1 Lords, 12.
Some of these advances were not made till after the appearance of the Government letter on the 25th of October. Up to that date the efforts of the bank were inadequate to allay the pressure, while they largely reduced the bank's reserve. On Saturday, the 23rd of October, a deputation from the London bankers waited on the Government, who then determined to suspend the Act of 1844; and on the same day gave intimation of their intention to the Bank of England. On Monday morning a letter appeared from Lord John Russell and the Chancellor of the Exchequer, authorizing the directors of the Bank of England to enlarge their discounts and advances, and promising that if by so doing the existing law should be infringed, the Government would apply to the Legislature for a bill of indemnity. The letter suggested that these advances should not be made at a lower interest than 8 per cent. The effect of this letter was immediate. Confidence was restored, the hoarded notes were brought into circulation, and discounts were everywhere readily obtained. From these causes no infringement of the Act took place.
' Commons, 2645.
The state of the bank reserve at the date of the suspension of this Act occupied the attention of the Parliamentary Committees. On Saturday, the 23rd of October, the notes on hand amounted to £1,547,270, and the coin to £447,246. This, it should be remembered, was the amount at the London office and at the thirteen branches put together. At the same time the public deposits were £4,766,000, and the private deposits £8,581,000, of which £1,615,000 belonged to the London bankers. The questions put to the governor on this subject seemed designed to show that the bank, so far from being able to assist others, was not in a condition to meet its own engagements. But the governor contended that the amount of the reserve should have been taken on the Friday night, before they were acquainted with the intention of the Government to issue their letter. The reserve then was £2,376,000. The directors had from £2,000,000 to £2,500,000 of stock which they could have sold, and a large amount of the bills they held fell due in the following week. From these sources they would easily have increased their reserve. On the other hand, some of the witnesses declared that do large amount of stock could have been sold, and that, had a run taken place on the London bankers, such as that which had taken place on the banks at Newcastle, the bankers' deposits must have been withdrawn, and the Bank of England itself might have been placed in jeopardy.
As we have considered in a previous Section the operation of the Act of 1844, it is not necessary to pursue this subject any farther. After the Government letter was issued, the bank still continued to make advances with caution, and, with the view of not infringing the Act, they borrowed money on the Stock Exchange at 7 per cent., though they had the unlimited power of issuing notes.
Soon afterwards the gold began to return, and money became abundant. From the high rate of interest, the amount imported was large; and from trade having been paralyzed by the pressure, the demand for it was very small. As the gold increased, the bank rate of interest was reduced. By September 2nd, 1848, the circulation of the currency department amounted to £26,883,505, and the bank reserve to £9,410,952.
To show the further progress of the bank since September, 1848, we have added the Returns for the week ending the 2nd of February, 1849, premising that since the year 1849 the administration of the Bank of England has been influenced by the importations of gold from California and Australia. We shall here merely state the amounts of gold and silver on hand in the first week in September, in the years that have transpired since 1848, and the minimum rates of interest charged by the Bank of England at those respective periods.
Rate of Interest.
8 Sept. 1849
7 Sept. 1850
6 Sept. 1851
4 Sept. 1852
10 Sept. 1853
9 Sept. 1854
8 Sept. 1855
The following is a copy of the Official Returns for the four years that have passed under review: -
BANK OF ENGLAND WEEKLY RETURNS. Account, pursuant to the Act 7th and 8th of Victoria, cap. 32, for the weeks ending as follows: -
1844. September 7th.
1847. 1848. September 4th. September 2nd.
1849. February 2nd.
Government Debt ..........
Gold Coin and Bullion
Silver Bullion ...............
1845. September 6th,
1846. September 5th.
1847. September 4th.
1849. February 2nd.
Public Deposits (in eluding Exchequer, Savings' Banks, Commissioners of National Debt, and Dividend Accounts.
Seven-day and other Bills.....
Government Securities (including Dead Weight Annuity).....
Gold and Silver Coin ....
We have thus taken a review of the first four years of the proceedings of the Banking Department of the Bank of England. "Whatever may be the future operations of that department, this portion of its history will always be interesting. This period is remarkable also as containing one of those monetary cycles to which we must always be liable as long as our currency is regulated by the Act of 1844. Each year has a peculiar character. The first commenced at a period of full currency - money was abundant and cheap, the minimum of the bank rate being 2 1/2 per cent. In the second year the exchanges fluctuated, and the rate of interest fluctuated also. During the whole of the third, the exchanges were unfavourable - gold was exported, and the rate of interest advanced. At the commencement of the fourth year came the pressure: then a favourable course of exchange brought back the gold, the rate of interest was reduced, and again money became abundant.
This period is moreover important as an indication of the principles on which the banking department will hereafter be governed. The governor and deputy-governor were examined before the parliamentary committees in March, 1848. They stated that they approved of the reduction of interest in September, 1844; but they expressed regret that the bank had not advanced the rate of interest in November, 1846, and that they suffered the reserve to fall so low in October, 1847. Should these sentiments be acted upon in future, we may expect that the "banking department" will reduce its rate of interest as heretofore; but when money becomes scarce, it will advance its rate at an earlier period, and be less liberal in making advances.