Banking Department.
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| 2 Oct., 1901. | 24 Sept., 1902. | 1 Oct., 1902. | Increase. | Decrease. | |
| £ | Liabilities. | £ | £ | £ | £ |
| 3,790,617 | Rest | 3,804,611 | 3,816,736 | 12,125 | ... |
| 10,874,581 | Public Deposits | 8,301,490 | 10,025,973 | 1,724,483 | ... |
| 41,204,129 | Other Deposits | 40,373,382 | 42,695,526 | 2,322,144 | ... |
| 143,965 | Seven-Day Bills | 192,886 | 188,590 | ... | 4,296 |
| £ | Assets. | £ | £ | Decrease. | Increase. |
| 18,022,103 | Government Securities | 14,594,260 | 15,826,080 | ... | 1,231,820 |
| 27,158,440 | Other Securities | 26,302,606 | 31,837,516 | ... | 5,534,910 |
| 23,308,720 | Notes | 24,086,105 | 21,391,145 | 2,694,960 | ... |
| 2,077,029 | Gold and Silver | 2,242,398 | 2,225,084 | 17,314 | ... |
| £6,771,026 | £6,771,026 | ||||
| 48⅝% | Ratio | 53·87% | 44·6% | ||
| 3% | Bank Rate | 3% | 4% | ||
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Why, it may be asked, is so much importance attached to this return, and why do the critics, each week, endeavour to state precisely how much the "market" has borrowed from, or repaid to, the Bank, and to explain the cause of the various accretions and diminutions in the different assets and liabilities? With regard to the latter attempt, each critic, it is said, is quite convinced that he alone understands the true inwardness of the various movements which result in the increases and decreases recorded in our table; but it is just whispered that those persons at the Bank of England who know the cause laugh at their deductions.
The return is of the greatest moment to the public, for the simple reason that it shows the ratio per cent. of the Bank's reserve of notes and cash in hand to its liabilities, and, also, the amount of coin and bullion in the Issue Department. The Bank holds the final reserve; and if demand is brisk and the other bankers have advanced largely to the outside market, the bill brokers are driven to the Bank. As the banking companies have advanced all their spare capital, demand can only be supplied from the reserve at the Bank of England; and the Bank, which must protect its gold, checks demand by charging high rates to all who borrow.
The return, then, tells us whether loanable capital is likely to be cheap or dear. If the ratio to liabilities be small, and the store of gold diminishing, we know that demand has reached the Bank, and that money will be dear. When money is dear, Consols and other so-called gilt-edged securities are almost certain to fall in value. If it become really scarce, then the banks, which lend huge sums on the Stock Exchange, charge the brokers enhanced rates, and "carrying over" becomes difficult. Numerous speculative accounts have to be closed, and securities, consequently, fall in price.
Now, a glance at the return of 1st October, 1902, shows that the ratio on that date is 44·6 per cent., and the Bank's discount rate four per cent. The bullion in the Issue Department decreased £1,492,620, and the Bank, in order to arrest this drain, raised the rate from three to four per cent. The political unrest in France, which at first threatened to disturb the London money market, and the tightness of money in New York, were, undoubtedly, two factors which largely influenced the decision of the directors, who, no doubt, also took into their consideration the fact that the autumn demand for currency might further reduce their reserve. Noticing that Consols were at 93-1/8, and believing that the stringency was only temporary, one might feel disposed to buy, trusting that cheaper money during the earlier part of the new year would drive them up to 96 or so.
The weekly return of the Bank of England, then, is the barometer which tells us whether loanable capital is either scarce or abundant, dear or cheap; and, when read with the Board of Trade returns and the foreign exchanges, it enables us to guess, with more or less uncertainty, but still intelligently, and with a degree of probability, whether or not money is likely to be in future demand. The Railway and Bankers' Clearing House returns, too, indicate the course of trade, and are of more than academic interest. It is, however, always wise to remember that finance is not an exact science, for if it were the theorists would be fabulously rich; and we know that they are generally so hard up as to be compelled to write books and financial articles for a living.
Now we can see why the Bank of England's weekly balance sheet is keenly interesting to every person who possesses capital either to lend or to invest, to dealers in bills and securities, and to every speculator on the Stock Exchange, as a strong or a weak return may make all the difference to the rates charged on "contango" day. Borrowers and lenders are equally concerned, for the rate of interest does not depend upon the caprice of any individual or of any bank, but is solely the outcome or result of demand and supply; and demand, when the banks have exhausted their supplies of spare capital, then centres itself fiercely upon the Old Lady of Threadneedle Street simply because she holds the final reserve of cash, and for no other reason whatsoever.
Reverting to our statement, we find that the increases and decreases of the various totals balance each other; and if the differences agree, then the assets and liabilities, on adding the Bank's capital of £14,553,000 to the latter, must also balance each other, for the simple reason that the Bank keeps its books by double entry. The best system of bookkeeping which can possibly be adopted is the simplest system, because the very fact of accounts being complex and involved is sure to result in a multiplicity of mistakes, which prove that the system is faulty. In double entry there must be a debit for every credit; so every sum debited to one account in the books of the Bank of England is credited to another or to others; and as the assets and liabilities in the statement tally, therefore the balances in the last two columns, which are the result of multitudinous debits and credits made during the week, must agree also. But how is it possible for an outsider to follow these internal movements? He simply cannot. Consequently his deductions made from the differences shown week by week are sometimes very wide of the mark, and, for his own reputation's sake, it would be wiser if he were to confine his remarks principally to the all-important questions of the ratio in the Banking Department and the bullion in the Issue Department.