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Previously to the late changes, the Bank directors endeavoured, as a general rule, to have as much coin and bullion in their coffers as might together amount, when the exchange was at pur, to a third purt of the Bunk's liabilities, including deposits as well as issues ; so that, in the event of the notes afloat, and the public and private deposits in the coffers of the Bank, amounting to 27,000,000!. or 30,000,0001., they did not consider the establishment in a perfectly satisfactory state, unless she was, generally speaking, possessed of about 9,000,0001, or 10,000,0001, of coin and bullion.
The issues of the Bank were then wholly governed, at least in ordinary cases, by what Mr. Horsley Palmer expressively called " the action of the public;" --- that is, they were increased during a favourable exchange, or when bullion was sent to the Bank to be exchanged for notes ; and diminished during an unfavourable exchange, or when notes were sent to the Bank to be paid. But the vice of the old system was that this rule was not strictly enforced, and that the directors were every now and then compelled to relax it. But under the present system such relaxation is practicable only to a very limited extent, and can be but little abused, which formerly was not always the case.
It is frequently said that the value of money, and consequently that the price of all sorts of property, depends on the fiat of the Bank, by which it is capriciously elevated at one time and depressed at another. But the account previously given of the mode in whieb the issues of the Bank are regulated completely disproves such statements; and independently of this, every one who knows that the Bank must pay her notes in coin when presented, and that coin may be at all times obtained from the Mint without any charge, in exchange for bullion, must know that the very supposition of their being true involves a contradiction.
Bank of England in its Connexion with Government and the Public. – The Bank of England conducts the whole banking business of the British government.
“It acts not only," says Dr. Smith, “ as an ordinary bank, but as a great engine of state. It receives and pays the greater part of the annuities which are due to the creditors of the public; it circulates Eschequer bills; and it advances to government the annual amount of the land and malt taxes, which are frequently not paid till some years thereafter,”
Adrances by the Bank in Discounts, 8c. — The greater part of the paper of the Bank has generally been issued in the way of advances or loans to government, upon security of certain branches of the revenue, and in the purchase of Exchequer bills and bullion; but ber issues through the medium of discounts to individuals have, notwithstanding, been at all times considerable, while during war, and in periods of distress, they have been occasionally very great. Generally speaking, however, the directors do not think it advisable to enter into competition with private bankers in the transacting of ordinary banking business, or in the discounting of mercantile paper. Mr. Horsley Paliner is recidedly of opinion, that all banking business, apart from the issue of notes, is better transacted by private bankers than by public bodies. ---( Min. of Eridence, Report of 1832, p. 37.) He also thinks, that were the Bank to come fairly into competition, at all times, with the private bankers and other individuals, in discounting, it would be very apt to lead, every now and then, to an excess of the ourrency, and a fall of the exchange, producing fluctuations that could not fail to be injurious. At present, therefore, and generally since the peace, the rate of interest charged by the Bank for loans has been somewhat above the market rate. The consequence is, that, in ordinary periods, very few applications are made to ber for discounts. But, at the same time, every one who has any reasonable security to offer, knows where they may always be bad; while the rate of interest charged by the Bank necessarily forms a maximum rate which no other establishment can exceed. When, however, any circumstances occur to occasion a pressure in the money market, or a difficulty of obtaining accommodations in the usual channels, the market rate of interest immediately rises to the rate fixed by the Bank; and on such occasions the private bankers, and the public generally, resort to the Bank for aid. She then becomes, as it were, a bank of support; and has, as such, on many trying occasions, particularly in 1793, 1815 and 1816, 1825–26, and 1838, rendered essential service to publie credit, and to the commercial interests of the country. The usual limited amount of the Bank's discounts does not therefore proceed, as has been absurdly enough stated, from any indisposition on the part of the directors to render every assistance in their power to the commercial classes, but is, in fact, the effect of such disposition. They consider, and we believe justiy, that, except under peculiar circumstances, the business of discounting and banking is best conducted by private parties; and that by abstaining from coming into competition with them, they are better able to act as a bank of support in seasons of distress and difficulty. This is not to neglect the interests of the mercantile classes, but to promote them in the best and most efficient manner, even though it should be at the expense of the Bank.
At the same time, however, it must be adınitted that the interference of the Bank in assisting the commercial interest is a matter that requires the greatest consideration
and that it can only be safely undertaken under very peculiar circumstances. It should always be borne in mind that however a drain for gold may originate, the fact of its existence is of itself a conclusive proof that gold is more valuable abroad than here, and consequently that the currency is redundant and ought to be diminished. L’nder such circumstances it is the imperative duty of the Directors, in order to provide for the safety of the Bank, to prevent the vacuum caused by the exchange of bullion for notes from being again filled up by the issue of fresh notes. This may be done in various ways; but the best and surest way is by raising the rate of discount so as to lessen the number of applicants for loans. — (See post.) It is at such periods, however, that the applications for assistance are the most urgent; and it is exceedingly difficult to yield to them, and at the same time to enforce that systematical and continuous reduction of the issues that is now indispensable to reduce the currency to its proper level and to restore the exchange to par. Unquestionably the Bank allowed the stock of bullion in her coffers to be reduced in 1839 a great deal too low. And though, perhaps, as things turned out, less hardship was in the end inflicted on individuals than if the directors had adhered more to the stern path of duty, still it is extremely hazardous to trust in matters of such vast importance to the chapter of accidents; and we incline to think that in this, as in most other cases, the safest plan, or the systematic reduction of the issues whenever the exchange becomes unfavourable, is that also which, speaking generally, is most advantageous to all classes. And this, as already seen, is now all but imperative on the Bank.
In 1839, and we believe, also, on previous occasion, the Bank negociated credits abroad, and endeavoured to restore the exchange to par by selling bills on the Continent. The policy of this device gave rise to a good deal of discussion at the time; but in the particular cases it appears to us to have been most judicious; and we incline. also, to think that under the old system the same course might and should have been followed on various occasions. This device is now less necessary ; but we may still easily conceive occasions when it might be advantageous. What merchants want during an adverse exchange is good foreign bills, it being only in default of such that they export bullion; and the Bank, by supplying them with such bills, and getting, of course, her notes in exchange, is able to diminish her issues quite as effectually as if ber notes were sent in for bullion. Another advantage of this plan is, that no one knows when it is in operation, and, consequently, that it goes far to obviate that internal discredit and alarm that are apt to be produced when the stock of bullion in the Bank is reduced unusually low. In fact, had the Bank not acted, in part at least, on this plan in 1839, the probability is that she must have suspended payments.
No doubt the Bank would be exposed, if she adopted this plan, to the contingency of losing by her foreign securities in the event of the breaking out of hostilities, or of the occurrence of any event by which their value might be reduced. These events may, however, be in general foreseen and provided against ; and if the Bank's investments were judiciously made, not in one only but in several quarters, the risk they would involve does not appear to be at all equivalent to the advantage. Perhaps, as the law now stands, there may be legal objections to the Bank's holding foreign securities; but if it be expedient that she should do so, the law might be easily altered.
The amount of the discounts of private paper at the Bank and her branches varies, as already seen, greatly in different periods; and depends, indeed, wholly on contingent and accidental circumstances. Thus on the 1st of January, 1839, the bills discounted in London amounted to only 396,0001., whereas on the 3d of December of the same year they amounted to 3,926,0001.
The annual average loss by bad debts on the discounts of the Bank of England in London, from 1791 to 1831, both inclusive, was 31,698.-(Appen, to Rep. on Bank Charter, No. 60.)
Advances by the Bank to Government. These are made on account of the produce of taxes not yet received, and on the security of the Exchequer bills, &c. They varied, from 1792 down to 1810, from about 10,000,0001. to about 16,000,0001. During the remainder of the war, and down to 1820, they were a good deal larger ; but in 1819 provision was made for reducing the amount of these advances; and they do not at present, excluding the permanent advance on account of the dead weight, exceed a fourth part of their amount in 1820. They are represented by the Exchequer bills and deficiency bills in the hands of the Bank.
Balances of Public Money. --- In point of fact, however, a very large part of these advances has been nominal only, or has been virtually cancelled by the balances of public money in the hands of the Bank. Thus, from 1806 to 1810, both inclusive, the average advances to government amounted to 14,492,9701. But the average balance of public money in possession of the Bank during the the same period amounted to about 11,000,0001. ; so that the real advance was equal only to the difference between these two sums, or to about 3,500,000. This statement completely negatives, as Mr. Tooke
has justly stated, the supposition so commonly entertained and reasoned upon as a point heyond doubt, that the Bank was rendered, by the restriction, a mere engine in the hands of government for facilitating its financial operations. ---(First Letter to Lord Grenville, p. 64.)
The Bank being enabled to employ the greater part of the balances of public money in her hands as capital, they have formed one of the main sources of the profit she has derived from her transactions with the public. This subject was brought very prominently forward in the Second Report of the Committee of the House of Commons on Public Expenditure in 1807. And it was agreed in the same year, that the Bank should, in consideration of the advantages derived from the public balances, continue the loan of 3,000,0001. made to government in 1800 for 6 years, without interest, on the same terms, till 6 months after the signature of a definitive treaty of peace. In 1816, this sum was finally incorporated with the debt due by government to the Bank, at an interest of 3 per cent.
Management of Public Debt. -- Previously to 1786, the Bank received an allowance on this account--that is, for trouble in paying the dividends, superintending the transfer of stock, &c., of 5621. 108. a million. In 1786, this allowance was reduced, to 450l. a million, the Bank being, at the same time, entitled to a considerable allow. ance for her trouble in receiving contributions on loans, lotteries, &c. This, however, though long regarded as a very improvident arrangement on the part of the public, was acquiesced in till 1808, when the allowance on account of management was reduced to 3401. per million on 600,000,0001. of the public debt; and to 300l. per million on all that it exceeded that sum, exclusive of some separate allowances for annuities, &c. The impression, however, was still entertained, that the allowances for management should be further reduced. In consequence the act 3 & 4 Will. 4. c. 98. directed that 120,0001, a year should be deducted from their annount; and the late art, the 7 & 8 Vict. c. 32. directs that this deduetion shall be increased to 180,0001. During the year ended the 5th of January 1846 the Bank received 93,1111. 198, 10d. for the management of the public debt, and annuities.
It should be observed, that the responsibility and expense incurred by the Bank in managing the public debt are very great. The temptation to the commission of fraud in transferring stock from one individual to another, and in the payment of the dividends, is well known; and notwithstanding the skilfully devised system of checks adopted by the Bank for its prevention, she has frequently sustained very great losses by forgery and otherwise. In 1803, the Bank lost, through a fraud committed by one of her principal cashiers, Mr. Astlett, no less than 340,000l. ; and the forgeries of Fauntleroy the banker cost her a still larger sum! At an average of the 10 years ending with 1831, the Bank lost, through forgeries on the public funds, 40,2041. a year.*-(Report on Bank Charter, Appen. p. 165.)
The total sums paid by the public to the Bank on account of the loans raised, Exchequer bills unded, transfer of 3 per cent. stock, &c. from 1793 to 1820, both included, announted to 426,795l. 18 11d. -- (Parl. Paper No. 81. Sess, 1822. )
Dead Weight. -- Besides the transactions alluded to, the Bank entered, on the 20th of March, 1823, into an engagement with government with respect to the public pensions and annuities, or, as they have been more commonly termed, the dead weight. At the end of the war, the naval and military pensions, superannuated allowances, &c. amounted to above 5,000,0001, a year. They would, of course, have been gradually
We subjoin an abstract of the principal provisions of the statute 1 Will. 4. c. 66., with respect to the forgery of bank notes, powers of attorney, &c.
it is enacted, that if any person shall forge or alter, or shall offer, utter, dispose of, or put off, knowing the same to be forged or altered, any Exchequer bill or Exchequer debenture, or any indorsement on or assignation of any such bill or debenture, or any East India bond, or indorsement upon or assig. pation of the same, or any note or bill of the bank of England, or a bank post bill, or any indorse. ment on or assignment of any bank note, bank bill of exchange, or bank post bill, with intent to defraud any person whatsoever, he shall be guilty of felony, and shall upon conviction suffer death as a felon. $ 3.
Persons making false entries in the books of the Bank of England, or other books in which accounts of public stocks or funds are kept, with intent to defraud, shall suffer death as felons.-$5.
By the same act, the forging of any transfer of any share of, or interest in, or dividend upon, any public stock, or of a power of attorney to transfer the same, or to receive dividends thereon, is made capital. If any person), falsely personating the ywner of any share, interest, or dividend of any of the public funds, thereby transfer such share, &c., and receive the money due to the lawful owner, he shall upon conviction suffer death as a felon.-- 96.
And any person endeavouring by such false personation to procure the transfer of any share, interest, &c. in the public funds, may, upon conviction, be transported beyond seas for life, or for any term not less than seven years, or be imprisoned for any term noi more than four nor less than two years. ---$ 7.
The forgery of the attestation to any power of attorney for the transfer of stock is to be punished by transportation for seven years, or by imprisonment for not more than two and not less than one year.
Clerks or servants of the Bank of England knowingly making out or delivering any dividend warrant for a greater or less amount than the party in whose behalf such warrant is made out is entitled to, may, upon conviction, be transported beyond seas for the term of seven years, or imprisoned for not more than (*o nor less than one year --- $9.
Jessened and ultimately extinguished by the death of the parties. But it was resolved in 1822 to attempt to spread the burden equally over the whole period of forty-fire years, during which it was caleulated the annuities would continue to decrease. To effect this purpose, it was supposed that, upon government offering to pay 2,800,0001 a year for 45 years, capitalists would be found who would undertake to pay the entire annuities, according to a graduated scale previously determined upon, making the first year a payment of 4,900,0001., and gradually decreasing the payments until the fortyfifth and last year, when they were to amount to only 300,0001. This supposition was not, however, realised. No capitalists were found willing to enter into such distant engagements. But in 1823 the Bank agreed, on condition of receiving an annuity of 585,7401. for forty-four years, commencing on the 5th of April, 1823, to pay, on account of the pensions, &c., at different specified periods, between the years 1829 and 1828, both inclusive, the sum of 13,089,4191. --(4 Geo. 4. c. 22.)
Rate of Discount. - The bank discounted private bills at 5 per cent. during nearly the whole period from her ectablishment till 1824, when the rate was reduced to 4 per cent. It was again raised to 5 per cent, on the 13th December 1825, since which period the variations have been as under: From 13 Dec. 1895, to 5 July 1927
65 daye to run, and on 3 Jane 18t1 again extended to brilla 21 July 1%. 6 to 1 Sept. 18.36
From 7 Ápril 1812 to 5 Sept. 1944 i Sepe. 1836 to 15 Feb. 18.58
bills 2, notes 3
5 per cent. 4
5 July 1827, to 21 July 18,36
15 Feb. 1878 10 16 May 1939
6 2.10 Jan, 1810, toith April 1842 Limited on the 15 Oct. 1810 to bills not having more than
of 93 days,
• per cent 5 Sept. 1814 to 13 March 1815 13 March to 16 (ct. 1N45 minimum rate 29 16 Okt. 1815 to 6 Nov. 1845
3 6 Nov. 1845 to 27 Aug. 1846
34 27 Aug. 1846 to 14 Jan. 1817
and On the 14 Jan. 1847 raised to
When the currency happens, from any cause, to become redundant, its contraction, always a matter of some difficulty, is to be effected only (if she hold no foreign securities) by the sale of bullion or public securities by the Bank, or by a diminution of the usual discounts, or both. But were the Bank to throw any considerable amount of public securities upon the market, the circumstance would be apt to excite alarm ; and, even though it did not, it would be difficult to dispose of them without a heary loss. Hence, when a reduction is determined upon, it is most commonly effected, in part at least, by a contraction of discounts; and it is plain that such contraction cannot be made except by rejecting altogether some of the bills sent in for discount, or, which is in effect the same thing, by shortening their dates, or by raising the rate of interest, so that fewer may be sent in. Of these methods, the last seems to be in every respect the most expedient. When bills are rejected for no other reason than that the currency may be contracted the greatest injury is done to individuals, who, entertaining no doubt of getting their usual accommodation from the Bank, may have entered into transactions which they are thus deprived of the means of completing. When the reduction is made by raising the rate of interest, it principally affects those who are best able to bear it; at the same time that its operation, instead of being, like the rejection of bills, arbitrary and capricious, is uniform and impartial. It does, therefore, seem that the Bank should seldom or never throw out good bills that she may contract her issues; but that, when she has resolved upon such a measure, she should, provided the contraction cannot be made by the sale of bullion and public securities, raise the rate of discount so as to lessen the demands upon her for loans.
The dividends on Bank stock, from the establishment of the Company to the present time, have been as follows:
7 10 8 7
8 per cent.
Lady-dlay 1747 5 per cent. 9
1753 43 1708 Varied from 9 to
1767 5) Lady-day
1781 Michaelinas 1730
Lady-day 1788 Lady-day - 1731 6
1823 Lady-day 1732 6
Lady-day 1839 Michaelmas - 1732
5) Previously to 1759, the Bank of England issued no notes for less than 201. began to issue 101. notes in 1759; 51. notes in 1793; and Il. and notes in March, 1797. The issue of the latter may be said to have ceased in 1821 ; though they were again issued on the emergency in 1825.
Interest on Deposits. - The Bank of England does not allow, either in London or at her branches, any interest on deposits ; but it would be exceedingly desirable if she could safely make some alteration in this respect. The want of the power readily to invest small sums productively, and, at the same time, with perfect security, tends to weaken the motives to save and accumulate. Nothing has contributed more to diffuse
a spirit of economy, and a desire to save, amongst all classes of the popularion of Scotland, than the readiness with which deposits of small sums are received by banks of undoubted solidity in that part of the country, and the allowance of interest upon them.
-(See Banks (Scotch)) This advantage is now, however, in some degree secured in England, not only by the institution of savings banks, but by the joint stock banks that have been opened in most parts of the country. The receiving of deposits is indeed an essential part of the proper business of a bank. “ A banker is a dealer in capital, an intermediate party between the borrower and the lender. lle borrows of one party and lends to another: and the difference between the terms at which he borrows and those at which he lends is the source of his profit. By this means, he draws into active operation those small suins of money which were previously unproductive in the hands of private individuals, and at the same time furnishes accommodation to another class, who have occasion for additional capital to carry on their commercial transactions.”—(See Gilbart's Practical Observations on Banking, p. 52.)
In further corroboration of what has now ben stated, it may be mentioned that it is estimated by the best authorities that the deposits in the Scotch banks may amount at present (1846) to about 30,000,0001., of which more than a half consists of sums of from 101. to 2001. ! This is a most satisfactory proof of the vast importance of the system. Per. haps it is not going too far to affirm, that but for the receiving of deposits by the banks, and the allowing of interest upon them, not a third part of the sums under 2001., and not a half of those above it, would ever have been accumulated. (See BANKS ( SCOTCI). )
We are not, however, able to say whether the Bank of England could offer interest on deposits without having so large a sum forced upon her as might in periods of distrust seriously endanger her stability. And it were better that the system should continue as at present, than that any risk of this sort should be incurred.
Since 1826, the private deposits in the hands of the Bank have been greatly augmented. Their increase is mainly ascribable to the preceding panic, and the loss that was then occasioned by the failure of private banks.
Method of conducting Business at the Bunk. -- All accounts kept at the Bank with individuals are termed drawing accounts ; those with whom they are opened being entitled to draw checks upon them, and to send the bills and drafts in their favour to be presented by the Bank, exactly as if they dealt with private bankers. There is no fixed sum with which an individual must open a drawing account; nor is there any fixed surn which the Bank requires him to keep at his credit to indemnify them for their trouble in answering his drafis, &c. Mr. Horsley Paliner gave in his evidence, in 1832, the following statement as to the facilities granted by the Bank in drawing accounts since 1825:
1. The Bank receives dividends by power of attorney for all persons having drawing accounts at the Bank.
2. Dividend warrants are received at the Drawing-office for ditto.
3. Exchequer bills and other securities are received for ditto; the bills exchanged, the interest received, and the amount carried to their respective accounts.
4. Checks may be drawn for 51. and upwards, instead of 101 as heretofore.
6. Bank notes are paid at the counter, instead of drawing tickets for them on the pay clerks as hereto. fore.
7. Checks on city bankers paid in by three o'clock may be drawn for between four and five; and those paid in hefore four will be received and passed to account the same evening,
8. Checks paid in after four are sent out at nine o'clock the following morning, received and passed to account, and may be drawn for as soon as received. 9. Dividend warrants taken in at the Drawiug-office until five in the afternoon, instead of three as
10. Credits paid in to account are received without the Bank book, and are afterwards entered therein without the party claiming them.
11. Bills of exchange accepted payable at the Bank are payable with or without advice; heretofore with advice only. 12. Notes of country bankers payable in London are sent out the same day for payment. 13. Checks are given out in books, and not in sheets as heretofore.
A person having a drawing account may have a discount account ; but no person can have the latter without, at the same time, having the former. When a discount account is opened, the signatures of the parties are entered in a book kept for the purpose, and powers of attorney are granted, empowering the persons named in them to act for their principals. No bill of exchange drawn in the country is discounted by the Bank in London under 201. nor London note under 1001., nor for a longer date, under existing regulations, than three months.
The number of holidays formerly kept at the Bank has recently been reduced about a half, in the view, as stated by the directors, of preventing the interruption of business. There are no holidays in the months of March, June, September, and December, excepting Christmas; Easter Monday and Tuesday are no longer kept.
We subjoin an account of the days for transferring stock, and when the dividends are due at the Bank, the South Sea House, and the East India House: