The Bank of England was founded in 1694, not to aid commerce and business primarily, but to provide funds for the Government. The origin of many banks, both before that date and since, can be traced to fiscal rather than to commercial needs. The English government needed large sums of money to carry on its war with France. William Patterson, a Scotchman, proposed the establishment of a bank that should lend its capital to the Government and be permitted to issue notes to the amount of the loan. In 1694 Parliament chartered a corporation for ten years known as the Governor and Company of the Bank of England. The corporation was to lend to the Government at once 1,200,000 ($6,000,000) at 8 per cent interest, with the right to issue an equivalent amount of interest-bearing notes, to deal in bills of exchange, to buy and sell coin and bullion, and to make loans on the security of merchandise. The Bank of England differed from the earlier banks mentioned in that it was an incorporated company and a bank of issue. With that institution modern banking may be said to have begun.

Reading References

Conant: History of Modern Banks of Issue, Chs. II, IV.

: Principles of Money and Banking, Vol. II, Bk. V,

Chs. I, II. Dunbar: Theory and History of Banking, Chs. VII, X. Fiske: The Modern Bank, Ch. XXIII. Knox: History of Banking, Pt. I, Ch. I.