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bank. Especially since the admission lately of the great jointstock banks to the clearing-house, no London banker keeps in his till more coin, or even more bank-notes, than the minimum he can get on with. If there is any unusual demand on him for payments across the counter, he draws a cheque and gets it cashed at the Bank. The Bank of England is to him what he is to his customer-the source of supply in case of need. Country bankers probably for the most part keep more cash, because they are further from the focus. As they have further to send when they want fresh supplies, their supply of current cash must be larger. This does not, however, affect the principle. Country bankers, I apprehend, as well as London bankers, only keep the minimum in their tills which their ordinary business plainly requires; the rest of their reserve is kept at the bill-brokers', or with London bankers, who all keep accounts at the Bank of England, and who, as I have said, keep nothing any where else except the narrowest and most necessary minimum. The consequence is, that there is no other large pecuniary hoard in the country on which a drain of bullion can act except that which is in the vaults of the Bank." The inevitable consequence of this is, that when by any terrifying circumstance or perilous calamity the confidence between man and man is disturbed, our danger is considerable and our suffering extreme. We have made necessary to our vast transactions a system of delicate machinery; by some blow from without, or defect from within, that machinery will be occasionally impaired. Our hard capital is clothed in a soft web-work of confidence and opinion; on a sudden it may be stripped bare, and with pain to our prosperity.

We may perhaps doubt whether this system of enterprise and trust has not occasionally been carried too far. When we consider the vast extent of English trade, it is not satisfactory to think that a single establishment holds our entire bullion reserve. The fact is a consequence, not of the natural growth of commerce, but of legislative interference with that growth. By a series of enactments and a course of policy which, even if we had the space, it would be inopportune at present to describe, the English Government have given to the Bank a vast, and, until lately, a nearly absolute predominance in the London district. The consequence has been, that, not unnaturally, all inferior banks have clustered around it. As there was no doubt of the solvency of the Bank of England (seeing that, even in 1797, when the Bank had no money, the Legislature intervened and said it need have no money), all other bankers, instead of running the risk-and, as experience has shown, the considerable risk of keeping their own metallic reserve, place that reserve at the Bank, and draw it out by cheque as they want it. Obvious

convenience has fixed the habit too deeply in our existing system to permit a hope of its removal; but it has the inevitable, and perhaps dangerous, result of placing under the uncontrolled management of a single set of directors the sole hoard of actual cash-the only fund we have to draw on for international payments, for foreign wars, or domestic panics. Under a more natural system, a set of banks of nearly equal magnitude, and nearly equal prestige, would have grown up, as very recently the London joint-stock banks have in fact grown up; and each of these, having no reason for particular friendship with any other, would have kept its own reserve. We are almost reviving the Aristotelic definition when we say that oligarchy is the government of wealth; but in real and modern truth, the tendency of a mercantile community in each trade is towards the supremacy of a few large establishments enjoying the means of carrying on their respective trades at the greatest advantage, and, as the case may be, trusted by or giving credit to the smaller firms grouped and collected around them. The Bank of England is a Túpavvos, who has overthrown this free constitution, and maintains by irresistible usage its unnatural supremacy. The effect has been seen lately; what the act of Sir Robert Peel sets aside as the banking reserve has recently been reduced from several millions to 959,000l.; and then, by a violation of the law, to less than nothing. Even if we disregard the technical provisions of that statute, the entire bullion reserve held, both for the banking credit and the paper currency of England, was on the 18th of November 6,684,000l.; a very small amount, as will be almost universally admitted, when we consider the vast amount of the contingencies and liabilities against which it is held; and that, in addition to these, it is liable to sudden calls to replenish in case of need the cash stores of Scotland and Ireland. We can hardly, with these circumstances before us, deny that we have pushed our system of credit rather too far,-have relied on too small a basis of actual capital, and incurred serious and needless danger from any vicissitude of foreign speculation.

Another circumstance, which has been much more dwelt on, but to which we ascribe much less importance, is the system pursued by the joint-stock banks of the north of England of lending the whole, or more than the whole, of their capital and deposits on the spot, and obtaining the necessary funds by re-discounting the north-country bills in London. Like every other contrivance of money-lending, this may be carried to an extreme at which it becomes dangerous; but within reasonable and proper limits, the system seems a proper and even an excellent one. The bills of Liverpool must be, in the main, good; for with all this pressure, a pressure, too, likely to tell with unusual effect at


the port which is the outlet and inlet of our American commerce, -very few Liverpool houses have suspended payment, when we consider the number of houses there are, and the complication as well as magnitude of their transactions. The Liverpool bills therefore are, in general, good securities for those who have money to lend. By the course of banking business, the bill-brokers and similar traders in London will have much to lend. The agricultural and nearly uncommercial counties of England, as any one may see by looking at the map, are many: none of these, especially during the recent prosperity of agriculture, any thing like employs its own money; the surplus funds of all these counties, by a natural gravitation, seek an outlet in the capital, which is the focus of national finance, and the market for securities best known and most accessible to the whole country. These funds are lent to bill-brokers and joint-stock banks, who carry on a similar business who are, in truth, bill-brokers as well as bankers; and by these they are employed in re-discounting the bills forwarded to London by the northern banks. In its essence, the system is this: A man in the north is trustworthy, and wants money; a man in the south has money, but does not know who is trustworthy; a middleman in London knows who is trustworthy, and lends the money of the south to the man in the north. Of course, as re-discounting is a system of extensive borrowing, it is exposed to all the evils incidental to every system of extensive borrowing. The banks which require re-discounts should, as a rule, confine them within limits which they can be sure of obtaining in times of adversity as well as of prosperity-should have distinct arrangements with bill-brokers to re-discount within those limits and should select good bill-brokers who are able to perform those engagements. These are, mutatis mutandis, the same conditions which every prudent merchant who requires discounts would make with his banker who gives such discounts; and if these conditions be duly complied with, both re-discounts and discounts are safe to the borrower, and distribute with singular advantage the capital of the nation.

It is much to be regretted that members of parliament should have spent, in attacking the really beneficial system of re-discounts, the moral influence which might be applied with so much effect to other parts of our banking system. The obvious convenience which we have explained will insure to that system a longevity far greater than that which can be expected by peer or representative. The use of parliamentary eloquence is not to bewail fixed habits, but to improve improvable habits. If the re-discounting system has been pushed too far, as is possible, the effect is owing to the condition of the bill-broking trade in London, the state of which is certainly not in accord

ance with strict principle, and may not perhaps be practically



In its theory, nothing can be sounder than this trade. Money is received commonly in considerable sums; an interest is paid for them, smaller if they are to be repaid on demand, and greater if they are only to be repaid after the expiration of a notice this money is employed in the discount of commercial bills, the kind of security which runs off most regularly and most constantly, and which in times of scarcity and anxiety admits most easily of being curtailed. On the surface this would appear the safest kind of banking; the way of employing the money is the best; so much of the money is only repayable after a notice, that the reserve which need be retained is smaller than usual. This apparent safety, however, is at present vitiated by a single fact. The rate of interest now given is so high, that the business would become unprofitable if any reserve were kept at all. Of this fact, which is familiar to those who are in any degree acquainted with the practice of Lombard Street, there is a very distinct explanation in the recent parliamentary inquiry furnished by a very experienced witness. The most influential partner in the house of Overend, Gurney, and Co., the most important house in the bill-broking trade, is examined as follows:

"5206. You are aware, as you have referred to the habits of banking business, that it is the habit of the Bank of England, as well as, I believe, of other bankers, to keep a certain amount of their deposits in bank-notes in reserve ?-Certainly.

5207. Do the money-dealing houses in Lombard Street act on the same principle with regard to that money which is left in their hands at call? They could not afford to do it; it is not the nature of their business, except under circumstances of danger as to the currency; they could not afford to pay interest for money and not to use it; it is the nature of their business to bring into action and useful employment the banking money of the country; it is their business to use it.

5208. Do you, then, think that they may safely use all the money which they borrow, in lending it out at interest, provided it is on safe security-Assuming that they employ it on bills of exchange falling due de die in diem, then experience shows that they may do it safely, without any hazard.

5209. Without keeping any reserve beyond a banking balance?— Certainly. How could I afford to pay five or six per cent for money if I did not use it? It would be certainly the road to ruin."

At first sight this seems contrary not only to abstract argument, but to evident prudence. How can other people's money be securely kept, a good deal of it on demand and the rest of

it at a short notice (seven days is the usual period), if all of it is invested, and if none is retained in the till to meet sudden demands? The doctrine that a reserve is necessary to borrowers so situated has been maintained ad nauseam by all theorists on banking. The same authority, however, has explained the expedient by which it is rendered, as he thinks, safe, and, as all will agree, less entirely insecure. The explanation is rather long, but is curiously illustrative of real life:

"5192. Then you think that the Bank of England could not stop discounting for the discount houses in Lombard Street, at particular times at least, without creating great injury to the commercial community?—I think it would create very great injury indeed. Of course the Bank Directors would use their own discretion; if they saw these houses discounting very long bills with them, and bills which were not suitable in any way, I take for granted they would not take them. Of course that would not affect the general question; but assuming that there is a drain upon the monetary system, and that the great money dealers are driven to convert their bills more quickly than they fall due, I think it would be a very great calamity for the Bank to hesitate for a single moment; I cannot conceive any greater.

5193. No matter what the reserve of the Bank of England was at the time-Certainly.

5194. Then you think that that is one of the grounds, in addition to those four which you have stated, which ought properly to be included in an act of parliament as a ground for infringing the act?-I hardly understand that point.

5195. You gave four grounds as reasons for an alteration of the act at particular periods, but you did not enumerate that to which I have just alluded. Do you think that that is one which ought to be included in the provisions of the act of parliament ?--I will mention a case, if you will allow me to refer to the house which I represent, because this is a fact which has taken place before. About twenty years ago, the Bank tried to adopt that course; I am obliged to speak personally, which I hope you will excuse. I happened to have been absent from London for three or four weeks; I came back to town, and found the whole of Lombard Street as if we had had a dark cloud hanging over it; our desk was piled with bills of the very finest commercial character; I said to my partner, 'Mr. Gurney, what in the world has happened? Why do you not discount these bills?' He said, 'Because the Bank have intimated that they are doubtful whether they will discount for us.' I said, 'It is impossible.' He said, 'It is perfectly true; and therefore we will not discount the bills.' I was quite shocked; I went over to the Bank, the Governor then was Sir John Rae Reid, and Sir Henry Pelly was the Deputy Governor; it was about 1839. I told them exactly what had taken place, and what the effect of their act had been. I said, 'We have taken care of ourselves; it is not that we want the money for ourselves, because we have our bills to rely on,

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