There was nothing, however, to show that a great stringency would take place in the autumn, although the reserve of gold in the bank was £1,000,000 less than in the previous year. In fact it was predicted that no great drain of gold would take place in the autumn, but if we remember the vast amount of new undertakings which absorbed the floating capital of the market, we cannot wonder at subsequent events.

The return for 12th June showed a reduction in the reserve to 41 7/8 per cent. The bullion in the issue department was also low, viz.: Last year.....£22,884,000

June 12, 1890 .... 21,760,000

The Indian Council at this time called in money lent on the market, and the demands for loans from the Stock Exchange were large. We therefore find that the market rate was only 1/4 per cent. below bank rate.

The next weekly statement showed a reduction in the reserve to 39 per cent., the bullion being £300,000 less, and consequently the rate was raised on 25th June to 4 per cent.

At this time a large loan for the Argentine Government was expected, but it was found impossible to float a loan in the market, and this no doubt hastened the crisis in November.

The increased value for capital here caused a competition for bills by foreign lenders, and had the effect of reducing market rates.

We have already remarked that the investment of foreign money in bills on London is a favourite investment by bankers abroad.

In the following week, viz., 10th July, the market rate was equal to the bank rate. This was due partly to the suspension of specie payments by the National Bank of Uruguay, and it was thought that specie would be shipped to the River Plate.

The rate of discount was raised to 5 per cent on the 31st of July in consequence of a low reserve in the banking department, but principally due to a crisis in Argentina.

In addition to these facts, we must remember that a large number of new undertakings had been floated by syndicates, and the public not purchasing these new securities a large lock up of capital had followed.

The high bank rate attracted gold to this country in consequence of foreign houses competing for bills, and on the 21st August the rate was reduced to 4 per cent. Scarcely a month had elapsed before the rate was raised to 5 per cent., and although the gold reserve was low, yet no doubt the bank directors were guided in their decision by other events which were not realised until November.

The Stock Exchange settlements showed a large increase which was due largely to securities being sold to meet losses. For example: -

The market rate being the same as the bank rate showed the scarcity of capital, and the Stock Exchange settlement for the first fortnight in October was concluded with great anxiety.

This settlement foreshadowed the collapse in November, because a great fall in South American securities had taken place. The bank directors realised the position of affairs, and on 7th November raised the rate to 6 per cent.

Money became very scarce, and in addition the market was full of rumours respecting the financial position of houses of world-wide repute. When it became known that the great house of Baring was in difficulties, it seemed as if a panic would occur. Fortunately for the credit of this country, the governor of the Bank of England grasped the situation and endeavoured to maintain England's financial position. The leading banks agreed to form a guarantee fund, in order that the acceptances of Messrs. Baring, amounting to £15,000,000, should be paid as they fell due. The Bank of England also strengthened its position by borrowing £3,000,000 of gold from the Bank of France and £1,500,000 from the Russian Government. This had the effect of restoring public confidence, and what might have been a great crisis in our commercial history passed away, although the effect of the crisis was felt for several years.

It is satisfactory to observe that all the acceptances were paid, and the guarantors in 1895 were relieved of their liability. A company was formed to take over all the outstanding assets of Messrs. Baring.

The Bank also lent freely to those who required accommodation, although 7 per cent. and 8 per cent. was charged for such loans. This was shown by the other securities, which increased £6,079,000. Such high rates could not but fail to attract capital to this country, and when this was effected the rate was reduced in December to 5 per cent.

The year will always be a remarkable one in the history of finance, because of the new departure by the Bank of England. It showed that the other banking institutions are now so powerful that it is advantageous to have united action in order to avert a crisis. The commerce of this country is so dependent upon credit that it is desirable to have some protection for bond fide undertakings when an unsound system of finance creates a panic in the country.

We have endeavoured to show some of the causes which influence the bank rate, and how all the forces at work in the money market are concentrated upon the reserve at the Bank of England. We have also observed that changes in the rate of discount are due to the movements of comparatively small amounts of capital, this being especially the case in the short loan market, where fluctuations occur daily in consequence of the requirements for capital being of a variable nature.

The cause of such changes is of great importance to the banks of this country, which not only lend their surplus capital in the short loan market, but also regulate their charges for loans somewhat in accordance with the bank rate.

It would be advantageous if the question of reserves, as affecting the rate of discount, was fully discussed by the representatives of the banks, in order to ascertain what amount of capital should be held to meet any contingency. If this question was thoroughly understood, we might have a less number of changes in the rate of discount, due to the absence or presence of small amounts of gold at the Bank of England. It might also prevent great discrepancies between the market rate and the bank rate, and thus tend to make the latter more effective.

Again, if bullion was required, the united action of all the banks would materially assist towards obtaining the metal from abroad.