| Dr. | ISSUE DEPARTMENT | Cr. | |
| £ | £ | ||
| Notes issued | 51,831,835 | Government debt | 11,015,100 |
| Other securities | 7,434,900 | ||
| Gold coin and bullion | 33,381,835 | ||
| Silver bullion | Nil | ||
| £51,831,835 | £51,831,835 | ||
| Dr. | BANKING DEPARTMENT | Cr. | |
| £ | £ | ||
| Proprietors’ capital | 14,553,000 | Government securities | 18,260,841 |
| Rest | 3,740,209 | Other securities | 24,969,260 |
| Public deposits | 7,393,580 | Notes | 22,322,875 |
| Other deposits | 41,872,061 | Gold and silver coin | 2,119,339 |
| Seven-day and other bills | 113,465 | ||
| £67,672,315 | £67,672,315 | ||
The provisions of the 1844 Act, above noted, are the principal ones which affected banking in general, and the Bank of England in particular—they were the food for much debate and discussion before they became law, and it may be added that several of the provisions then enacted have been the food for much debate and discussion ever since. Taken as a whole the Act has worked well, and has succeeded, in combination with greater knowledge and foresight, in maintaining our banking system in a sound condition.
The regulations as to the country bank-note issues were framed with the idea of ultimately eliminating entirely such issues; but though the amount of private notes in circulation has decreased, and also the number of bankers who have the power of issue—by lapses, bankruptcy, and amalgamations—the time when there are no country bank-notes has not arrived, notwithstanding that the framers of the Act confidently anticipated that such a result would be achieved long before now.
The main point of contention between the supporters and opponents of the Act lies in its want of elasticity in time of need. Under no circumstances can the Bank increase its issue of notes against securities beyond the prescribed limit, without a breach of the law; but on three occasions in the past the law has been broken, though with the consent of the Government, and subsequent confirmation of Parliament.
Under the laws regulating the Imperial Bank of Germany such procedure would not have been necessary. The German Bank Law has been framed largely on the same lines as our own, but it gives the Reichsbank power to increase the amount of notes issued against securities on a payment to the Government of a fine of 5 per cent. per annum on the excess issue. This fine is sufficient in ordinary times to act as a complete check on overissue, but in times of trouble it acts as an efficient safety-valve by relieving the minds of business people from the fear that “there will not be enough to go round.” If it is known that money can always be had at a price, the probability of a crisis developing into a panic is almost entirely obviated.
We will now briefly review the three occasions on which the Bank Act was suspended, and the effect of such suspensions.
The first of these occasions was during the panic in the year 1847—known as the “railway panic.” Shortly previous to this year a great accumulation of capital had led to a demand for new investments, which were duly provided for the public by those concerned with such matters. Added to this, interest rates had ruled low for some time, and this conduced to a period of speculative activity. Too much capital was put into fixed investments—chiefly railways—and in one session of Parliament sanction was asked for various railway schemes involving a total capital of £340,000,000. Wild gambling in railway stocks ensued, credit was inflated above all reason, and then the turn came. This was primarily due to a bad harvest and potato crop causing a heavy importation of corn, and consequent export of gold.
During the panic which ensued, the reserve of the Bank of England fell to £1,600,000, but when the panic was at its height, the Act, passed only three years before, was suspended. The Bank was authorised to increase its accommodation to the public by exceeding, to an indefinite extent, the limit fixed for the issue of notes not secured against gold. The effect of this suspension of the Act was immediate and complete. The fear that “there was not enough to go round” passed from men’s minds. As a matter of fact, the issue on this occasion did not exceed the normal limit, the mere knowledge that the Bank was empowered to exceed this limit proving sufficient to allay the panic.
The second suspension of the Bank Act was due to the crisis of 1857, a crisis that was brought about by reckless overtrading, and came upon the public very suddenly and with practically no warning. The reserve of the Bank of England had been allowed to fall dangerously low during the course of the year, and large financial operators had carried on vast transactions with hardly any capital—only credit—relying for assistance on the Bank. Bad news came to hand from America in September, detailing how there had been a serious financial collapse in that country; failures had occurred, shaking commercial credit to its core, and about one hundred and fifty banks had stopped payment.
A heavy drain of gold from here to America commenced, and by the middle of October credit was curtailed, and distrust was rife in England. Within a very short space of time many of our banks and financial houses were crippled and failed. In November heavy demands were made for gold for Scotland and Ireland, and on the 11th November the failure of Sanderson and Company—a great London discount house—was announced, with liabilities of upwards of five millions. Utter rottenness appeared to pervade the commercial world, and general bankruptcy seemed imminent, when for the second time the Bank Act was suspended. This took place on the 12th November, and at once had the effect of quieting the public mind. On this occasion the Bank had to make use to a large extent of its temporary authority to issue notes above the normal limit without holding gold against them. The severity of this crisis can be seen by the fact that in November the Bank reserve fell to under £600,000, while the bankers’ balances at the Bank of England alone stood at about five and a half millions, and the Bank Rate was as high as 10 per cent. This was also the rate charged by the Bank of France at the time, showing that the panic had spread, and was not solely confined to ourselves and America.