As no attempt was made by law to protect by-preference any special class of liabilities, before the passage of Peel's Act, it follows that the resources set down in this statement were held equally for notes and deposits; and it is at least conceivable that there might be so strong a demand for coin by depositors or note-holders, or both, as to exhaust the reserve, while a large issue of notes was still outstanding, in which case payment of the notes must be suspended. Thus in the extreme panic of December, 1825, the coin and bullion of the Bank was reduced to £1,027,000 and suspension was imminent, while notes were still outstanding to the amount of £23,359,840. Such a possibility became still more serious after the act of 1833 declared that the notes of the Bank, so long as they continued to be redeemed on presentation, should be a legal tender in England and Wales in all payments except those at the Bank itself. It was, therefore, an important object, in separating the departments, to insure the payment of the notes in any event by pledging for that purpose a sufficient amount of securities and of specie.1 How this result was accomplished is easily seen in the form of statement of the Bank account, adopted upon the passage of the act, and ever since adhered to:

Debt is the loan made by the Bank to the government, in order to secure its charter; and Other Securities include loans and advances to customers upon security.

1 Whether in case of the insolvency of the Bank the securities and specie in the Issue Department would be held for the preferred claim of the notes, or would become a part of the general assets, to be divided among all the creditors, is not explicitly declared by the act and has been doubted. But it has no doubt been the common understanding, from the first, that the devotion of the resources of the Issue Department to the payment of its notes is indefeasible. See Parliamentary Documents, 1857-58, v., p. 427.

2 The above shows the effect of the separation of accounts taken by itself. For convenience the Banking Department also transferred 8.2 millions of coin and bullion to the Issue Department and received notes therefor, so that in the published accarried on through London. The banks through which a cosmopolitan business of this kind passes must at times find themselves subject to great and sudden demands. The nature of their liabilities is not constant; it varies with every change in the condition of any foreign country of importance, and is at one time steady, and at another time uncertain. The reserves, therefore, which are at one time adequate for the protection of these liabilities, are at another time too small. These reserves, however, which belong to the individual members of the great system of banks, are in practice not held by the banks themselves. The London banks, from long habit, keep their chief reserves as private persons might, deposited in the Bank of England A retaining in their own hands only such small amounts as are needed for the demands of the moment, and drawing upon the Bank for more important sums. Of the "other deposits" of the Bank of England a large part represents the liability of the Bank to its neighbors incurred in this manner.1

The thoroughness of the provision here made for the security of the bank-note is attested by the fact, that since the passage of the act there has never been a moment when the convertibility of the note has been open to doubt. The lowest point to which the notes in actual circulation outside of the Bank have ever been reduced was a little below £17,000,000 in December, 1848, and this left in the vaults of the Issue Department nearly £14,000,000 in specie, with no demand for it on the part of the public. Indeed, the Bank of England note, under the act of 1844, has become little more than a warrant entitling the holder to so much gold actually lying in the Bank vaults, and thus the whole question as to the solvency of the paper currency has been removed from the field of debate, where it had been agitated for so many years. The Issue Department gains nothing from an increase of the circulation, and can lose nothing by its diminution. The whole problem as to the bank-note is reduced to a mere inquiry as to the preference of the public for coin or for a certificate calling for coin.

It is evident also that to the Banking Department it is of no consequence, except as regards convenience, whether it uses notes or gold in its business. If it prefers gold it has only to send in for redemption such notes as it holds or receives counts the banking reserve was 8.2 millions of notes and .8 million of coin, and both the notes and the coin and bullion in the account of the Issue Department were raised by 8.2 millions.

in the course of its business; if it prefers notes it has only to send in its gold for exchange, its reserve is in fact composed like that of any other bank, of gold or of notes which are good for gold, or of bothy and this reserve it must procure, must maintain, and in case of need must replenish, as any other bank must, by properly adjusting its purchases of securities. Its profits would obviously be the same as now if it discontinued the use of notes altogether, except so far as its business might be affected by the mere difference of convenience to its customers. Indeed, nearly the whole income of the Bank of England, beyond the simple return on the investment of its capital, is derived from the use of its credit in the form of deposits in the Banking Department. So far as concerns the Issue Department, the only possible source of income open to it under the act of 1844 is limited to the interest received on the government debt and securities held by it now amounting, as has been said, to £18,450,000.This interest is offset, however, by payments to the government and by other charges, to such an extent that the question has been raised seriously, whether it would not be for the advantage of the stockholders if the Bank were relieved from all connection with the issue of notes. Complete as is the separation between the departments in theory, and generally even in fact, it has nevertheless happened several times, under the exceptional conditions of a financial crisis, that the embarrassments of the Banking Department have affected the issue of notes, in a manner not originally contemplated by the framers of the act. On four occasions it has been found necessary to disregard that provision which limits the securities held by the Issue Department, and more than once besides this extreme measure has been escaped with difficulty.1 In order to understand the real significance of these occurrences, it is necessary to take into consideration the circumstances under which the Bank of England holds its banking reserve.