We pass on now to the end of the eighteenth century, when the country was plunged in the throes of war and financial difficulty. Up to this time the Bank, since its foundation, had succeeded in meeting its notes when presented; but in the year 1796 a steady drain on the reserve of the Bank commenced, owing to the fear of invasion. This drain began to assume a very serious aspect in the early part of 1797, and it appeared probable that the Bank would be subjected to the danger and humiliation of a temporary stoppage. The directors, fully aware of this danger ahead of them, laid the position before the Government, and left the solution of the difficulty in its hands. After due consideration, an Order in Council was issued on the 26th February, 1797, requiring the Bank not to pay its notes in gold. On the following day this Order was made public, and the Bank issued the following notice:—
“Bank of England, February 27th, 1797.
“In consequence of an order of His Majesty’s Privy Council, notified to the Bank last night, a copy of which is hereunto annexed, the governor, deputy-governor, and directors of the Bank of England think it their duty to inform the proprietors of the bank stock, as well as the public at large, that the general concerns of the Bank are in the most affluent and prosperous situation, and such as to preclude every doubt as to the security of its notes. The directors mean to continue their usual discounts for the accommodation of the commercial interest, paying the amount in bank-notes, and the dividend warrants will be paid in the same manner.”
This suspension of cash payments was a very drastic measure to take; but the public, recognising the difficulties of the situation, and appreciating the means which were being taken for the general safety, at once fell in with the spirit of the Order, and a meeting of merchants and bankers was held and passed the following resolution, which received very general support:—
“That we, the undersigned, being highly sensible how necessary the preservation of public credit is at this time, do most readily declare that we will not refuse to receive bank-notes in payment of any sum of money to be paid to us, and we will use our utmost endeavours to make all our payments in the same manner.”
An Act was passed in the following May, confirming the action of the Privy Council, but authorising the Bank to pay out sums under twenty shillings in cash, and also allowing certain bankers to have a stated amount of cash. This Act restricted the payment of cash for a period of fifty-two days only, but before it expired a further Act was passed extending the period of restriction, and subsequently other Acts were passed greatly prolonging the period; and it was not until 1823 that the restriction was entirely withdrawn, although as a matter of fact the Bank really resumed paying in cash on demand on May 1st, 1821, deeming it then safe to do so.
Although a period of safety and prosperity then appeared to have dawned, the Bank was not quite clear of its troubles. The very prosperity of the times led imperceptibly to another period of distress and danger, culminating in the panic of 1825.
The year 1824 was notable for a very great increase in the number of joint-stock companies which were promoted or suggested, and also of loans to foreign countries; and a period of intense excitement and speculation ensued. This was followed by the inevitable crisis, which developed into a panic at the end of 1825, when a large number of London and country bankers had to stop payment. The reserve of the Bank was reduced to a merely nominal figure, and the Bank authorities themselves suggested that they should again be “restricted” as to payments; but the suggestion was firmly resisted by the Government. Fortunately, at the lucky moment, an old box which had been stored away was remembered. It contained a large quantity of £1 notes, and these the Bank at once commenced to issue. This issue had very quick and beneficial results. The notes were readily received by the public in exchange for the notes of private bankers, the demand for bullion ceased; and Mr. Harman, giving his evidence before a parliamentary committee inquiring into the causes of the panic, stated it was his opinion that this issue of small notes “saved the credit of the country.”
In 1826 the Bank of England, by arrangement with the Government, agreed to establish branches in various parts of the country, and gave up their monopoly of joint-stock banking, except within a radius of sixty-five miles of London.
The year 1833, however, saw a further restriction in the powers of the Bank, when, after protracted negotiations, and in return for a further renewal of its Charter, the Bank surrendered its monopoly of joint-stock banking entirely, provided that no bank having more than six partners might issue notes within the sixty-five-mile limit of London.