Though the Bank's rate is not always the same as the market rate, it is seldom very much out of touch therewith. When the directors find that their rate of discount is too high to attract custom, then, if the reserve be also high, they lower their minimum in order to get a fair share of the business that is doing. Their other alternative, of course, is to borrow on stock, and in that manner to compel the bill brokers to pay them a reluctant visit.
The policy of the Bank has never been one of "grab," though the bill brokers often grumble; but its position, in relation to the market, is an extremely difficult one, so difficult at times as to be fraught with great anxiety; and remembering the power that devolves upon it by reason of its holding the bankers' balances, its policy seems one of enviable restraint and moderation. But that is only what everybody expects of the Bank of England.
CHAPTER X.
The Battle of the Banks.
But little has hitherto been said concerning the relations of the Bank of England with its rivals in the money market, and in order to trace the movement from its beginning we must return to 1826, in which year joint stock banks could be established in England at a greater distance than sixty-five miles from London. The Bank stoutly resisted this innovation, but the Government, in consequence of the constant failures of the country private bankers, passed the Act of 1826, and the thin edge of the wedge once inserted, the Bank's monopoly in London soon disappeared.
The London and Westminster, despite the determined opposition of the Bank of England, opened business in London during 1834, and the Bank's monopoly of banking was gone. All that then remained to it was the exclusive privilege of issuing notes in and within sixty-five miles of London, the only legal monopoly it still enjoys. Unable to keep the joint stock banks out of London the Bank actively opposed them, as also did the private bankers, who, while the Bank refused to open accounts for the new companies in its books, declined to admit them into the Clearing House, which was founded by the London bankers about 1775. The irony of Fate! They are now a feeble minority in a house of their own building. But history—both domestic and economic—can supply parallel instances.
Although the new system was destined to drive out the old, the joint stock banks made a bad start, and failures were at first so frequent that the public began to share the opinion of the Bank and to look upon them as anything but safe institutions. They were born in disaster, and their policy did not provide an antidote to the old evils; but, like the Bank of England itself, they were taught prudence by a series of panics and upheavals which threatened to wipe them out of existence. They were, in short, licked into shape, and that cautious prudent policy which now distinguishes our great banking companies is the fruit of a very bitter experience.