“In order to be prepared for the catastrophe,” muttered Mr. Berkeley, who had forebodings which made the present subject not the most agreeable in the world to him.
“First, what is the Bank of England?” asked Fanny. “It is the greatest bank of deposit and circulation in the world, I know; but to whom does it belong, and how did it arise?”
“It came into existence a little more than a hundred years before the great era of its life,—the period of restriction. Government wanted money very much in 1694, and a loan was raised, the subscribers to which received eight per cent. interest, and 4000l. a-year for managing the affair, and were presented with a charter, by which they were constituted a banking company, with peculiar privileges.”
“No other banking company is allowed to consist of more than six persons; this is one of their privileges, is it not?”
“Yes; it was added in 1708, and has done a vast deal of mischief; and will do more, I am afraid, before it is abolished.[[B]]—The very circumstances of the origin of the Bank of England brought it, you see, into immediate connexion with the government under whose protection it has remained ever since. Its charter has been renewed as often as it expired; and has still to run till a year’s notice after the 1st of August, 1833. The government and the Bank have helped one another in their times of need; the Bank lending money to government, and the government imposing the restriction we were talking of in the very extremity of time to prevent the Bank stopping payment. It also afforded military protection to the establishment at the time of the dreadful riots in 1780.”
[B]. Some years after the date of this conversation, i. e. in 1826, permission was given for banking companies, not within 65 miles of London, to consist of any number of partners.
“Well: now for the Restriction Act.”
“At that memorable time, from 1794 to 1797, the Bank had to send out much more money than was convenient or safe. We were at war; there were foreign loans to be raised; heavy bills were drawn from abroad on the Treasury; and the government asked for large and still larger advances, till the Bank had made enormous issues of notes, and was almost drained of the coin it had promised to pay on demand. It was just at this time that the French invasion was expected; every body was seized with a panic, and a general rush was made to the country banks, several of which could not answer so sudden a demand for cash, and failed. The panic spread to London, and the Bank of England was beset on every side. On Saturday, the 25th of February, 1797, the coffers of the Bank had very little money in them; and there was every prospect of a terrible run on the Monday. This was the time when government made its celebrated interference. It issued an order, on the Sunday, that the Bank should not pay away any cash till parliament had been consulted; and this was the news with which the tremendous throng of claimants was met on the Monday morning.”
“I wonder it did not cause as fierce a riot as that of 1780,” observed Fanny. “It is such an intolerable injustice to induce people to take promissory notes on condition of having cash whenever they please, and then to get government to prohibit the promise being kept!”
“There would have been little use in rioting,” replied Horace. “Things were brought to such a pass that the Bank must either fail that day, or defer the fulfilment of its engagements; and as things were at this pass, the restriction was perhaps the best expedient that could have been adopted. Nobody, however, supposed that the prohibition would have been continued to this day. Here we are, in 1814, and the Bank has not begun to pay off its promissory notes yet.”