guarantee to the Bank of England, it made advances sufficient to enable that house to meet its engagements. The difficulties attending the American houses, both in London and Liverpool, became now so pressing, that they also were obliged to apply to the Bank. Persons were appointed to look into their affairs, who represented that, if assistance were given them to meet their outstanding engagements, they would ultimately prove solvent. As an additional reason for granting this assistance, it was stated that if these American houses were permitted to stop payment, their concerns were so vast, and so extended throughout the north of England, that a general destruction of credit would ensue. After full consideration, the Bank determined to attempt to carry these houses through their embarrassments, and for this purpose, it advanced the enormous sum of £6,000,000. This great operation was, however, successful, though the final liquidation of the account was retarded by the great prostration of American credit in 1839. The advances made to the banking interests in England were all repaid, principal and interest, with one very trifling exception. The Bank thus followed, for a second time, the principles laid down by the Bullion Report and there can be no doubt averted a calamity only second in magnitude to the catastrophe of 1825. 69. The assistance of the Bank was only intended to be of a temporary nature, to give time for the gradual withdrawal of the great mass of unsound paper from circulation. This having been effected to a large extent, the result followed which always has been the case, and always must be the case—a great influx of gold, to fill the vacuum caused by the great annihilation of this paper currency. During the whole of 1887 bullion rapidly flowed into the Bank; and in December it reached the sum of ten millions and a half. The position of the Bank on the 13th of March, 1838, was as follows Liabilities. £31,573,000 { Securities......£21,046,000 Thus, after a long period of nearly five years, the Bank was at length brought back again into what the directors had laid down for themselves as the normal position; and it enabled credit to pass through a crisis which would have been tenfold more severe if it had not been met by that "judicious increase of accommodation" which the Bullion Report declared was the proper remedy for a temporary failure of credit. 70. From 1832 to 1837 there had been a series of seasons of remarkable abundance. For several years a series followed of extreme scarcity. The crop of 1838, was the worst that had been known since 1816; that of 1839 was scarcely, if at all, better. This great deficiency rendered it necessary to import foreign corn to the value of £10,000,000, a considerable portion of this required to be remitted in specie. But, just at this period, a number of other concurrent causes happened to create a great demand for gold for foreign countries. During the preceding years America, France, and Belgium, had carried the extension of paper credit to most extravagant lengths. In America, the fatal system of issuing Bank notes upon "property” and “securities" had been carried to a length almost worthy of Law. In France and Belgium joint stock banks had been extensively formed. This great extension of paper currency had the very same effect as the over issue of paper had in England; it drove bullion out of these countries, and was one of the causes which, together with the fortunate destruction of the extravagant paper credit in England in 1837, caused such an influx of gold in this country up to March, 1838. But in this latter year these bubbles burst. In the autumn of 1838 the Bank of Belgium failed, and a severe run upon the Banks at Paris took place. This revulsion of credit, and extinction of paper issues in those countries, caused a current of bullion to set in towards them which came from the Bank of England. 71. In the beginning of 1838, when the bullion in the Bank had been rapidly increasing for several months, the commercial world thought it was time for the Bank to make use of the treasure in its vaults. It accordingly reduced the rate of discount from 5 to 4 per cent., and was induced to send over one million of sovereigns to America, the exchanges being favourable to that country in consequence of the destruction of paper, to assist the American banks to resume payments in cash. 72. The bullion in the Bank kept a pretty even amount till December, 1838. On the 18th of that month the liabilities were £28,120,000, the securities £20,776,000, and the bullion £9,794,000. From this date a rapid and steady drain set, in, which continued with unabated severity till October, 1839. When the Bank lowered its rate of discount to 4 per cent. in February, 1838, the market rate had fallen still lower, and in summer was about 3 per cent. From that time forward it began to rise, and at the end of the autumn was level with the Bank. While everything was symptomatic of an impending drain of bullion, the Bank on the 29th of November, suddenly lowered its rate to 3 per cent. for advances upon bills of exchange, East India bonds, Exchequer bills, and other approved securities. The market rate of interest was now decidedly higher than that of the Bank, and the consequence was an immediate pressure for accommodation on the Bank. The securities which, in December, 1838, were £19,536,000, mounted up in January, 1839, to £27,594,000, and the bullion fell from £9,522,000 to £8,826,000. The following table will exhibit clearly the progressive diminution of bullion 73. Up to this time the Bank seemed to have been struck with actual paralysis. Notwithstanding the continuous rise in the market rate of interest, and the unmistakeable drain of bullion that had set in, they, on the 28th of February, issued a notice continuing the same rates on the same securities as in the previous November. And it was not until the 16th May that they suddenly raised it to 5 per cent. The above figures show how completely the directors had belied their own principles of keeping their bullion at one-third of the liabilities. The market rate had advanced considerably more rapidly, so that the Bank was yet below it. The drain still continued. On the 28th May the bullion stood at £3,910,000, and the liabilities upwards of twenty four millions and a half; but the Directors seemed so utterly blind that, on the 30th May, the time of shutting the books for the dividends, they still offered advances at 5 per cent. till the 23rd July on the same securities as have been last mentioned. However, on the 20th June, they at last became alarmed, and issued notices that the rate of discount would be 5 and no securities would be received except bills of exchange. 74. On the 16th July the liabilities were £28,860,000, the securities £28,846,000, and the bullion £2,987,000. The Directors at last awoke to the fact that the Bank was rapidly drifting into bankruptcy. On the 13th July they gave notice that they would be ready to receive tenders for the purchases of some terminable annuities, but the minimum price they fixed was so high that no sale took place. 75. Besides raising the rate of discount in May, the Bank sold public securities to the amount of £760,000, and it authorised bills upon Paris to be drawn to its account to the amount of £600,000. These measures had the effect for a short time of arresting the drain. But when these bills came to maturity the Bank was in no better position to meet them, and it then became necessary to create a larger credit in Paris to meet the first. The position of the Bank was, of course, well known to all the foreign dealers in exchange, and in June it was generally expected abroad that the Bank could not maintain payments in specie. In consequence of this, all long-dated bills upon this country were sent over for immediate realisation, and the values withdrawn as speedily as possible. To counteract this drain, as well as to meet the payments of the first credit which had been created on behalf of the Bank, it was obliged, in July, to organise a measure of a much larger nature. Messrs. Baring entered into an agreement with twelve of the leading bankers in Paris, to draw bills upon them to the amount of upwards of £2,000,000; and as each of them had only a fixed credit at the Bank of France, that Bank agreed to honour their acceptances in case they should be presented there and exceed their usual limits. An operation of a similar nature to the amount of £900,000 was organised with Hamburg. As soon as any bill was drawn on account of one of these operations, the Bank transferred an equal amount of the annuities it had offered for sale in July to two trustees, one for the drawers and the other for the acceptor. Out of this second credit the bills which fell due from the creation of the first credit were paid. This measure had the effect of gradually arresting the drain of bullion, which reached its lowest point in the week ending the 2nd September, 1839, when it was reduced to £2,406,000. From that time it began slowly to increase; and in the last week of the year it stood at £4,532,000, the liabilities being £23,864,000, and the securities £22,098,000. The operations ensuing from this foreign credit extended over nine months, from July, 1839, to April, 1840, and the highest amount operated upon was in November, 1839, when it was £2,900,000. 76. The figures we have quoted, shewing the proportions between the bullion and the liabilities of the Bank, are sufficient to shew either that there was some natural impossibility in adhering to the rule the directors had laid down for their guidance in 1832, or that they had not sufficient firmness to contract their securities in time of pressure to maintain it. The flagrant disproportion which these figures had assumed, which would scarcely be safe in an ordinary banking house, but which were to the last degree perilous in the Bank of England, which was known to be the last resource of every bank in the kingdom in times of difficulty, turned the attention of writers to devise some plan, by which, if possible, the Bank should be compelled to maintain the proper proportions between bullion and liabilities. Colonel Torrens appears to have been the originator of the idea, which was eventually adopted, of dividing the Bank into two distinct departments, independent of each other; one for the purpose of issuing a regulated amount of notes, and the other for carrying on the business of banking. This plan was first started in 1837, and was much canvassed and discussed by several eminent writers on the subject, such as Mr. Tooke, Mr. Norman, and others; and we shall see was afterwards one of the most prominent features in Sir Robert Peel's Act of 1844, and we shall reserve to its proper place the account of the plan which was ultimately adopted. The great commercial and monetary |