From the first establishment of the Bank of England down to this year, it had always paid its notes regularly when presented. But in the course of 1796 and the early part of 1797 there was, owing to the prevalence of reports of invasion, a pretty severe run upon the Bank of England, and it was at length apprehended that the bank might be obliged to make a temporary stoppage. To avert this contingency an Order in Council was issued on the 26th of February, authorizing the bank not to pay its notes in gold, in the following terms: -
"Upon the representation of the Chancellor of the Exchequer, stating that from the results of the information which he had received, and of the inquiries which it has been his duty to make, respecting the effects of the unusual demand for specie that has been made upon the metropolis, in consequence of ill-founded or exaggerated alarms in different parts of the country; it appears, that unless some measure is immediately taken, there may be reason to apprehend a want of a sufficient supply of cash to answer the exigencies of the public service. It is the unanimous opinion of the Board, that it is indispensably necessary for the public service, that the directors of the Bank of England should forbear issuing any cash in payment, until the sense of parliament can be taken on that subject, and the proper measures adopted thereupon, for maintaining the means of circulation and supporting the public and commercial credit of the kingdom at this important conjuncture; and it is ordered that a copy of this minute be transmitted to the directors of the Bank of England, and they are hereby required, on the grounds of the exigency of the case, to conform thereto until the sense of parliament can be taken as aforesaid."
Among the crowd assembled at the bank, with a view of demanding gold, handbills were distributed, of which the following is a copy: -
"Bank of England, Feb. 27th, 1797.
"In consequence of an order of his Majesty's Privy Council, notified to the bank last night, a copy of which is hereunto annexed, the governor, deputy-governor, and directors of the Bank of England think it their duty to inform the proprietors of the bank stock, as well as the public at large, that the general concerns of the bank are in the most affluent and prosperous situation, and such as to preclude every doubt as to the security of its notes. The directors mean to continue their usual discounts for the accommodation of the commercial interest, paying the amount in bank notes, and the dividend warrants will be paid in the same manner."
On the same day was held a meeting of merchants, bankers, and others, the Lord Mayor in the chair, when the following resolution was unanimously passed: -
"That we, the undersigned, being highly sensible how necessary the preservation of public credit is at this time, do most readily declare, that we will not refuse to receive bank notes in payment of any sum of money to be paid to us, and we will use our utmost endeavours to make all our payments in the same manner."
This resolution was left for signature at several of the most respectable taverns, and a similar resolution was subsequently adopted by other public assemblies.
Immediately afterwards, the House of Commons appointed a committee to inquire into the affairs of the bank. The committee reported, that "The total amount of outstanding demands on the bank, on the 25th of July, was £13,770,390; and that the total amount of the funds for discharging those demands (not including the permanent debt due from government of £11,686,800, which bears an interest of three per cent.) was £17,597,280; and the result is, that there was, on the 25th day of February last, a surplus of effects belonging to the bank, beyond the amount of their debts, amounting to the sum of£3,825,890, exclusive of the above-mentioned permanent debt of £11,684,800, due from government." From accounts since published, it appears that the amount of gold and silver in possession of the bank was reduced by the previous run to £1,086,170.
1797. March 3. The bank was authorized to issue notes under £5 (37 Geo. III. c. 28). It is entitled, "An Act to remove doubts respecting promissory notes of the Governor and Company of the Bank of England, for payment of sums of money under £5." Accordingly, on the 10th of March the bank issued, for the first time, notes for £1 and £2.
May 3. The Bank RestRiction Act passed. It is the 37 Geo. III. c. 45, and is entitled, "An Act for continuing, for a limited time, the restriction contained in the minute of council of the 26th of February, 1797, on payment of cash by the bank." By this Act the bank directors were indemnified against any legal proceedings on account of having complied with the order of council. They were not permitted to issue cash, except for any sum under twenty shillings. But if any person lodged cash in the bank, he might be repaid in cash to the extent of three-fourths of the sum lodged; but the sum lodged must not be less than £500. The bank was also allowed to advance to the bankers of London, Westminster, and Southwark, any sum of cash not exceeding in the whole £100,000; and also £25,000 each to the Bank of Scotland and the Royal
Bank of Scotland, during the continuance of this Act. The bank could not be sued for payment of any of its notes for which it was willing to give other notes; and no person could be held to special bail upon any process issuing out of any court, unless the affidavit made for the purpose, stated, also, that the party had made no offer to pay in bank notes. This Act was to be in force till the 24th day of the following June, a duration of fifty-two days.
1797. June 22. Another Act was passed, continuing the bank restriction until one month after the commencement of the then next session of parliament.
Nov. 30. A third Act passed, continuing the restriction until six months after the conclusion of the war.