The Bank met this dilemma by raising its rate of discount on the 5th to nine per cent., in the hope of repelling the least necessitous borrowers, and by making in the course of the next week an increase of loans to the amount of three millions and a half. Before the end of the week, however, the state of affairs had become desperate. The general alarm had deepened with the rapid succession of failures in the commercial world and the suspension of the great Western Bank of Scotland, and the moderate increase of loans by the Bank of England had done nothing toward quieting the public. Some sales of securities had been effected by the Bank, but the drain upon its reserve as well as the increasing liability for bankers' deposits continued. The rate of discount was raised on the 9th to ten per cent. but without avail. The joint-stock banks and private bankers had finally ceased discounting, so that from Monday, the 9th, the whole demand for loans was thrown upon the Bank of England, whose reserve by the nth had fallen to little more than one tenth of its "other deposits." On that day came the suspension of the City of Glasgow Bank, caused by the general alarm created by the failure of the Western Bank; other banks called for assistance; and a great discounting firm in the city failed on the same day. In four days, beginning with the 9th, the Bank advanced to the public over five millions sterling, but without the effect of subduing the panic or stopping the drain of its reserve. On the evening of the 12th it found itself with a liability for deposits amounting to thirteen millions, and a reserve of cash in its Banking Department of only £581,000,1

1 Of this only £384,000 was in London, the remainder being an amount which more than one depositor could exhaust by his single check. This feeble reserve might be expected to disappear before the close of the next day.

In all this there had been nothing resembling a run upon the Issue Department. Gold required for export or for the interior was indeed drawn ultimately from that department, for it was provided by those who were directly or indirectly creditors of the Banking Department, who drew therefore from the banking reserve and thus caused notes held in that reserve to be presented to the Issue Department for redemption. But the gold was not obtained by the presentation of notes hitherto in circulation or held outside of the Bank, for from the 10th of October to the nth of November, the amount of notes thus in the hands of the public is shown by the account to have been almost without change. What had occurred was that the Banking Department had been caught, at the beginning of a severe pressure, with an insufficient banking reserve and had been slow in taking measures for escape. The position of the Bank was such as that of the London and Westminster Bank might have been, had its reserve of cash run down while its liability was large, except that the latter had no chain of dependent banks. It was a case of near approach of failure, as simple in its essentials as that of any private banker who is unable to meet held by the branches of the Bank. See Parliamentary Documents, 1857-58, v., p. 55.

his depositors, or any incorporated bank which is not a bank of issue and meets with similar misfortune.

Thus the Bank, on the 12th of November, reached the end of its tether. Following the precedent of the year 1847, therefore, the management informed the "government of the critical condition in which they stood, and received in return a virtual authority for the issue by the Issue Department of a further amount of notes secured by government securities.1 Thus empowered, the Banking Department transferred to the Issue Department securities to the amount of two millions, and in exchange therefor received notes which were placed in the reserve. The operation was in effect a sale of securities to the Issue Department, in default of other purchasers, and the receipt of payment in notes, redeemable on presentation. The effect on the Issue Department was to increase the absolute amount as well as the proportion of notes issued by it upon securities instead of coin or bullion, but the notes did not cease to be redeemed in the regular course of business. Carried to a great extent the operation might plainly have weakened the notes by endangering their convertibility. Restricted as it was, however, it cannot be said to have had any real influence on the credit of the note issue. It gave to the Banking Department an immediate accession of means to the amount of two millions, with the assurance that more could be had if needed, the only discernible limit to the relief being the conceivable inability of the Issue Department to continue the redemption of an indefinitely enlarged issue of notes - a theoretical limit too distant to have any practical bearing.1

1 This practical setting aside of an act of Parliament was in the form of an assurance that, if the Bank found it necessary to take the step proposed, the ministry would ask Parliament to indemnify the Governor and Company for any consequences of such illegal action. Besides the publication of the entire correspondence in the Parliamentary documents, which has been made on every occasion of the suspension of the Bank Act, the "government letter" is given by the Economist of November 14, 1857, and all the correspondence for 1866 in the Annual Register of that year,

P. 305.

The real assistance given to the Banking Depart-ment, however, did not consist so much in the actual addition of cash to its resources, as in the quieting effect of the measure on the public mind.-In every such state of affairs it is a factor of prime consequence that much of the public excitement is pure panic, - an unreasoning terror, which multiplies danger by destroying presence of mind. For the easy movement of business under the credit system, confidence in each other and in the future is necessary. The producer or merchant, using borrowed capital, relies upon the sale of goods and upon fresh loans for the means of repaying former advances, and if the current is