Nearly £16,000,000 are invested in Government securities; and though any advances made to the Government by the Bank on deficiency bills are included therewith, the description is correct, as a loan to the British Government is as safe as Consols. Just before the dividends on the funds fall due the balance in the Exchequer is often insufficient to meet requirements, and it is then that money is borrowed from the Bank of England on deficiency bills. Of course the Bank also advances to the Government for other purposes, and the extent of these loans may be seen in the statement issued by the Chancellor of the Exchequer each week.
The next entry on the Assets side, "Other Securities," is extremely misleading, or, at least, it embraces such a wide variety of assets as to make the entry practically useless to all who wish to ascertain the real position of the Bank. Included therein are (1) All the investments of the Bank other than Government securities; (2) Loans to customers and to the Stock Exchange, and bills of exchange discounted for customers and for the bill brokers; (3) The book value of its various premises, unless, of course, its head office and branches have been paid for out of the profits of previous years, on which subject the return does not enlighten us.
The balance sheets of some of the minor joint stock banks are disgracefully compiled, but, with respect to this one entry, the Bank of England return runs them very close, and it seems a pity that so powerful a corporation does not set a better example. The Bank, because it holds the bankers' reserves and keeps the Government accounts, is often able to corner the outside market; therefore the least it can do is to issue a plain statement, which will enable the public to see the exact situation created by the unique position it occupies.
The return is badly worded, and essential information is certainly withheld, while distinctness is not by any means one of its good points, for nobody, unless he studied the statement with the greatest care, could possibly divine the meaning of some of its quaint, old-world phraseology. But, as we all know, "great men and great things are never in a 'urry"; and the Bank of England, which is great in the best sense of the word, like the Government whose account it keeps, has never been known to anticipate a new development. A pedigree person always swears by the old. But the time has surely arrived when public opinion should compel the directors to issue a fuller and less ambiguous weekly statement. The present form was no doubt a model of lucidity in 1844; but it is woefully behind the times in 1902.
The last two entries on the Assets side form the Bank's reserve of legal tender. Strictly speaking, a bank's cash reserve is that sum which it has set aside to meet possible demands of an abnormal character, and as the Bank of England's till-money is included in the two entries in question, the total, £23,616,229, cannot be considered a true reserve, as a certain deduction has first to be made therefrom to provide for the ordinary demands made upon its resources in the usual course of business. Further, the Bank, because it is the bankers' bank, is peculiarly exposed to large drains of specie and notes. It follows, therefore, that to ascertain its true reserve, a very large amount would have to be deducted from the sum in question. A true reserve is a sum set apart for a particular purpose, of which no portion is used in the business it is intended to guarantee. It is a fund apart. Consequently, a banker's real reserve is obtained by deducting from his legal tender in hand the sum he requires for the conduct of his business. The Bank of England, however, needs more till-money than an ordinary banking institution.
Glancing at the liability side of the statement, we see that the first two entries represent working capital. In other words, £18,369,736 is a fixed sum, against which it is not necessary to hold one penny in reserve, because no withdrawals can be made therefrom during a time of bad credit. Such an immense amount of working capital makes the Bank of England more independent of its depositors than is the ordinary joint stock bank, and, therefore, its strength as a banking company is increased appreciably thereby, for the weakness of our banking system is due entirely to a fear of possible sudden demands on the part of depositors.
Still keeping on the same side, the last three entries give us the Bank's liabilities to the Government and to the public; and as large demands upon this sum of £52,910,089 may be made at any moment, a sum of notes and coin is held in the Banking Department to meet them. This sum, the Bank's so-called reserve, amounts, we know, to £23,616,229, and we next have to ascertain the ratio per cent. it bears to the liabilities in question. The following sum will supply the answer:
(£23,616,229 × 100) / (£52,910,089) = £44·6%