CHAPTER IV
THE BANK CHARTER ACT OF 1844,
AND ITS SUSPENSIONS
After the renewal of the Charter in 1833, the directors of the Bank of England laid down as a principle on which their future operations were to be guided, that one-third of their liabilities should be kept in cash and bullion, and the remaining two-thirds in securities. If this principle had been acted on, the Bank would have been saved from many of the troubles which shortly assailed it; but though the intentions of the directors were good, circumstances were too strong for them, and the actual proportions of cash and securities to liabilities respectively, often differed materially from the standard laid down. This was notably the case during the periods of financial pressure which were experienced in the years 1836 and 1837.
In the year 1839 matters assumed a very serious aspect. In the early part of this year the amount of cash held by the Bank was about one-third of the amount of securities, but during the year the amount invested in securities increased at the expense of the amount held in cash; and by September we find that securities stood at nearly £29,000,000, while the cash was reduced to a tenth of that figure, and stood at £2,936,000 only. In order to avert a calamity which appeared to be impending, the Bank arranged loans in Paris and Hamburg to the extent of between three and four millions.
This manifest exhibition of weakness on the part of the Bank led to the appointment of a committee of the House of Commons to inquire into the matter. The committee condemned the principles on which the Bank was working, but were powerless to effect any alteration, owing to the Charter of the Bank not expiring till 1844.
On the expiry of the Charter, however, Sir Robert Peel brought forward his famous Act for remodelling the Bank, and regulating the issues of the country banks throughout England and Wales.
The Act was passed on the 19th July, 1844, and continues without alteration to the present day. The main provisions enacted thereby, briefly stated, are as follows:—
I. The Issue Department and the ordinary Banking Department of the Bank of England were to be entirely separated as from the 31st August, 1844.
II. On such separation taking place, securities to the value of £14,000,000 (including the debt due to the Bank from the Government) were to be transferred to the Issue Department, together with so much gold coin and bullion that the total so transferred should equal the total amount of notes then outstanding. Thereafter (with the exception noted below) the Issue Department must not issue any notes in excess of a total of £14,000,000 except in exchange for gold coin or bullion.