Annexed is the correspondence which passed between the Government and the bank on this momentous occasion :-
"Bank of England, May 11,1866.
"We consider it to be our duty to lay before the Government the facts relating to the extraordinary demands for assistance which have been made upon the Bank of England to-day, in consequence of the failure of Messrs. Overend, Gurney, & Co.
"We have advanced to the bankers, bill brokers, and merchants, in London, during the day, upwards of four millions sterling, upon the security of Government stock and bills of exchange-an unprecedented sum to lend in one day, and which, therefore, we supposed would be sufficient to meet all their requirements, although the proportion of this sum which may have been sent to the country must materially affect the question.
"We commenced this morning with a reserve of £5,727,000, which has been drawn upon so largely that we cannot calculate upon having so much as £3,000,000 this evening, making a fair allowance for what may be remaining at the branches.
"We have not refused any legitimate application for assistance, and unless the money taken from the bank is entirely withdrawn from circulation, there is no reason to suppose that this reserve is insufficient.
"We have the honour to be, Sir,
"Your obedient Servants, (Signed) "H. L. Holland, Governor. (Signed) "Thos. Newman Hunt, Deputy-Governor.
" The Right Hon. the Chancellor of the Exchequer, M.P. etc. etc. etc."
"To the Governor and Deputy-Governor of the Bank of
"Downing Street, 11th May, 1866. "Gentlemen,
"We have the honour to acknowledge the receipt of your letter of this day to the Chancellor of the Exchequer, in which you state the course of action at the Bank of England, under the circumstances of sudden anxiety which have arisen since the stoppage of Messrs. Overend, Gurney, & Co., Limited, yesterday.
"We learn with regret that the bank reserve, which stood so recently as last night at a sum of about five millions and three-quarters, has been reduced in a single day by the liberal answer of the bank to the demands of commerce during the hours of business, and by its great anxiety to avert disaster, to little more than half that amount, or a sum (actual for London and estimated for the branches) not greatly exceeding three millions.
"The accounts and representations which have reached her Majesty's Government during the day exhibit the state of things in the city as one of extraordinary distress and apprehension. Indeed, deputations composed of persons of the greatest weight and influence, and representing alike the private and joint-stock banks of London, have presented themselves in Downing Street, and have urged, with unanimity, and with earnestness, the necessity of some intervention on the part of the State, to allay the anxiety which prevails, and which appears to have amounted, through great part of the day, to absolute panic.
"There are some important points in which the present crisis differs from those of 1847 and 1857. Those periods were periods of mercantile distress, but the vital consideration of banking credit does not appear to have been involved in them, as it is in the present crisis.
"Again, the course of affairs was comparatively slow and measured, whereas the shock has in this instance arrived with an intense rapidity, and the opportunity for deliberation is narrowed in proportion. Lastly, the reserve of the Bank of England has suffered a diminution without precedent relatively to the time in which it has been brought about, and in view especially of this circumstance her Majesty's Government cannot doubt that it is their duty to adopt, without delay, the measures which seem to them best calculated to compose the public mind, and to arrest the calamities which may threaten trade and industry. If, then, the directors of the Bank of England, proceeding upon the prudent rides of action by which their administration is usually governed, shall find that, in order to meet the wants of legitimate commerce, it be requisite to extend their discounts and advances upon approved securities, so as to require issues of notes beyond the limits fixed by law, her Majesty's Government recommend that this necessity should be met immediately upon its occurrence, and in that event they will not fail to make application to Parliament for its sanction.
"No such discount or advance, however, should be granted at a rate of interest less than 10 per cent., and her Majesty's Government reserve it to themselves to recommend, if they should see fit, the imposition of a higher rate. After deduction by the bank of whatever it may consider to be a fair charge for its risk, expense, and trouble, the profits of these advances will accrue to the public.
"We have the honour to be, gentlemen, "Your obedient Servants,
(Signed) " Russell. (Signed) "W. E. Gladstone."
The official correspondence is completed by the following letter and accompanying resolutions :-
"To the Eight Hon. Earl Russell and the Eight Hon. W. E. Gladstone, M.P.
Bank of England, May 12. "MY LORD AND SlR,
"Having laid before the court of directors the letter received from you yesterday with respect to a further issue of notes, if necessary, beyond the limit affixed by the Act of 1844, we have now the honour to enclose a copy of the resolutions of the court thereupon.
"We have the honour to be, my Lord and Sir, "Your most obedient servants, "H. L. Holland, Governor. "Thos. N. Hunt, Deputy-Governor."
"(Copy of Resolutions Enclosed.)
"At a court of directors of the bank, on Saturday, the 12th of May, 1866.
"Resolved,-That the governors be requested to inform the First Lord of the Treasury and the Chancellor of the Exchequer that the court is prepared to act in conformity with the letter addressed to them yesterday.
"Resolved,-That the minimum rate of discount on bills not having more than ninety-five days to run be raised from 9 to 10 per cent.