Bank Of England

The Bank of England, which is the largest and most important monetary institution in the world, was incorporated in 1694. It is the custodian of the public monies of Great Britain and the manager of the public debt. Its official title is "The Governor and Company of the Bank of England." It conducts the banking business of the British government; it receives the revenue of the government and makes all disbursements for it; and it also issues exchequer and treasury bills and advances money to the government. It is also the central bank of the City of London. That is, the other banks keep on their own premises only enough of their deposits for the requirements of their business, and deposit the remainder with the Bank of England. Thus, the bank is not only the financial institution of the British Government, but also of the other London banks and of the whole of the London money market.

Bank Of England Note

The circulating note or money issued by the Bank of England performs the chief note-issuing function in the United Kingdom. The bank it permitted to issue a certain amount of notes upon government securities, and it has the privilege of issuing, also on government securities, an amount equal to two-thirds of the issues of all other banks in England and Wales when the latter go out of existence or surrender their circulation. In addition, the Bank of England may issue notes to any further amount it sees fit by providing and setting aside an equal amount of gold coin or bullion.

In times of panic the bank is allowed by parliament to increase the number of notes that it may issue against securities. This is accomplished by the suspension of the "Bank Act," which limits the amount of the bank's circulation of notes backed only by securities. The Bank Act was last suspended in 1866.

The Bank of England's notes are legal tender in England and Wales, but are not legal tender in payments made by the bank itself. The holders of the bank notes are entitled to demand gold for them on presentation at the bank. The notes of other English, Irish and Scotch banks are not legal tender, with the exception of the notes of the Bank of Ireland, which are legal tender in Ireland only. All the notes, however, constitute an important circulating medium. Ultimately the Bank of England will possess the monopoly of note issue in England and Wales.

The lowest denomination of a Bank of England note is £5 and the largest £1,000.

Bank Of England Rate

This is the proper title for the minimum rate of discount of the Bank of England. The minimum rate is nominally the rate at which the Bank of England itself will discount the best three months bills. In short, it is the official standard of discount. The rate has a direct relation to the movement of gold to and from London. For instance, the raising of the rate raises the value of money and is calculated to attract gold from foreign centers where the value of money is, for the time being at least, less. The directors of the bank often insure the effectiveness of the rate by borrowing in the money market, thus denuding it of supplies. As the raising of the bank's rate raises the value of money, so the lowering of it lowers the value of money.

In New York City a bank statement is issued from the New York Clearing House on each Saturday. The weekly statement is the collective showing made by the banks belonging to the Clearing House Association. This consolidated bank statement shows the average deposits, loans, specie, legal tenders, circulation, reserve and surplus reserve for the week ending with and including Friday.

The deposits include the credit balances of persons and concerns, balances to the credit of other banks, and all other money and credits subject to withdrawal. The item loans, includes money loaned and paper bought, such as promissory drafts, etc. Specie includes gold and silver coin and also gold and silver certificates, which are redeemable in gold or silver. Legal tenders means United States notes (greenbacks) and treasury notes (notes issued for silver bullion, purchased under the so-called Sherman act). Circulation means the notes issued by national banks which are secured by government bonds, deposited with the United States Treasurer. A bank cannot count circulation in its reserve, and whether it is its own circulation or the circulation of some other bank makes no difference. Reserve means the amount of specie and legal tenders held. Surplus reserve is the amount of specie and legal tenders held in excess of legal requirement. For instance, a national bank in New York City must, by law, maintain a reserve equal to 25% of its profits; a State bank must by law maintain a reserve of 15%. In compiling a bank statement a reserve of 25% is allowed or figured for State banks as well as national banks. The bank statement is said to be made up on rising averages when the items in it have been increasing in amount during the week; or the statement is said to be made up on falling averages when the items in it have been decreasing in amount during the week. The bank statement is favorable or good when it shows that the position of the banks has been strengthened, as by an increase in the surplus reserve through an increase in the cash holdings rather than by a decrease in the deposits, which latter is often affected by the calling of loans. As money loaned is largely credited to borrowers on their deposit accounts and increases the total deposits of the banks, so the payment of loans by borrowers takes from and decreases deposits. It will thus be seen that the calling and payment of loans does not increase cash holdings, but merely changes balances in individual accounts. A reduction in deposits reduces the amount of cash required to be held as legal reserve, and correspondingly expands the surplus reserve.

The bank statement is understood to be unfavorable when the position of the banks has been weakened, as by a decrease in the surplus reserve through a decrease in the cash holdings rather than by an increase in the deposits, which often is effected by an expansion in the loans, thus correspondingly expanding the deposits and increasing the amount of cash required to be held as a legal reserve. The bank statement may be said to be favorable, however, if an increase in loans is reported when the banks have a large surplus reserve. Also, it may be said to be unfavorable when money is idly accumulating in the banks and deposits are increasing, not as a result of increasing loans, but in the absence of a borrowing demand for money.

In addition to the statement issued by the clearing house banks on Saturday there is also issued on Monday what is known as the non-member bank statement, which shows the condition of the banks which are not members of the clearing house, but which clear through members of that institution. The non-member statement shows the loans, discounts, investments, specie, legal tender notes and bank notes, deposits with clearing house agents, deposits with other New York City banks and trust companies, net deposits, circulation, capital stock and net profits.