The downfall of the Ohio Land and Trust Company had been quickly followed by the failure of 150 banks in Pennsylvania, Maryland, Virginia, and Rhode Island; and since no less than eighty millions of American railway stock were computed to be held in England, a large demand for bullion on American account set in here. The rum for deposits in specie on the New York banks brought about by the villainous " bearing" organization noticed above, swelled distrust in America into a panic, which soon reacted on England. By the middle of October failures began to be numerous here. Liverpool and Glasgow, ever necessarily the most sensitive to fluctuations in the American markets, exhibited unmistakable indications of the probable severity of the coming storm.
Rumours spread affecting the Borough Bank of Liverpool l and the Western Bank of Scotland; and the alarm in London, where failures were following in quick succession, rose to its height when, on November 7th, the great firm of Dennistoun and Co., which had numerous agencies in America and Australia, stopped payment, with liabilities of about two millions; and when, on the morning of the 9th, news arrived of the failure of the Western Bank of Scotland for between six and seven millions. Together with this intelligence came a call for gold from Scotland, a most unexpected, because unusual and exceptional circumstance at that time of the year. Three hundred thousand sovereigns were despatched to meet this demand; and when, on the 11th of November, the city was excited by the suspension of Sanderson and Co., a great discount house, with liabilities to the amount of upwards of five millions, when further demands for gold came from Scotland, when large calls followed from Ireland as well, when failure succeeded failure, and the utter rottenness which had pervaded the commercial world became apparent, and general bankruptcy seemed imminent-recourse was had, for the second time, to the panacea-suspension of the Bank Act of 1844. Government authorized the Bank of England to exceed the prescribed limit of its issues by discounts and advances upon approved securities.
This authorization, which was given on the 12th, at once quieted the public mind; but there was this notable difference between the effects of the first suspension of the Act in 1847 and of the present, that whereas in that year the mere notice of suspension had operated as a charm, and notes to the amount only of £400,000 were actually issued in excess of the statutory limit,-in 1857 the bank issued, from November 13th to the end of the month, no less than £6,776,000 of notes beyond the limit (£14,475,000) fixed by the Act.1 Nor did the reverses consequent upon fraudulent financial management and reckless overtrading end with the allaying of the general panic. Trade with America had acquired such development here and on the continent, in Germany especially, that failures in the Hanse Towns and other centres of commerce brought about the downfall of many English houses in this connection, and, superadded, were stoppages of large firms connected with the Baltic trade; among them the Northumberland and Durham Bank for three millions-so that it was hardly before the close of 1858 that the collapse of dishonest trading and fictitious credit was complete, and commercial affairs resumed their legitimate course.
1 Not long afterwards it stopped payment.
We have said that the crisis came upon the world without a note of warning, and remarked that the consequences of the financial earthquake which shook the moneyed institutions of America to their base, were severely felt on the continent, as well as in the United Kingdom. In the autumn of 1857 (August 17) the Bank of England entered into a negotiation with the East India Company to supply a million in specie for transmission to the East. At this date the bullion was £10,606,000, the reserve £6,296,000, and the rate of discount 5 1/2. By the 8th of October, the bullion had fallen to £9,751,000, the reserve to £4,931,000, and discount was raised to 6 per cent. On the 12th, the rate was raised to 7 per cent., and on the 19th to 8 per cent. By this time the bullion had sunk to £8,991,000, and the reserve to £4,115,000. At Paris, discount had risen to 7 1/2, and at Hamburgh to 9 per cent. On the 5th of November the Bank of England raised its rate to the latter figure, and on the 9th, to 10 per cent.; whilst the
1 Now raised to £15,000,000.
Bank of France raised its rates to 8, 9, and 10 per cent. for one, two, and three months. By the 11th, the bullion in the bank was reduced to £6,666,000, and the reserve to £1,462,000. So that at this date there was a decrease, since the middle of August, of about four millions in the bullion, and of close upon five millions in the reserve. As soon as the pressure had begun to be felt, a great demand for gold on American account had set in; and in the interval between this period and the rise of the crisis to panic height, large amounts of specie had to be sent to Scotland and Ireland, whilst the discounts meantime were in proportion to the magnitude of the calls for assistance; on the 12th, they amounted to £2,373,000. The state to which the bank was reduced on the evening of this eventful Thursday, when the Act was suspended, is shown by the startling fact that its total reserve in London was but £384,144, and at its branches, only £196,607 more. The bankers' balances alone against it on this very evening were £5,458,000. It is clear, therefore, that but for the suspension of the Act the bank must have stopped. The "Times" observed:-
"On the merits of this step " (the suspension) " we will say but little. It may be consistent with the maxims of political economy to regulate the issue of notes in ordinary times, and thus to check rash speculation and the embarkation in business of men destitute of capital, while when an actual dearth of money prevails, the chief banking institution of the country may be allowed to extend its issue of notes under a public guarantee. But if such is to be the principle of our monetary system, the sooner it is embodied into a law the better. If the bank is to extend its legal issue of notes as often as its rate of discount is necessarily raised above a certain point, then an Act of Parliament should establish the practice on sound and intelligible principles. The commercial interests of the country should not be subjected to a system by which a law is obeyed as long as obedience is easy, and temporarily swept away as often as pressure or panic supervenes. The houses which, in 1847 and 1857 have stopped payment before the relaxation of the law, may well complain that, while they have been crushed by the operation of the Bank Charter Act. others not more solvent or of higher standing than themselves have been saved by the suspension of it." The commercial atmosphere having been cleared by the monetary hurricane of 1857, a period of comparative tranquillity ensued. The bank rate of discount was not reduced below 5 per cent. until the bullion in its vaults exceeded £15,000,000; but, generally speaking, its rate was moderate throughout 1859 and 1860, and, with the exception of a rise to 8 per cent. in 1861, which was but of brief duration, the same may be observed of that year and of 1862. Owing to the large issues of paper money in America by the belligerent governments of the North and South, bullion soon disappeared from circulation in the warring States, and floated hither. Hence money was plentiful and its price easy. But the advantage was soon more than counterbalanced by the monetary derangement ensuing from the absence of the supply of cotton from the Southern States-itself a consequence of the civil war then and there raging. The price of this great staple of British manufacture rapidly rose. Supplies had to be sought from new sources, and had to be paid for in cash. The drain which then set in, and the apprehension of over-speculation excited by the number of new companies forming under the Limited Liability Act, which came into operation at this conjuncture, caused a general uneasiness. This state of feeling commenced in the fall of 1863. Between this date and the summer of 1864 the fluctuations in the bank rate of discount evidenced the feverish condition of the country. On one occasion the Bank of England raised its rate twice in one week, from 5 to 6, and then to 7 per cent. This was in the winter of 1863; and again in May, 1864, it raised its rate, twice in one week, to 9. In fact, the rate of discount during this period was continually oscillating. Similar disturbance of the money market was manifested in France; occasioned, primarily, by the American civil war, and the failure in the supply of cotton. Large amounts of specie were drawn from the Bank of France, which raised its rate of discount several times, concurrently with the Bank of England, and to the same figure.