Speaking generally, the Public Deposits and the Other Deposits vary inversely. When the Public Deposits are abnormally high, Other Deposits are usually low, and vice versa. The reason is that when large amounts are paid to the Government credit, as, for instance, during February and March, when arrears of taxes are paid and the Government is preparing for the close of its financial year, or at times when instalments of a Government loan are payable, such amounts are paid to a very great extent by cheques on Other Banks, which, of course, reduce the Bankers' balances. On the other hand, when the Government pays the dividends on Consols and other stock, large sums are liberated from the Public Deposits and find their way to the deposits of the Other Banks.

In normal times a high total of "other deposits" is usually coincident with cheap money and plenty of loanable capital. For instance, in 1890 when the average Bank Kate was as high as £4 10s. 5d. per cent., the average of the Other Deposits was £27,526,000. But in 1896, when the average of the Other Deposits was £49,390,000, the Bank Kate only averaged £2 9s. 8d. (a)

In some circumstances, however, such as those which point to an impending monetary crisis, or any serious disturbance of the Money Market, the Other Deposits rise rapidly at the same time that the Bank Kate rises. The reason for this is that when anything threatens the peace of the Money Market, the London banks prepare for the worst and endeavour to strengthen their position. In order to do this they call in their loans to the Market and increase the amount of their balance at the Bank of England, which can be drawn upon at a moment's notice. In the crisis of 1857, when the Bank Act had to be suspended, the Bankers' balances stood on November 4th, at the beginning of the crisis, at £3,400,000. By November 25th they had risen to £5,400,000, an increase of £2,000,000. In 1890, the year of the Baring crisis, we have not the figures of the Bankers' balances, but the Other Deposits show a no less marked rise, from £29,171,968 on November 6th to £36,364,838 on November 20th. In both of these instances there is not the slightest doubt that the rise was due to the action of the bankers in calling in their short loans so as to strengthen their position in view of the impending crisis.

(a) Palgrave, Bank Rate and the Money Market, pp. 12 - 15.

The final item we have to notice on the liability side of the return is "Seven-day and other bills," £99,251. This item is a very small one and of small importance, though at one time much greater in amount. It consists chiefly of "Bank Post Bills," which are in effect bills issued by the Bank of England drawn upon themselves at seven days' date. They are used for remitting money, and do not require three days' grace when calculating the date of their maturity.

The first item upon the asset side is Government Securities, £14,234,402. The Bank do not give the public any information about the details of the securities in which they invest their money, beyond thus dividing them into "Government' and "Other" securities. This total of fourteen millions includes the Bank's investments in British Government stocks, Exchequer Bills and Treasury Bills; it also sometimes includes what are called "deficiency bills." It may happen that the Government has not enough money to pay its dividends, and it will then offer to the Bank "deficiency bills" for discount. Other securities, £25,049,787, consist of all the other investments of the Bank, such as Indian and Colonial Government stocks, and corporation loans; also bills discounted and loans to customers and bill brokers.

It will be noticed that the term "securities" as used in the Bank Return has a wider application than that which it usually receives among bankers. It does not only mean Stock Exchange securities and other documentary evidences of title; it includes also loans made by the Bank, apart from the question of anything being deposited to "secure" the loan in the ordinary sense. Any advance made by the Bank will therefore increase the amount of either Government Securities or Other Securities.

We have no means of learning the details of the Bank's holdings of bills, but it is generally understood that they do not buy foreign bills, that is, bills accepted payable abroad. Many of the Continental State banks, however, habitually invest part of their assets in bills maturing at some other financial centre, as, in case of emergency, this gives them the power of acquiring gold by discounting the bills in the place where they mature.

Reference was made in the last chapter to the meaning of the phrase that the Market was "in the Bank," that is, that it was driven to borrow money from the Bank of England. When this happens it often shows itself in the Other Securities and Other Deposits. If the Other Bankers either refuse to lend or call in a proportion of the loans they have already made, the total of the Other Deposits will rise owing to the increase in the bankers' balances. The Market being driven to the Bank, the Other Securities, which comprise the loans made by the Bank, will rise, so that a simultaneous rise in Other Deposits and Other Securities is often evidence of a desire on the part of the Other Bankers to strengthen their position.

The last two items on the asset side, notes £23,607,925 and gold and silver coin £2,024,260, form the Reserve of the Bank, the reserve on which our whole banking and financial system may be said to rest. The total liabilities of the Banking Department, exclusive of those due to the proprietors of the Bank, are £46,859,956, so that the Reserve on the date in question was nearly 55 per cent. of the liabilities to the public, a percentage much higher than that kept by the joint stock banks, which is usually about 15 per cent. The notes which form part of the Reserve are the surplus not required by the public; they are represented by gold in the Issue Department, and should gold be required, as, for instance, for export purposes, the notes can be cancelled and gold withdrawn from the Issue Department, so long as the notes in active circulation do not fall below the limit of the fiduciary issue, viz., £18,450,000. Fortunately this latter event is not likely to happen. The amount of the active circulation is very steady, and even in times of panic shows no tendency to decrease, being at all times well above the limit of £18,450,000. Consequently there is always more than sufficient gold in the Issue Department to pay all the notes held in the Reserve of the Banking Department. Should the demand for gold ever prove so great that the Reserve is exhausted, there is therefore an ultimate reserve of gold in the Issue Department which can be used by temporarily suspending the clause of the Bank Charter Act of 1844 which compels gold to be deposited against every note issued beyond the limit of the fiduciary issue.

Mention is sometimes made in the Money Article of the price at which the Bank sells gold, and this demands a word of explanation. The price at which the Bank buys gold is fixed by law at £3 17s. 9d. an ounce, but it may sell it at whatever price it can get. Of course if the individual who wants gold demands sovereigns or half-sovereigns, the Bank cannot alter the price; it must pay five sovereigns for every £5 note or cheque. But the Bank also keeps quantities not only of gold bullion, but also of foreign coin, and if a certain form of gold is in demand the Bank have the power of very slightly raising its price. If anyone requires gold for export and takes this gold in the form of sovereigns, he will find these sovereigns are not all of full weight owing to wear and tear, although they may not be sufficiently worn to prevent them being legally current. But for export purpose gold is current by weight, not by tale, and therefore the individual will probably be willing to pay slightly above the Mint price of £3 17s. 10 1/2d. for gold bullion. Or it may be that he is exporting, say, to Germany and prefers German coin. In either case the Bank are often able to obtain 1/2d. or Id. an ounce above the Mint price for gold bullion or foreign coin. It is not often that the price rises above £3 17s. 11 1/2d., because in that case there would be a strong inducement for exporters to pick out the heaviest coins from those in circulation, which would have a bad effect on the condition of the coinage.