still more those who observed that the merchants, notwithstanding the enhanced prices of produce, were nevertheless importing as they had done successfully in the previous years. But the public certainly viewed trade as sound, and were little aware that a crisis of any sort was impending, far less that it was so near at hand."

The bullion at this time was £10,606,000, the reserve £6,296,000, and the minimum rate of discount 51, when on the 17th August the Bank entered into a negotiation with the East India Company to send one million in specie to the East.

45.

Things were in this state when, about the middle of September, news came of a great depreciation of American railroad securities. It was found that for a long time they had been carrying on an extravagant system of management, and paying dividends not earned by the traffic. The system had at last collapsed, and, of course, an enormous depreciation of their stock followed, to the amount of nearly 20 per cent. It was supposed that as much as eighty millions of this stock was held in England, and that the effects of this fall would be very serious. On the 25th August the Ohio Life and Trust Company, with deposits to the amount of £1,200,000, stopped payment. The panic spread throughout the Union. Discount rose to 18 and 24 per cent. On the 17th October news came that 150 banks in Pennsylvania, Maryland, Virginia, and Rhode Island had stopped payment. The drain was then beginning to be severe on the Bank of England. On the 8th the bullion was £9,751,000, the reserve £4,931,000, and discount was raised to 6 per cent. On the 12th the rate at Hamburg was 73, and bullion was flowing towards New York; discount was then raised to 7 per cent. About this time rumours strongly affecting the Western Bank of Scotland were abroad. On the 19th discount was raised to 8 per cent. The commercial disasters were increasing in America. In one week the Bank of France lost upwards of a million sterling. The bullion in the Bank had sunk to £8,991,000, and the reserve to £4,115,000. Discount was raised to 7 in Paris, and to 9 per cent. at Hamburg. On the 26th a deputation from the Western Bank of Scotland applied for assistance, but the Bank was afraid to undertake so enormous a concern. The Borough Bank of Liverpool was also

in difficulties, and after some time the Bank agreed to assist them to the amount of £1,500,000 on condition of their winding up. But the arrangements fell through in consequence of the Liverpool Bank closing its doors before it was completed.

46. On the 13th October a general run took place on the New York banks, in consequence of the severe measures of restriction they were obliged to adopt to protect themselves. Eighteen immediately stopped, and soon afterwards, out of 63 banks, only one maintained its payments. This immediately reacted on Liverpool and Glasgow, which were much involved with American firms. By the 19th October the failures began to be numerous in this country. Uneasiness greatly increased in London. On the 28th the principal discount house applied to the Bank for an assurance that they would give them any assistance they might require. On the 30th an express came for £50,000 (sovereigns) for a Scotch bank, part of £170,000, and £80,000 for Ireland. On the 5th November discount was raised to 9 per cent. The great house of Dennistoun, with liabilities of nearly two millions, stopped payment on the 7th, and the Western Bank of Scotland closed its doors on the 9th. Failures in London were rapidly on the increase. Purchases and sales of stock were enormous, much beyond what they had ever been before. The bullion in the Bank had sunk to £7,719,000, and the reserve to £2,834,000. On the 9th discount was raised to 10 per cent. On the 10th November a large discount house applied to the Bank for £400,000. The Bank of France raised its rates to 8, 9, and 10 per cent. for one, two, and three months. Another English bank was assisted. The City of Glasgow Bank then stopped. On that day the discounts at the Bank were £1,126,000. On the 10th and 11th upwards of one million sterling in gold was sent to Scotland, and there was a great demand from Ireland. On the 11th Sanderson and Co., the great bill brokers, stopped payment, with deposits of 3 millions. On the 12th the discounts at the Bank were £2,373,000. On the 11th, in consequence of these sudden demands for Scotland and Ireland, the bullion was reduced to £6,666,000, and the reserve to £1,462,000.

47. As the failures in London became more tremendous, discounts became more and more contracted. The stunning

news of the stoppage of so many banks created a banking panic. Private banks stopped discounting altogether. The only source of discount was the Bank of England. The public, however, and the directors knew that the precedent of 1847 must be followed, and, though they made no direct application to the Government for the suspension of the Act, they laid the state of the Bank continually before them, and continued to discount as if they knew the Act must be suspended. At last private persons, being unable to obtain discounts, began to make a run for their balances. When universal ruin was at last impending, the Government, on the 12th November, sent a letter to the Bank to say, that if they should be unable to meet the demands for discounts and advances upon approved securities, without exceeding the limits of their circulation prescribed by the Act of 1844, they would be prepared to propose to Parliament a Bill of Indemnity for any excess so issued. In order, however, to prevent the temporary relaxation of the Act from being extended beyond the necessities of the case, the rate of discount was not to be reduced below their present rate, 10 per cent.

48. The issue of this letter immediately calmed the public excitement. But, on the evening of the 12th, the total banking reserve of the Bank and all its branches was reduced to £581,000. Truly, said the Governor of the Bank, to the question 132, “Supposing the letter in question had not been issued on that day, would the Bank, on the morning of the 13th, have been in a condition to continue its discounts?-No; certainly not.

"133. Would it not have been compelled to announce it could not discount any more commercial paper?—Yes, or nearly so.

"138. Is it not likely that the announcement of the cessation of discounts at the Bank of England would have increased the alarm of the mercantile public in London ?-Materially.

"139. Would not an increased alarm on the part of the mercantile public have naturally led to an increased demand upon the bankers?—It would have led to immediate failures, and would so far have lessened the quantity of bills coming for discount by the number of bills which were actually rendered unavailable.

"140. Without reference to bills, do you not think it likely that there would have been increased demands upon the bankers,

which would have compelled them to withdraw a portion of their deposits from the Bank of England ?-I think certainly that in part there would have been."

To shew the state the Bank was reduced to, the Governor gave in a paper to the Committee with the following figures, shewing its reserve on the 11th and 12th November

On Wednesday, November 11th, the reserve consisted of

On Thursday, November 12th, at night, the reserve con

That is to say, the total reserve in London on the evening of the 12th was £384,144. Such were the resources of the Bank of England to commence business with on the morning of the 13th! Truly, said the Governor, it must have entirely

ceased discounting, which would have brought an immediate run upon it; and the bankers' balances alone were £5,458,000. It is easy to see that the Bank could not have kept its doors open an hour.

49. The Governor of the Bank said that the panic of 1857 was not so great as that of 1847, but the real commercial pressure was more intense. This is proved by the fact, that while in the former year the issue of the letter immediately allayed the panic, and by that means stopped the demand for notes, and there was only required an issue of £400,000 in notes to surmount all difficulties, which did not exceed the statutory limits; in 1857 the issue of the Government letter produced no cessation of the demand for advances. The statutory limit was £14,475,000 of notes issued on securities, and there were issued in excess of these

On the meeting of Parliament an Act was passed permitting a temporary suspension of the Bank Act till February 1st, 1858, provided the directors did not reduce their discount below 10 per cent. On the 24th December they reduced it to 8 per cent., thereby reviving the operation of the Act.

In 1858 the inevitable consequence followed from the great crash of 1857. The enormous mass of false trading being cleared away money naturally flowed into the Bank, and the quantity of bullion gradually and steadily increased up to the end of the year. The Bank now learnt to adopt much higher rates of discount than formerly. In 1847 it kept the rate at 5 per cent. while the bullion was under £10,000,000; in 1858 the rate of 5 per cent. was maintained till the bullion exceeded £15,000,000-a great advance in sound principle.