The Government Debt, Other Securities, and Government Securities amount to £34,001,080, which works out at a ratio per cent. to liabilities of £40·81, making the ratio of total liquid assets £83·83. A debt owing by the British Government is rightly included with the liquid assets of the Bank, for when the credit of the Government ebbs our banking companies, which hold huge amounts of Consols, will no longer be solvent institutions; but no reasonable man imagines that an edifice which has been centuries in building, and which is still far from being either complete or perfect, will "go under" in a day, though all know that it cannot last for ever in its present form. We, however, only live sixty years or so, and therefore each generation of business men considers what will last out its time, and troubles itself but little about what the state of commerce will be fifty years later, as though dimly conscious that, in the end, man will have to go back to the land.
The Bank, we see, possesses £83·83 in cash and the very best securities to meet each £100 it owes to the public. Such figures cannot fail to impress one, for they prove indisputably that, on its merits, the Bank of England is by far the strongest banking company in the three kingdoms. They should not, however, blind our eyes to the fact that the Bank is a credit institution, and that were its creditors to go for gold in a body it would inevitably "smash," for, as we can see from the figures in the first column of the table on page 49, it never keeps a supply of the precious metals equal to its liabilities on demand. But, for all that, the Bank is splendidly prepared to meet every probable demand; and one cannot ask more of its directors.
It would be easy enough to write an indictment against the Bank, proving that its policy is all wrong, that it could not discharge its obligations under certain given conditions, and that, therefore, it is a menace to the solvency of the country. But such deductions, which have already been made by more than one critic, are crass nonsense, and only testify to the critics' ignorance of the subject. We know that the Bank's system is not by any means a perfect one, but, surely, the person who advertises an infallible financial system is either a great rogue or a great simpleton; for why is he not himself rich beyond desire?
The Bank of England, it is admitted, cannot meet its liabilities on demand, and most people would think that its directors had gone mad if they prepared to, while the stockholders would certainly threaten to turn out those directors who proposed a policy which would reduce the value of their stock considerably below parity.
The question seems to be: Is the Bank of England sufficiently prepared to meet all likely withdrawals of gold by its customers and by the holders of its notes?
The two columns, which give us the amount of the Bank's liquid assets, tell us plainly enough that the Bank of England was well prepared on the 1st October. We can see that it held a good supply of coin and bullion, and, secondly, a valuable list of convertible securities; but as the securities are only convertible so long as the Bank, which holds the reserves of cash of all the banks in the United Kingdom, is in a position to meet all probable demands upon its store of gold, it is evident that the first ratio is of paramount importance.
The Bank of England, which possesses the only large store of the precious metals in this country, has to meet both the home and foreign demands for gold. It follows, therefore, that its ratio per cent. of Reserve to Liabilities is eagerly scrutinised each week on the publication of the return, because it indicates whether or not loanable capital is likely to be dear or cheap. The means at its disposal for maintaining an adequate supply in reserve will be discussed later on.
Should the said ratio fall below, say, forty per cent., then it is prudent to inquire the reason; and should it recede to, say, thirty-three or thirty-four per cent., then there may be cause even for apprehension; but so long as the Bank of England keeps a fair ratio of reserve to its public indebtedness, there is no cause for alarm: though a bank which holds the national reserve must always be extremely cautious, even when credit is good and there is not a breath of suspicion in the air, for the proverbial little cloud gathers strength with incredible speed when once it does appear.
Undoubtedly our banking system is exposed to the gravest dangers, but as it brings us cheap money we accept the risks; and unless a critic can produce a workable scheme which will eliminate the hazard and retain the blessing of cheap loanable capital, he had better by far confine his attention to those safeguards that reduce the risks of our present system, which is workable, to a minimum. Provided the Bank of England keeps an adequate reserve in the Banking Department, we have at least the satisfaction of knowing that all that can reasonably be done to ensure safety has been done, and that those risks, which a credit bank cannot avoid under any system, have at least been insured against under our own.