2 Exchequer bills have now been superseded by Treasury bills, though Exchequer bonds are still issued.

3 See note 2 on p. 161. It would very materially injure the private merchants? - That is a difficult question to answer; I doubt it.

The authority of Mr. Samuel Gurney, from his high standing in the City, is so constantly referred to upon this subject, that we copy his evidence. It was given before the Committee on Joint-Stock Banks, in the year 1836; previous, of course, to the passing of the Act of 1844.

"Would not the result from that opinion be, that a properly-conducted establishment, whether a private or a joint-stock bank, should have some Government securities or exchequer bills on which always to rely as a resource in a moment of such emergency? - Experience has shown that it is not needful; bills of exchange are quite as good a security to hold in time of difficulty as exchequer bills or stock; in most respects very much better.

"Cannot you conceive a state of things in the money market - a state of mercantile discredit, for instance - when it might be possible to procure money on Government securities when it could not be procured on private security in the shape of bills? - Such difficulty may possibly exist under very peculiar circumstances; but I repeat my opinion, that bills of exchange have proved themselves to be a better investment for bankers than stock or exchequer bills.

"It is quite intelligible why, in ordinary times, bills of exchange should be a preferable investment for money, inasmuch as there is no risk of loss by variation of premium in the purchase and resale; but would you wish the committee to suppose that in the case supposed by the question, of a great degree of mercantile discredit and doubt, an amount of exchequer bills would not be a more certain security on which to raise money than the bills of credit of such banks as are not in the habit of re-discounting were they to do so in times of pressure.

"Supposing a period of difficulty to arise, and two country bankers came up to London, one who could exhibit Government stock to the extent of 25,000 and .25,000 in bills of exchange, and the other banker exhibiting 50,000 in bills of exchange only, which do you think would have the best means of procuring accommodation in the London market to pay his engagements? - My apprehension is, that they would both get their supplies upon any particular emergency: it is my judgment, that to a banker a good supply of bills of exchange of first-rate character is a better investment for his funds, for which he is liable to be called upon on demand, than exchequer bills or any Government security."

A London banker never considers as a part of his reserve the bills he has discounted for his customers. Nothing could damage his credit more than any attempt to rediscount these bills. During the war, the London bankers had discount accounts with the Bank of England; and in the panic of 1825, it is well known they discounted largely with that establishment. But since that period they have not done so, and their indorsements are never seen in the money market. The practice is now more general of lodging money at call with the large money dealers. And it is in this way that the London bankers make provision for any sudden demand. It is rarely, however, that any large demand comes so suddenly as to occasion any inconvenience. And it may be observed that such bankers as are members of the Clearing-house have the whole day to make preparation - one of the circumstances which enables them to lock up at night with a smaller amount of cash.

In the morning the banker looks at his "Cash-book," and observes the amount with which he "locked up" the preceding night. He then looks at the "Diary," which contains his receipts and payments for that day, as far as he is then advised. He then opens the letters, and notices the remittances they contain, and the payments he is instructed to make. He will learn from these items whether he "wants money" or has "money to spare." If he wants money, he will "take in" any loans that may be falling due that day, or he may "call in" any loans he may have out on demand, or he may go farther, and borrow money for a few days on stock or exchequer bills. Should he have money to spare, he will, peradventure, discount brokers' bills, or lodge money on demand with the bill-brokers, or lend it for fixed periods upon stock or exchequer bills. The bill-brokers usually make their rounds every morning, first calling on the parties who supply them with bills, and then calling on the bankers who supply them with money. The stock-brokers, too, will call after "the market is open," to inform the banker how "things are going" on the Stock Exchange, what operations are taking place, and whether money is abundant or scarce "in the house;" also what rumours are afloat that are likely to affect the price of the funds. It is thus that a banker regulates his investments, and finds employment for his surplus funds.

In our opinion, it is best for a banker not to adopt exclusively any one of the investments we have noticed, but to distribute his funds among them all. We have seen that practical bankers of high standing have been in favour of Government securities, as being at all times convertible. The objection on the part of others has been, that the value of these securities very much fluctuates, and as their realization will be required only in seasons of pressure when the funds are low, it is sure to be attended with loss.

On the other hand, it may be stated, with regard to "loans on demand," that the recent failures of bill-brokers have shown that the "demand" may not always be readily met. And with regard to " brokers' bills," the numerous failures among houses of the first standing have proved that great losses and most inconvenient "locks-up" may occasionally take place from such securities. Without condemning other modes of investment, we are strongly inclined to favour Government securities, though fully conscious of the losses they may occasionally produce.1 There is one consideration that must be taken into account: a bank that has large surplus funds, if it makes no investments in Government securities, will be strongly tempted to invest its funds elsewhere in other securities that may not be so convertible. It is true that more interest may for a time be obtained,2 but ultimately the bank may,