A Cyclopaedia of Commerce, Mercantile Law, Finance, Commercial Geography, and Navigation

The Bank Restriction Act had provided for the return to specie payments within six months after the signature of a treaty of peace; but, at the peace of Amiens in 1802, this was postponed for a year, on account of the serious inconvenience it would then have caused to trade; and after the rupture in 1803, the public called loudly for a continuance of the exemption. At the close of the war in 1815 an act was passed, declaring in the preamble that "it was highly desirable that the Bank of England should return as soon as possible to the payment of its notes in cash." The year following, however (1816), being one of commercial distress, the resumption of cash payments was postponed to July 1, 1818; and by a further act to July 1, 1819. In the last mentioned year a committee of the House of Commons was appointed to inquire into the subject generally, of which committee Mr (now Sir Robert) Peel was chairman; and upon the recommendation of their Report the celebrated act (59 Geo. III. c. 49), sometimes called Peel's Act, was passed, requiring the Bank after February 1, 1820, to exchange their paper for bullion at certain fixed and graduated prices, and on May 1, 1823, to pay in current gold coin at the Mint rate of £3:17 10 per ounce the latter provision was anticipated in point of time by the bank recommencing payment of their notes in coin on May 1, 1821.

Renewed Charter, August 29, 1833 (3 & 4 Wm. IV. c. 98). The following is a summary of the provisions of this act :

Section 1. The Bank of England declared to have the exclusive privilege of banking upon the conditions specified in the act.

Section 2. During such privilege, no Company of more than six persons to issue notes payable on demand within London, or sixty-five miles thereof,-but banks beyond that limit may issue bills and notes payable on demand, or otherwise, at the place at which the same shall be issued, and also in London; but no such bill or note shall be under £5, or be reissued in London, or within sixty-five miles.

Section 3. Any Company of more than six may carry on banking in London, or within sixty-five miles, provided it do not issue its bills or notes payable on demand, or at any less time than six months.

Section 4. All notes of the Bank of England payable on demand which shall be issued out of London shall be payable at the place where issued.

Section 5. The exclusive privileges of the bank may be terminated upon a year's notice given within six months after August 1, 1845, and repayment of the public debt.

Section 6. Bank of England notes are a legal tender (except with respect to the bank itself) so long as the bank shall pay such notes in coin.

Section 7. Bills not having more than three months to run not subject to the usury laws. [This period has since, by temporary acts, been extended to twelve months.]

Section 8. Accounts of bullion, and of notes in circulation, to be sent weekly to the Chancellor of the Exchequer; and an average state of the bank accounts of the preceding three months shall be published every month in the London Gazette.

Section 9. Public to repay the bank one-fourth part of the debt of £14,686,800.

Section 10. If the proprietors shall so determine, the capital stock of the bank shall be reduced from £14,553,000 to £10,914,750; and the difference shall be divided amongst them on October 5, 1834.

Sections 11. 12. Provide for the qualification of directors in the event of the said reduction of stock being made.

Section 13. Bank to deduct £120,000 per annum from sum allowed for management of national

debt.

Section 14. Provisions of 39 & 40 Geo. III. to remain in force, except as altered by this act, subject to redemption upon the terms following:-that at any time, upon twelve months' notice, to be given after August 1, 1855, and upon repayment of the public debt, then the said exclusive privileges of banking shall cease and determine.

Capital and Nature of Business.-The repayment of one-fourth of the debt due by the public to the bank was made by an assignment of 3 per cent. stock from the Commissioners for the reduction of the National Debt; but the proprietors have allowed this sum to remain as available capital in the hands of the directors. Hence the stock of the bank, sometimes called its permanent capital, still amounts to £14,553,000, upon which sum the dividend is paid to the proprietors. The real capital of the bank however exceeds this sum by £2,944,000, the amount of the undivided profits, or rest, at 31st March 1840; making its total amount £17,497,000. The permanent capital is transferable like government stock; and its value fluctuates from political causes, as well as from the value of money, and the supposed success of the Company. It is exempted from taxes, accounted personal estate, assignable by unstamped transfer, and not subject to forfeiture, or liable to be taken in execution. The disposable capital under the management of the directors consists of the amount raised by the issue of notes, that held by deposit from government and private parties, and, lastly, undivided profits. The sum of the whole is generally about £30,000,000, of which part is vested in coin and bullion, but a larger part in securities producing interest-such as Exchequer bills and mercantile acceptances. The income of the bank is derived from interest on government securities, discount

on mercantile bills, allowance for managing the public debt, profits on bullion, and agency, amounting altogether to about £1,600,000, which, after deduction of salaries, losses, and duty on notes, forms the fund divisible among the proprietors. The bank is prohibited from engaging in any commercial undertaking other than its legitimate operations, such as the buying and selling of coin or bullion, and bills of exchange. Being, however, authorized, like the Banks of Amsterdam and Hamburg, to make advances on the security of merchandise lodged with it, or pledged to it by written documents, a power is given to the directors to sell the same for their reimbursement.

Management and Internal Regulations.-The chief management is vested in a Governor, Deputy-Governor, and twenty-four Directors elected annually; thirteen or more, of which the governor or deputy-governor must always be one, constitute a court. A governor requires to be possessed of £4000 or upwards of the stock, a deputy-governor £3000, a director £2000, and every elector £500. The directors seldom possess more stock than what is necessary to qualify them for their office. Four general courts of proprietors are held annually, namely, in March or April, July, September, and December. The purpose of these meetings is to make or revise by-laws, to determine questions relating to the institution, and to elect officers-this last usually taking place at the first meeting, Special meetings can be convened at the request of nine or more proprietors qualified as electors.

No account can be opened with the establishment without permission from the directors. If this be granted the bank will then discount approved bills, and receive and pay cash as ordinary bankers; but no deposit-account can be opened with less than £500. No interest is allowed by the bank. The party keeping an account must always have a sum at his credit; and no account is allowed to be overdrawn. Bills or notes (having not more than 95 days to run) including town bills, are now discounted every day instead of once a-week as formerly. But it is a general rule of the bank not to open discount accounts for issuing country bankers and joint-stock banks. It however discounts to such issuing bodies to the extent that may be required to discharge their notes paid into the several branches, and also gives some facilities of a similar kind to banks which afford aid in the collection of the revenue at the time, and to the extent of the aid given. (Mr G. W. Norman's Evidence, 1840; Bank Report, p. 209.)

A committee of three directors sit daily, and on Thursday the whole court assembles. No important measure is adopted without the assent of the majority of the court; and on particular occasions the directors communicate with the government. These communications are made to the First Lord of the Treasury and the Chancellor of Exchequer, whose opinions are always considered with attention; but they possess no authority for enforcing any change in the bank's arrangements. The bank's business is divided into two departments; the one under the chief cashier, who transacts the receipts and payments, and issues the notes; the other under the general accountant, who posts these notes as they are issued or paid off, and manages the affairs of the national debt. In 1832 there were employed at the bank 820 clerks and porters, and 38 printers and engravers; and there were also 193 pensioners, chiefly superannuated clerks, who received in pensions £31,243, averaging £161 to each. In the same year the salaries and pensions amounted to £218,003; the house expenses to £39,187; the allowance of the directors was £8000; and the rent of the building was set down at £40,000. The salaries of the officers at the branches amounted to £25,000.

Transactions with Government.-The bank, besides lodging its capital with government, in consideration of the exclusive privileges granted to it, and as a security to the public for payment of its notes, has always performed the ordinary functions of a banker to the state. Since the renewal of the charter in 1833, onefourth of the permanent debt has been repaid, and been thus reduced from £14,686,800 to £11,015,100, upon which interest is at present paid to the bank at the rate of 3 per cent. The bank has, however, been always in the practice of making other considerable advances to government, chiefly in the form of Exchequer bills. Before the exemption from cash-payments in 1797, these advances averaged about £8,000,000; but after that time they increased very considerably, and the general amount in the ten years from 1807 to 1817 was £22,000,000. At present they consist partly of Exchequer bills, but chiefly of a sum of £10,897,880 lent in 1823, to relieve the public finances of the heavy payments on account of the half-pay and pensions due to retired officers, called the "dead weight," the consideration granted to the bank, being an annuity of £585,740 for forty-four years until 1867.

The bank acts as the organ of government in paying the dividends on the na

tional debt, and in receiving and registering transfers of stock from one public creditor to another; employing in this department about 400 persons. For this service it receives at present about £130,000 yearly. It likewise renders to the Treasury and other public offices, in daily receiving and paying money, the same services as a private banking house does to its customers. During the late war, owing to the large amount of taxes and loans raised for the public service, the balances at the credit of the different government offices amounted to very considerable sums, at one time even so large as £11,000,000; in consideration of which the bank agreed to lend government £3,000,000 without interest. At present the public deposits fluctuate commonly between three and four millions, upon which no interest is allowed.

Deposits by Private Parties.-These generally varied from one to two millions until the panic of December 1825; but after that time they increased very considerably, and of late years have fluctuated from about four to twelve millions. Even this last sum, however, is comparatively small, arising from the fact that the bank directors do not give the same facilities to their customers as is received from private bankers.

Discount of Mercantile Bills.-The bills discounted have varied greatly in amount. When the rate of interest charged by the bank is on a level with the market rate, the number is large, but the reverse when it exceeds that rate. In 1809 and 1810, the average amount of discounts was about seventeen millions. Since the peace, it has seldom exceeded three millions, in consequence of the abundance of money possessed by private bankers, and their charge being commonly lower than that of the other, which is therefore chiefly resorted to for discounts during periods of commercial embarrassment. The annual average of loss by bad debts on discounts was, from 1795 to 1831, both inclusive, £31,696.

Circulation and Regulation of Issues.-No notes under £20 were put into circulation by the bank prior to 1759, in which year notes for £10 were first issued. In 1793, the bank began to issue notes for £5, and £1 and £2 notes were introduced in March 1797, after the bank suspended payment in specie. The issue of the latter, except for a short period at the end of 1825, ceased in 1821; and since the 5th April 1829, no bank in England can issue any note under £5 (7 Geo. IV. c. 6). The paper circulated by the bank at present consists of ordinary notes for £5 and upwards, and of bank post bills, drawn commonly at seven days' sight. The amount of the whole is generally about £18,000,000. In 1833 it was estimated that about three-fourths of the bank's paper money circulated in the metropolitan district; the remaining fourth in the country, particularly Lancashire.

The bank issues are understood to be regulated on the principle that the circulation should be at all times kept full, but without any redundancy, and the means by which this condition of things may be adjusted are, except on extraordinary emergencies, held to be indicated by the state of the foreign exchanges. In the exercise of their powers, however, the directors commonly act with caution. They are aware that under any circumstances a diminution of the currency is unfavourable to trade, lowering the price of commodities, and producing a general dulness in markets. When the foreign exchanges are likely to fall, and it appears incumbent on the bank to contract its issues, the directors profess not to act on opinion, but to wait until an actual demand for gold has been made on the bank. Even then they do not make a direct contraction of their circulation; they merely forbear to issne notes in the place of those which have been returned by the public for gold. The contraction of the circulation is usually effected by raising the rate of discount for bills, sometimes also by the sale of public or other securities; an opposite procedure leads of course to an expansion of it.

The bullion, or cash reserve, kept by the bank consists chiefly of gold, silver seldom exceeding one-fifteenth of the whole. The common rule of the directors is to keep in treasure a sum equal to one-third of their liabilities. This proportion has usually been found sufficient; but the rule is not founded on general principles, and is not closely followed. In ordinary times, and when under a vigilant management, the circulation is limited within the amount which would injuriously affect the foreign exchanges, so large a proportion as one-third cannot be necessary. On the other hand, when by an overissue of paper, prices have been raised so high that gold has become the most profitable commodity for exportation, the experience of the bank has shown that the drain thus arising may be carried to an extent far exceeding the amount necessary to restore the equilibrium of the currency; while in a commercial panic, more especially when aggravated by a political disturbance, it is difficult to say what quantity of treasure would be found

adequate short of the amount of the bank's whole liabilities. With the view, however, of being provided as far as possible to meet such contingencies, most of the disposable capital is invested in securities which can, if required, be brought to sale in the stock exchange. This is the case not only with exchequer bills and government stock, but with the greatest of all their assets, the annuity on the dead weight, which might, if necessary, be divided or subdivided into portions fitted for the money market.

Branch Banks were first established by the directors in 1826, at the suggestion, it was said, of the late Lord Liverpool, and for the purpose of lessening the inconvenience arising from the frequent discredit of the country banks. The business of these branches principally consists in discounting bills, issuing notes which are payable in London and in the place where they are issued, and in transmitting money to and from the capital. The towns in which they are established are as follows:-Birmingham, Bristol, Gloucester, Hull, Leeds, Liverpool, Manchester, Newcastle-on-Tyne, Norwich, Swansea, Portsmouth, and Plymouth. The managers of the branch banks allow no interest on deposits, nor do they permit any one to overdraw his account; the regulations under which they act having been framed so as to avoid interfering with the business of the local banks. The branches further consult the convenience of these banks by receiving gold from those who happen to hold more than they require, and in supplying it to those who stand in need of it. They also lend Bank of England notes to such as think fit to use them instead of their own, by discounting their bills at 3 per cent. interest. The branches were not expected to be productive of profit to the Bank of England, nor have they proved so.

The Profits of the Bank have in general been steady, though, at least in former times, seldom exceeding a certain moderate limit. In 1694 the dividend was 8 per cent.; and in 1695, 9 per cent. From that year to 1729, it fluctuated between 5 and 9 per cent. From 1729 to 1747, the rate was 53 to 6 per cent; from 1747 to 1753, 5 per cent.; in 1753 it fell to 4 per cent. After 1767 the dividend was gradually raised to 7 per cent., at which rate it continued till 1805. Before the latter period, however, the exemption of cash-payments in 1797 had increased the income of the bank in two ways; by extending its circulation, and by saving it the interest sacrificed till then in keeping a stock of bullion. Of the additional profits thus derived, 57 per cent. was distributed among the proprietors in the form of bonuses, as follows:-10 per cent. in 1799, 5 per cent. in 1801, 2 per cent. in 1802, 5 per cent. in 1804, 5 per cent. in 1805, and 5 per cent. in 1806. These making 32 per cent. were paid to the proprietors; and in 1816, an additional 25 per cent was carried to the credit of each of them in the bank books; thus increasing the capital from £11,642,400 to £14,553,000. Besides these extra allowances, the bank's ordinary dividend was increased in 1805 from 7 to 12 per cent., which rate was paid in 1805 and 1806. In 1807, it was reduced to 10 per cent. which continued until 1832; after which, from a decrease on the profits consequent on the recall of the small notes, and the resumption of cash payments, it was further reduced to 8 per cent. In 1839, a still further reduction was made to 7 per cent., at which rate it has since continued.

The Rest, or Surplus of Undivided Profits, was about £3,000,000 until 1797, after which it increased gradually to eight millions, and led in 1816 to the above mentioned bonus of 25 per cent. It was further reduced in 1817 and 1818 by the expense incurred by the bank in procuring gold from abroad. Its general progress is shown in the annexed statement, from which it will be seen that its present amount is nearly £3,000,000.

Accounts. The practice of the Bank of England in former times, like the banks of Venice and Amsterdam, was to observe strict secrecy in regard to its accounts, considering this as important to its prosperity. After 1797, the directors reported regularly to government the amount of notes in circulation, which was afterwards published in the newspapers; but every thing else was kept secret until 1832, when the Report of the Parliamentary Committee on bank affairs gave to the public much information which, until then, had been considered confidential. Of the accounts then published, there is given below a State of its Liabilities, Assets, and Rest, for a series of years since 1780, with continuation, adding for each quarter, commencing with 1834, a statement of the average amount of the Issues, Deposits, Securities, and Bullion of the bank, according to the accounts which the directors are now required to publish in the London Gazette, in terms of act 3 & 4 Wm. IV. c. 98.

ACCOUNT of the Liabilities, Assets, and Rest or Amount, of Undivided Profits of

the Bank of England in the following years :-