, and some other conditions being fulfilled, the privilege granted by this act This clause is re-enacted was to cease. in the act of 1844. The clause which provides that notes of the Bank of England and its branches shall be a legal tender in every part of England, as explained by the act already recited, excited considerable interest among commercial men, some of whom expressed alarm at the provision. The expression "legal tender," although certainly correct, was an unfortunate term, as it seemed to threaten the mercantile public with the return of those days of ruinous uncertainty in regard to currency, which were so commonly experienced throughout the period when, under the Restriction Act, Bank of England notes were in effect a legal tender in every part of the kingdom. The only possible effect of an injurious kind which can attend this regulation is, that in the event of such a conjuncture as shall render the Bank unable to meet its engagements, the holder of its notes, who may chance to be removed one or two days' journey from London or the place where they were issued, may be placed in an unfavourable position for exchanging them for specie. The principal advantage to follow from the enactment is this:-that it absolves the Bank of England from the expensive The repayment of one-fourth of the debt due from the public to the Bank was made by an assignment of 3 per cent. stock, which was previously held by the commissioners for the reduction of the national debt, but no division of the amount has yet been made among the proprietors of the Bank capital, who have judged it most advisable to leave the sum thus rendered available as capital in the hands of the directors. The principal advantage conferred on the Bank by the legislature consisted in the restriction that prevents any other establishment, having more than six partners, from issuing notes payable on demand in or within sixty-five miles of London. We learn from the evidence given before the secret committee by certain of the Bank directors, that the principle upon which they proceed in regulating their issues is to have as much coin and bullion in their coffers as may amount to a third part of the liabilities of the Bank, including sums deposited as well as notes in circulation. But when, by an overissue of paper, prices have been so driven up that gold has become the only profitable species of remittance abroad, experience shows us that the drain upon the Bank thus arising may and will be carried to an extent far beyond the mere redundancy of currency afloat, and the demand for specie may, in such a case, be carried beyond the amount thus arbitrarily chosen for the security of the Bank. Where a vigilant course of management is pursued, a small comparative amount of gold would always suffice to restore the equilibrium, when deranged by the accidental changes of commerce; and where a different system is pursued, it is difficult to say what quantity of the precious metals, short of the whole liabilities of the Bank, will be found ade quate to that end. The action of the public upon the Bank in 1825, when the largest amount of bullion ever before possessed by it was so near being wholly exhausted, shows the necessity of adopting some less questionable rule than the arbitrary one-third. The Bank of England acts as the agent of the Government in the management of the national debt. It receives and registers transfers of stock from one public creditor to another, and makes the quarterly payments of the dividends. Previous to the passing of the act of 1833, the Bank received from the public in payment for this service the sum of 248,000l. per annum. Of this amount 120,000l. per annum was abated by that act; and by the act of 1844 only 180,000l. is to be paid in future. The balances of money belonging to the State are kept in the Bank, which in this respect performs the ordinary functions of a private banker. The alteration made a few years ago in the constitution of the department of the Exchequer added somewhat to this branch of the Bank's business. Many individuals likewise use this establishment as a place of deposit for their money; but as the Bank directors do not give the same facilities to their customers as they receive from private bankers, the proportion of mercantile men who have drawing accounts with the Bank is comparatively small. Branch banks were established by the Bank of England, in 1826, 1827, and 1829, at Swansea, Gloucester, Manchester, Birmingham, Liverpool, Bristol, Leeds, Exeter, Newcastle, Hull, and Norwich; and in 1834, at Portsmouth and Plymouth, when the branch at Exeter was closed; and more recently a branch has been opened at Leicester. These establishments have not hitherto been productive of much profit to the corporation, but have proved very convenient to the public. They facilitate the remittance of money between London and the country, and enable commercial men to avoid the expense and risk which previously were attached to those operations. As the Branch banks do not permit individuals to overdraw | | their accounts, and make no allowance of interest upon deposits, they are not calculated greatly to interfere with the profits of private establishments, whose customers enjoy those advantages. The business of these branches principally consists in discounting bills, issuing notes which are payable in London and in the place where they are issued, and in transmitting money to and from London. To encourage the circulation of their own notes, these branches are accustomed to discount at a more advantageous rate than for others bills brought to them by such country bankers as do not themselves issue notes. The profits of the Bank of England are derived from discounts on commercial bills; interest on Exchequer Bills, of which a large amount is usually held; the interest upon the capital stock in the hands of Government, the allowance for managing the public debt, interest on loans, on mortgages, dividends on stock in the public funds, profit on purchases of bullion, and some minor sources of income. The principal heads of receipt in 1832 were as follows:-Interest on commercial bills 130,695.; on exchequer bills 204,1097.; the dead weight annuity 451,515.; interest on capital received from government 446,502l.; allowance for management of the public debt 251,896/.; interest on private loans 56,9417.; on mortgages 60,6841.; making, with some other items, a total of 1,689,1767. In the same year the expenses, including losses by forgery and sundry items, were 428,6747.; the composition for stamp-duty was 70,8757.; and 1,164,235l. was divided amongst the proprietors. In the first of the above heads is included the expense for conducting the business of the funded debt 164,1437.; the expense attending the circulation of promissory notes and post bills, 106,0927.; and the expense of the banking department, of which the proportion for the public accounts may be estimated at 10,000l.; making a total of 339,400l. Before the passing of the act of 1844, the Bank paid to the Stamp Office upwards of 70,000l. annually as a composition for the duties upon its notes and bills; but the notes of the Bank |