No other Bank shall be erected, established, or allowed by Parliament, and that it shall not be lawful

1 6 Anne, ch. 22; 15 George II., ch. 13.

It is clear from this language that Parliament understood by "banking" only the issue of notes, and that the exclusive privilege of the Bank did not prevent the issue of such notes by partnerships having only six partners or less, nor the performance of the other banking functions by companies or partnerships of a greater number of partners. Notes continued to be issued by the London private banking houses, some of which were of longer standing than the Bank of England itself, and by country bankers, of whom the number increased rapidly in the second half of the eighteenth century. The London bankers, it is true, began not far from the year 1772 to discontinue the issue of notes, finding the check system identical in its advantages and more convenient in practice; but their right of issue was merely in abeyance, until it was formally taken away in 1844. The country bankers, however, with many vicissitudes of fortune, have continued the issue of notes to this day, subject to the restrictions contained in the Bank Charter Act of 1844, presently to be described.

That the Bank monopoly in its strict interpretation also permitted the exercise of all banking functions, except issue, by joint-stock banks and companies of more than six persons, had indeed been noticed, but seems to have been little considered, until the discussions of 1826, which were renewed upon the revision of the charter in 1833. The growing demands of the country for banking facilities, and the slowness with which the Bank of England responded to these demands by the establishment of branches, caused much unsound banking by private firms, while a lingering doubt as to the meaning of the monopoly prevented the foundation of joint-stock banks with large capital. Lord Liverpool is reported as declaring in 1826, that the effect of the law "is to permit every description of banking, except that which is solid and secure." The result of this state of things was that, notwithstanding the resistance of the Bank of England, an act was passed in 1826, giving to companies of more than six persons the right of issuing notes, when established at a greater distance than sixty-five miles from London, thus creating an important exception to the monopoly hitherto enjoyed by the Bank. The act of 1833, for renewing the charter, also expressly declared that companies and partnerships, although composed of more than six persons, might carry on the business of banking in London, or within the radius of sixty-five miles, provided they should issue no circulating notes.1

This legislation was followed by a great extension of joint-stock banking. The London and. Westminster Joint-Stock Bank, still one of the leading banks of deposit in England, was established the next year,2 and many banks of issue began business outside of the geographical limit. The extension, however, was too rapid to be sound; the disturbed condition of business affairs for a large part of the next decade stimulated agitation; and public opinion was disposed to find in a vicious note circulation the cause of the repeated commercial crises. The terms of the act renewing the charter of the Bank of England gave to the government of Sir Robert Peel in 1844 an opportunity, both for revising the organization of the Bank, and for putting an end to the increase of the issues of the joint-stock banks, and the result was the passage of the measure known as the "Bank Charter Act of 1844," or "Peel's Act," in which are embodied the leading provisions by which the bank note circulation of England and Wales is now regulated. By this act, Parliament undertook to make the notes of the Bank of England secure, and to payment could be deemed morally possible, and made it unnecessary to fix any limit to the issue.

1 7 George IV., ch. 46; 3 and 4 William IV., ch. 98.

2 The London and Westminster was for many years under the management of James W. Gilbart, author of several works on banking, and owes its existence largely to his sagacity. For a short account of its early struggles, see Gilbart, Principles and Practice of Banking (ed. of 1873), p. 462.

limit the issue of bank-notes of all other kinds in England and Wales.

To accomplish the first of these objects the act provided for the division of the Bank into two departments, the Issue Department and the Banking Department. The former was charged exclusively with the issue and redemption of notes; the latter was charged with the other functions of banking, including the ordinary business of discount and deposit; and in all dealings with each other the two departments were made as independent as if they belonged to distinct corporations. For all notes issued by it the Issue Department was required to hold either government securities, or coin or bullion; and the amount of securities which it could hold being limited by the original provision to £14,000,000, it followed that for all notes outstanding in excess of that amount it must have an equivalent in the precious metals.1 As experience had shown that the ordinary uses of the country never failed to require an amount of notes higher than £14,000,000, this provision insured the presence of coin or bullion for the redemption of all notes whose presentation for the ordinary business of the Issue Department was thus reduced to the automatic function of giving out notes for coin, or coin for notes,1 to whatever extent and from whatever quarter such exchange might be required.

1 The act provides that of the coin and bullion held by the Issue Department one fifth may be silver. For the reason for this provision see Hansard's Debates, May 20, 1844, p. 1334. The Bank ceased to hold silver for this purpose in September, 1853, but temporarily exchanged $2,000,000 of gold for silver with the Bank of France in i860. Economist, Nov. 24, 1860. The conditions on which silver might again be held were stated by the Bank in 1881. Conférence Monétaire Internationale, ii., p. 139.