The simple definition of banking is money-dealing. A banker properly
so called is but a tradesman engaged in buying and selling money,
that symbol of wealth which in all civilised countries facilitates or
renders possible the exchange of commodities, which are wealth itself.
A banker produces nothing, nor does he, except in a most indirect
manner, add anything to the wealth of the country. His business is
the collection and distribution of that general representative of
merchandise, money, much in the same way as an ordinary shopkeeper
collects and distributes the special articles of his individual
trade. Joint-stock banks, then, are but co-operative distributing
associations formed for the purpose of fighting against some real or
fancied oppression, and of competing, to the supposed advantage of
the public, with private enterprise. They are formed for the purpose
of competing with private bankers whose business they appear to be
gradually absorbing, possibly by a sort of process of the survival of
the fittest. In this way the origin, in 1694, of the Bank of England,
the parent joint-stock bank of the kingdom, and the largest and most
important money-dealing institution in the world, may be traced to the
combination of the Government, merchants, traders, and the general
public to oppose the exactions, usury, and financial tyranny of the
goldsmiths and stock-jobbers of the period. A very limited acquaintance
with pamphlets published at the time of the Great Revolution will
show that the Bank of England was the natural outcome of necessity,
a necessity which guaranteed its success if honestly and prudently
managed. Through its means the foundation of a safe paper currency was
secured, the national credit maintained, and the system of usury and
extortion prevalent throughout the country undermined—at the expense,
it is true, of many so-called bankers, stock-jobbers, and goldsmiths,
but to the great gain of the nation, its commerce, and the general
public. Of the originator of the Bank of England—Mr. W. Paterson,
who remained a director only for a year or two—we know really very
little, except that he was equally the founder of the ill-fated Darien
Expedition of 1698, that he was an able, honorable, and enthusiastic
man, and that he died in Scotland, where, “pitied, respected, but
neglected,” he lived for many years.
The original capital of the Bank was £1,200,000, which was subscribed
in a few days. The whole of this amount was, as a condition of
the charter, lent to the Government at eight per cent., the Bank
being allowed an additional £4,000 a year for the management of
the Government accounts. The necessary capital for carrying on the
banking business appears to have been obtained from the public by the
issue of bank bills, termed by some flippant writers of the period
“Speed’s notes,” from the name of the first chief cashier. These
bills were evidently a sort of “deposit receipt,” bearing interest at
the rate of twopence per cent. per diem, or at the rate of three per
cent. per annum, and they appear to have given sore offence to the
goldsmiths. The Bank of England commenced business in the Mercers’
Hall, Cheapside, where the first “General Court of Proprietors” was
held. But after a few months, this situation being found inconvenient,
an agreement was made with the Grocers’ Company (which appears to have
been in difficulties) for the use of their hall in Princes Street. The
original working staff of the Bank consisted of fifty-four clerks,
whose united salaries amounted to the modest sum of £4,340 a year,
averaging a little more than £80 a year each. The chief cashier (Mr.
T. Speed), the chief accountant, and the secretary received £250 a
year each, and one clerk is scheduled in the pay-sheet as working
“gratis.” Addison, in No. 3 of the _Spectator_, gives us the following
pleasant little glimpse of the Bank at work in 1710: “In one of my late
rambles, or rather speculations, I looked into the great hall where
the Bank is kept, and was not a little pleased to see the directors,
secretaries, and clerks, with all the other members of that wealthy
corporation, ranged in their several stations, according to the parts
they act in that just and regular economy.” From which it would seem
that the Bank dignitaries of old had a firm belief in the virtues of
the “master’s eye,” scorned bank parlors and private rooms, and were
content to work with their servants _coram populo_—a good, homely,
old-fashioned practice, no doubt, but one scarcely adapted to modern
banking requirements. Bank of England directors in those days, however,
had a good deal more to do with mere clerical duties than they have at
present. They by no means shirked the most practical responsibilities
of office, for we find that at that period, and for many years
afterwards, even the warrants for the payments of dividends were signed
by two of their body.
It was not until after the Bank had existed some forty years that the
directors found the business so completely outgrow the accommodation
afforded by the Grocers’ Hall as to necessitate a separate building
of its own. The foundation of the present building was laid in 1732
on the site of the residence of Sir John Houblon, the first governor
of the Bank, and business was commenced in the new premises in 1734.
The edifice was greatly enlarged between the years 1770 and 1786,
and was completed, pretty much as it now stands, in 1786, an Act
having been procured in 1780 to enable the directors to purchase the
adjoining church, land, and parsonage—in fact the whole parish—of St.
Christopher le Stocks, to the rector of which non-existent parish the
Bank pay £400 a year to this day. The drawing office now stands on the
site of the old church, the garden being the churchyard. In 1800, when
Princes Street was widened, the present wall-screen round the Bank was
erected by Sir John Soane giving a uniform appearance to the exterior
of the building. There is much in the architectural interior of the
Bank which is well worthy of admiration; for instance the quadrangle
called the bullion-yard, in Lothbury, the garden, rotunda, and court
rooms, &c. The long prison-like stone-colored passages and offices
devoted to public business, however, are singularly cold and cheerless,
owing chiefly to some apparent, yet unaccountable, objection of the
authorities to employ color as a decorative auxiliary; possibly from a
fixed but mistaken idea that color is antagonistic to cleanliness and
brightness to business.
Although the necessities of the State contributed to the establishment
of the Bank of England, they were, at intervals of every few years,
compelled, after making a feeble resistance, to purchase the
continuance of their privileges on exceedingly onerous terms. The
history of the seven renewals of the charter between 1694 and 1800, and
of the accordance of permission to increase the capital of the Bank, is
one continuous record of State exactions. The Bank, as a condition of
State patronage, were on each successive occasion forced to increase
their loans to the Government at low rates of interest or without any
interest whatever, three millions sterling being lent for six years
without interest in 1800. Interest on previous loans was reduced,
exchequer bills were cancelled, and on one occasion a free gift of
£110,000 was made to the State. As a consequence the Government debt
to the Bank increased at a rapid rate, till it amounted at last to
upwards of fourteen and a half millions sterling, or rather more than
the whole capital of the Corporation. In 1833 the Government paid off
one-fourth of this debt in reduced annuities, and thereby reduced it
to £11,015,100, at which amount it now stands. While Ministry after
Ministry thus accurately tested the pliability of the “Governor and
Company,” and relentlessly preyed on their fears as to the continuance
of their monopoly, it is pleasant to read of the intense feeling of
loyalty which actuated the directors in all their dealings with the
State. When, after the Rebellion of 1715, the Government proposed to
reduce the interest on the National Debt from six to five per cent.,
the Bank testified to their desire to assist the measure by at once
agreeing to accept the lower rate, and to provide money to pay off
those creditors who declined to submit to the reduction. Again, when
a further reduction in the interest on part of the National Debt was
proposed in 1750, the Bank at once assented, and arranged to find a
sum of money to pay off the dissentients. The passive attitude lately
assumed by the Bank directors towards the conversion scheme of the
present Chancellor of the Exchequer contrasts somewhat unfavorably
with the loyal attachment of the Bank to the State in olden times.
The transactions of the Bank of England with Government for a period
of one hundred and twenty years ending with 1816 are but a series of
loans and advances by the Bank in anticipation of the revenue, or of
payments of treasury bills drawn by the Government agents abroad. These
large advances and payments were entirely independent of the permanent
loan made to the Government by the Bank, and were supposed to be but
temporary assistance rendered to the State in times of sore need, to
be repaid periodically as the revenue was collected. But repayment
was not made. Again and again did the Governor and Company represent
to the Ministers that they were unable to continue to increase the
floating debt without endangering the safety of the Bank. Coaxed and
bullied in turn (especially by Pitt), they allowed their loyalty to
outrun their prudence, and yielded more or less gracefully time
after time, till at last in 1797 they were compelled to suspend cash
payments, entirely through their exertions to aid the Government.
Undoubtedly the exclusive privileges which the Bank in the infancy of
banking enjoyed were in some sense a _quid pro quo_ for their services
to the State, and the fear of losing their charter may have been a
strong incentive to loyalty. The subsequent gradual enfranchisement
of banking by the various enactments between 1826 and 1858 and the
enormous progress which banking has since made throughout the country,
have, however, considerably lessened the value of these privileges, and
from a mere proprietor’s point of view it is quite possible that the
Bank of England might profitably forego their charter altogether, now
that they are in no fear of losing it, and, so far as pure banking is
concerned, they no longer enjoy a monopoly. These considerations may
have tempered the loyalty of the directors, and may account for the
very independent fashion in which they nowadays approach the Government
for the transaction of business upon which, in the olden time, they
were accustomed to enter with fear and trembling.
The establishment of branches by the Bank of England in 1826 was
a direct consequence of the great panic of 1825, caused, as the
Government alleged, by reckless speculation encouraged and fostered
by private banks, and by the overissue of country bank notes. In
a correspondence with the Bank, the Government expressed their
determination to “improve the circulation of the country paper,” and,
after paying the Bank the complement of saying, “We believe that much
of the prosperity of the country is to be attributed to the general
wisdom, justice, and fairness of the dealings of the Bank,” suggested
that the Bank of England should establish branches of their own in
different parts of the country, and should, moreover, yield part of
their exclusive privilege of joint-stock banking by permitting the
formation of banks with more than six partners, except in or within
sixty-five miles of the metropolis. After a vain attempt to obtain
some compensation for the concession of their monopoly for joint-stock
banking the Bank yielded on both points, and an Act was passed
authorising the establishment of Bank of England branches and the
formation of country joint-stock banks. The circulation of one and two
pound notes was also prohibited by this Act.
The Bank charter was again renewed in 1833, when Bank of England
notes were first made a legal tender, and the usury laws repealed so
far as they affected three months’ bills. The most important clause
in this charter, however, was that which legalised the establishment
of joint-stock banks in and within sixty-five miles of London. This
led to the establishment of the London and Westminster Bank in 1834,
the first of those numerous metropolitan joint-stock banks which
now so extensively and beneficially administer to the commercial
wants of the country. Up to about this time it had been universally
considered that the Bank of England enjoyed the exclusive privilege of
joint-stock banking within the above radius, but now the astonishing
discovery was made that this was not so, and in fact never had been
so; and this discovery was confirmed by the law officers of the Crown.
The directors protested, but resistance was useless. The Bank lost
its supposed privilege, though it is very questionable whether the
Government behaved quite straightforwardly in the matter. This Act,
together with one or two subsequent banking Acts, thus completely
enfranchised banking, and abolished a monopoly which was, after all,
obstructive both to financial and commercial progress. The abolishment
of any monopoly is invariably but a question of education and time,
and, in accordance with the doctrine of experience, it does not appear
that the Bank have really lost anything by the competition engendered
by the enfranchisement of joint-stock banking, while commerce and the
community have undoubtedly gained enormously.
We come now to Sir Robert Peel’s famous Bank Charter Act of 1844,
entitled “An Act to regulate the issue of Bank Notes, and for giving
to the Governor and Company of the Bank of England certain privileges
for a limited period.” It confirms the curtailed privileges of the
Bank for eleven years, subject afterwards to redemption on twelve
months’ notice being given and the repayment of the debt due by the
Government to the Bank. A clause in the subsequent National Debt Act
of 1870, however, provides that the Bank of England shall continue
to be a corporation until all the public Funds shall be redeemed by
Parliament, thus practically granting it a lease in perpetuity. The Act
of 1844—to some of the special provisions of which I shall presently
refer—practically regulates the whole banking system of the country,
and at the present time governs the Bank of England in the conduct of
their business. In accordance with its provisions, the issue of Bank of
England notes was first kept distinct from the banking business proper
by the creation of the “Issue Department” and the “Banking Department,”
with which probably most of my readers are perfectly familiar, at
least by name. Besides these Issue and Banking Departments, there is
in the Bank a third most important department, devoted to what is
generally, though somewhat inaccurately, termed “the management of the
National Debt.” In their capacity of bankers to the State the governor
and company of the Bank of England have always acted as the financial
agents of the Government for distributing, and paying the dividends on,
the funded debt, as well as for the performance of other book-keeping
duties in connection therewith. Of late years the Bank have undertaken
similar duties for the Indian and several Colonial Governments, for
the Metropolitan Board of Works, and for various corporations and
municipalities. The considerable portion of the Bank premises devoted
to this agency business is now generally spoken of by financial and
banking writers as “The Department for the Management of the National
Debt”—an imposing title doubtless, which says a good deal more than
it means, and one, for aught I know, adopted nowadays by the Bank
themselves; but, possibly influenced by the recollections of days long
gone by, I confess my partiality for the old familiar title of “Stock
Offices.”
In the conduct of their business, then, the Bank of England perform
three distinct and important functions—that of financial agents,
that of issuers of notes under the control of the State, and that
of Government and general bankers. The duties involved in these
functions are discharged, severally, towards the State and the various
governments and corporations for whom they are agents; towards the
general public, from or to whom they buy or sell notes and gold; and
towards the Government and customers for whom they act as ordinary
bankers. I will consider briefly the system by which these three
functions are discharged. The offices comprised in the department for
the management of the National Debt are the various stock offices in
which are kept the stock ledgers and the transfer books, the Dividend
Office, the Cheque Office, the Unclaimed Dividend Office, the Power
of Attorney Office, and the Will or Register Office. The nature of
the business transacted in these different offices is sufficiently
indicated by their names, with the exception of the Cheque Office,
which, on the _lucus a non lucendo_ principle, is probably so called
because it has nothing whatever to do with “cheques,” but is devoted,
for the most part, to the purpose of checking the amounts and totals
of the dividend warrants paid by the “Dividend Pay Office,” an office
which belongs to the Banking Department. Some idea of the amount
of work done in the various Stock Offices may be gathered from the
circumstance that they employ the services of some 450 clerks. Nearly
2,000 books are in constant use in some ten or twelve rooms. The
dividend warrants on the funded debt alone number about half a million
a year, and are, when paid, sent to Somerset House for verification,
together with a duplicate copy of the dividend book. As a remuneration
for its services in connection with the National Debt, the Bank is paid
a commission of £300 per million on the first six hundred millions of
the amount and £150 per million on the remainder. Since the funded debt
is now altogether about £628,500,000, the Bank receives on this account
about £184,000 per annum, a remuneration which cannot be considered
excessive.
The extreme accuracy and dispatch with which the clerical labor
involved in the business of the Stock Offices is performed, is almost
marvellous, and reflects the highest credit on the administrative
machinery of the Bank. Every possible expedient is resorted to for
the purpose of facilitating the work and guarding against error, even
to the free employment of the Bank’s printing-office and the use of
the stereotype process in the preparation of the dividend books in
duplicate. It is worth mentioning that all the old stock ledgers,
transfer books, vouchers, and documents connected with the various
stocks which have been created since the establishment of the Bank are
carefully preserved and systematically arranged for ready reference in
the Stock Office Library under the charge of a librarian, whose duties,
however, though involving great responsibility, are more monotonous
than onerous.
The “Issue Department” of the Bank of England is the outcome of
the determination expressed by the Government in 1844 “to regulate
the issue of bank notes.” The experience of former years, more
particularly that of 1825, had fully demonstrated how undesirable, and
even dangerous, it was to leave the circulation of bank notes to the
uncontrolled discretion of country bankers, and though there can be no
reason to doubt that the Bank of England had hitherto used the power
which they possessed of expanding or contracting their circulation
at will with great judgment, and substantially to the benefit of the
mercantile community, it was thought desirable that the control of
the whole circulation in the country should be practically vested in
the State, and be governed by some sound financial principle. The
theoretical basis of the Act of 1844 is the principle that bank notes
should not be mere symbols of credit—simple I O U’s, as it were, which
are a confession of a want of cash—but of actual “ear-marked” gold;
of ready money, which alone regulates, or should regulate, the extent
of the commerce of the country. The soundness of this principle is
doubted by many financial authorities on the ground that it checks
the proper expansion of trade and in times of crisis has failed
in practice. I cannot, however, here discuss the large subject of
currency, but must accept the law as I find it, merely stating that
in my opinion it affords the only safe basis upon which any sound
currency can be regulated. To carry out this law effectually, then, it
was obviously necessary that the Government should create or select
some establishment from which bank notes might be issued, and in which
the gold that these notes represented should be set apart or stored.
As the State Bank, the Bank of England was naturally entrusted with
these functions. Hence the creation of the “Issue Department.” But in
order to afford some elasticity to the circulation, and to deal gently
with the “vested interests” of the Bank of England and country bankers
alike, the Act provides that no banks of issue shall be permitted
other than those in existence in May, 1844, and that an average of
the note circulation of these banks shall be taken, which shall in
future be the maximum circulation allowed to them. This maximum
was subsequently fixed at about eight and three-quarter millions.
Provisions are also made by which, on certain terms, issuing banks may
cede their privilege of issue to the Bank or forfeit them altogether
in case of bankruptcy or certain changes in the constitution of their
partnerships. The total amount of these “lapsed issues” since 1844 is
about two and three-quarter millions, leaving the present authorized
maximum circulation of the country banks at about six millions. No
stipulation is made that any proportion of this circulation shall
be based upon gold. This matter is left entirely to the judgment of
the bankers themselves, whose discretion, however, there seems no
reason to question, since from the weekly returns supplied to the
Government in conformity with the Act, it appears that not more than
one-half the notes of the maximum issue are in actual circulation.
With regard to the Bank of England, permission is accorded to the
Issue Department to issue notes to the amount of fourteen millions
upon securities—including the £11,015,100 due by the Government to
the Bank—to be set apart for the purpose of guarantee. The Bank is
furthermore permitted to increase the amount of notes issued on
securities to the extent of two-thirds of the lapsed issues of country
banks. The extra issue thus acquired is now £1,750,000, which brings up
the total amount of issue on securities to £15,750,000, inclusive of
the Government debt. Any further issue of notes must be represented by
an equal amount of bullion or gold coin transferred to the separate
vaults of the Issue Department, but one-fourth of the amount so
transferred may consist of silver bullion.
The Bank are required to furnish the Government with a weekly report
of the accounts of the Issue and Banking departments. This report,
which is popularly called “The Bank Return,” is published each
Thursday afternoon, and is copied in the morning newspapers of Friday,
together with the comments and deductions, more or less speculative
and intelligent, of the different City editors. The Bank Return, so
far as it regards the Issue department, is simplicity itself. Let the
reader put one of them before him. On the one side he will find the
total amount of notes issued, and on the other the bases of the issue,
divided into the “Government debt,” the “other securities” (which
together make up the total of £15,750,000, above mentioned), “gold coin
and bullion,” and “silver bullion,” if there be any, which is very
seldom the case. The simple term “bullion” signifies gold bullion, or
gold in bars, which the Bank are compelled to receive from any person
tendering it, in exchange for notes, at the rate of £3 17s. 9d. per
ounce of 22 parts out of 24 of pure gold.
It is evident that the amount of bank notes issued varies in exact
proportion to the amount of gold in the Issue Department, the issue
against the Government debt and other securities being invariable.
Roughly speaking, the contraction or expansion of the circulation
indicates a corresponding curtailment or increase in commercial
facilities or requirements. Hence the Issue Department return becomes
an important guide to the operations of bankers, brokers, and financial
firms, by whom it is carefully watched, since the increase or
diminution of the stock of gold may be said respectively to be a signal
of safety or danger. The receipts or withdrawals of gold in any large
quantity by or from the Bank are of two kinds, inland and foreign.
The former for the most part occur at certain regular periods of the
year, such as the harvest season, Scotch “term-time,” &c. They exercise
but a very modified and temporary influence on the money market, for
the laws by which they are governed are very fairly understood and
recognised, and the amount of gold _actually in the kingdom_ remains
unaltered. It is far different, however, with the demand or supply of
gold from foreign countries, the importance of which to the financial
world is so great that the amount of gold received or delivered by
the Bank on foreign account is by them made known day by day, and
is duly chronicled in the City articles of the morning papers. The
exports and imports of gold (which practically, regulate the note
issue) are governed by the state of the foreign exchanges, which are
probably a mystery to many of my readers, but which up to a certain
point may be readily understood. Approaching the subject as tenderly
and in as elementary a manner as possible, I will at once simplify
matters by saying that, with a few exceptions (such as regard India,
Russia, China, &c.), the foreign rates of exchange represent the
amount of money in its own currency (be it paper or gold) that the
specified financial centre of each country is willing to give for a
pound sterling on London. They vary almost daily, and are indications
either of indebtedness or of the abundance or scarcity of money, and
are described as favorable or unfavorable to this country according
to whether they are high or low. A rate of exchange is an indication
of indebtedness, according to the position of the balance of trade or
indebtedness between the country fixing it and England. When in any
given country this indebtedness is in favor of England, it is obvious
that in that country bills on London for the purpose of remittance will
be in demand, and will fetch more money; consequently the rate at which
they will be purchased rises. When the balance of trade is against
England, it is equally evident that bills on London are not so much
wanted, and the price of them—that is the rate of exchange—consequently
falls.
But I have said that a rate of exchange may be an indication of
abundance or scarcity of money in the country quoting it; and it is
often so in this manner. Let us suppose that there is no balance of
trade to settle between a given country and England, but that the
rate, of discount, or value of money, in the former is, say, three per
cent., while in England it is, say, four per cent. It follows that
_primâ facie_ it is more profitable to send surplus money to England
for employment than to keep it at home. In the absence of trade bills
a demand for drafts transferring money to London sets in, and the rate
of exchange rises. Let us now reverse this condition of things. Suppose
money to be dearer in a given country than in England; it is evident
in that case that capitalists here would find it more profitable to
employ their money in that country than at home, and that the foreign
rate of exchange would consequently fall. I have spoken hitherto of
remittances by bills or drafts only, but it is obvious that a scarcity
of these vehicles for the transfer of money may so drive up the rate
of exchange that it becomes more profitable to send gold. When this
point is reached the foreign rate of exchange is said to stand at “gold
point.” If I have made myself clearly understood, the reader will now
see how the rate of discount by attracting or repelling money affects
the movement of gold in the Bank of England, and why, when the Bank
desire to either simply protect their stock of gold or their “reserve,”
and so prevent any contraction of the note issue, or to attract gold
from abroad and so expand the circulation, or increase the “reserve,”
they raise the official rate of discount step by step until the desired
end is accomplished; or why, when the stock of gold is large and the
note issue may with safety be contracted, they facilitate the trade of
the country by lowering their minimum rate, at the risk of gold being
required for export. He will, too, gain some slight idea of how the
world’s stock of gold is moved about from country to country at the
call of commerce, and how true it is that the trade of any country is,
or ought to be, regulated solely by its supply of gold, or ready money.
The offices comprised in the Issue Department of the Bank are the Hall,
the Bullion Office, and the Gold-weighing Room. In the Hall, notes
and gold are exchanged by the public one for the other, and notes are
exchanged for other notes of a higher or lower denomination. In the
Bullion Office bar-gold is bought at the rate of £3 17s. 9d. per ounce,
or exchanged for sovereigns at the rate of £3 17s. 10½d. per ounce,
at which rate bullion is also sold. Nearly all the imports of gold and
silver to this country are taken to the Bank of England for delivery
to the consignees. The duties connected with these consignments are
undertaken by the Bullion Office, where small charges are made for
weighing, packing, and collecting freight, &c. In the Gold-weighing
Room gold coin is weighed automatically, at the rate of about 2,000
pieces an hour each, by about a dozen beautiful little machines worked
by an atmospheric engine. Bank notes are not re-issued after having
been once paid, and in the Bank Note Office registers are kept in
which are recorded the dates of issue and return to the Bank of each
respective note. The particulars of the payment of any note can be
ascertained by a reference to the Bank Note Library, where the paid and
cancelled notes are kept for seven years, after which they are burnt
on the Bank premises. For the privilege of issuing the £15,750,000
against securities, and for exemption from stamp duty, the Bank pay
an annual sum of about £200,000, together with any profit which they
may derive from the notes issued against gold to the Government. The
paper on which bank notes are printed is manufactured expressly for the
Bank of England at Laverstock in Hampshire, but the dies from which
the water-mark is made, as well as the plates from which the notes are
printed, are made at the Bank. The notes are all printed at the Bank’s
own printing-office under the care of the printing superintendent,
the quantity of notes required from time to time being regulated by
the chief cashier, who is responsible for their safe custody as soon
as, by a second process of printing, the numbers and dates have been
filled in for the purpose of issue. The average number of bank notes
paid and cancelled each day is more than 40,000, and no less than
80,000,000 cancelled notes may be found as a rule, stored and sorted
for reference, in the Bank Note Library. The Bank of England also
undertakes the printing of “rupee paper” for the Indian Government.
The “Banking Department” of the Bank of England is the separation of
the ordinary banking business from the business of financial agency
and issuing notes. In a speech on the renewal of the Bank charter
in 1844 Sir Robert Peel said, “With respect to the banking business
of the Bank, I propose that it should be governed on precisely the
same principles as would regulate any other body dealing with Bank
of England notes.” The Bank Act of 1844, then, does not touch the
management of the Banking Department in any way beyond requiring that
a weekly statement of its assets and liabilities shall be published.
This statement—which forms part of the “Bank Return”—may be thus
analysed. On the left hand side are the liabilities, divided into the
liability towards the proprietors of the Bank as shown by the amounts
of “Proprietors’ Capital” and “Rest” (which latter is practically an
addition to the capital); the liability to the Government, as shown by
the amount of “Public Deposits,” which are the balances of different
Government accounts; the liability to the customers as shown by the
amount of the “Other Deposits,” which are the sum of the balances of
the current or “drawing” accounts; and the liability to the holders
of the Bank’s acceptances as shown by the amount of “Seven-day and
other Bills” in circulation. On the other side of the statement are
the assets by which these liabilities are represented, divided into
“Government Securities,” which show the amount of the banking capital
invested in Government securities; the “Other Securities,” which show
the amount of other investments made by the Bank; and, separately, the
“notes” and “gold and silver coin,” which show the amount of cash in
hand for the current purposes of the Banking Department. This sum of
notes and gold and silver coin forms, so to speak, the cash assets of
the Bank, and the proportion which it bears to the current liabilities
disclosed by the public and other deposits and seven-day bills is
called the proportion of reserve to liabilities, and is always a matter
of great interest, and often of great anxiety, to the City on Thursdays.
The question of the proportion which these cash assets should bear
to liabilities is one of extreme importance to a prudent banker.
It is generally considered that it should be about one-third, but
a proportion of reserve to liabilities of only 33 per cent. in the
Bank Return would create considerable anxiety, while in an ordinary
joint-stock bank’s accounts it would, I fancy, be abnormally great,
far greater than that disclosed by the half-yearly accounts submitted
to the shareholders, which may naturally be supposed to represent the
financial position in the most favorable light. The publication of the
weekly Bank Return is so useful and important to commerce, banking,
and finance that it is to be regretted that the law which calls for it
is not extended to all joint-stock if not to private banks. We might
then hope to see an end put to that faulty system of banking which
in good times, in order to pay extraordinary dividends, encourages
over-trading by giving every possible facility to speculation, and,
when a reaction comes, suddenly cuts off all “accommodation,” calls in
all resources, and drives its customers to the Bank of England, in the
hope of obtaining that ready money which it is no longer willing itself
to supply. The Bank of England, through their Banking Department,
undertake duties merely towards their own customers and the Government.
Their banking business is conducted for the most part (in theory, at
all events) on the same lines as any other banking institution. It is
unreasonable, therefore, to suppose that it is any part of their duty,
in times of panic or crisis, to find ready money for a public shunted
over to them by its own bankers, who from an inordinate desire to pay
large dividends have placed themselves in a position of inability or
unwillingness to find it themselves. And yet some such theory as this
is advanced by many well-known writers on banking and finance. Bankers,
probably knowing the weak points in their system, become sadly selfish,
and are quick to take fright at the first signs of a panic, which they
often do much to increase. The suspension of the Bank Act is to them
the only true solution of the difficulties caused by over-trading,
over-speculation, and inflation of general business. At their earnest
entreaty—not at the solicitation of the Bank of England—has the Act
been thrice suspended: not, as subsequent events proved, because any
suspension of the Act was really necessary, but because bankers
hesitated to do their duty to their customers, except under the shelter
of its protecting wing. Nothing can be more erroneous, or, indeed,
more mischievous, than the doctrine that it is the duty of the Bank
of England to keep the “reserve” of the whole country, simply on the
ground that, for Clearing House purposes, it suits the convenience of
bankers to entrust them with large balances, and because they act as
agents for the Government in automatically regulating the note issue of
the kingdom.
The business of the Banking Department—which, except as regards the
magnitude of its transactions, and the current accounts of other
bankers and of the Government, differs but little from that of any
other London banks—is carried on chiefly in the Private Drawing
Office, the Public Drawing Office, the Discount Office, and the Bill
and Post Bill Offices. Besides these offices there are the Dividend
Pay Office, devoted to the cash payment of dividends, and the Chief
Cashier’s Office, where advances on securities and the various public
loans are initiated, and to which is attached the private room of the
chief cashier, which for the most part corresponds with the manager’s
room in any ordinary bank. In the Private Drawing Office are kept the
private accounts of the general customers of the Bank, a separate
counter being reserved for the exclusive convenience of bankers. It is
a popular error to suppose that the conditions of keeping an account
with the Bank of England differ in any essential particular from those
of most of the other banks. A satisfactory introduction will enable any
one to open an account, and no restriction is placed upon the amount
of balance to be kept, except that if it does not prove remunerative
to the Bank a charge is made in proportion to the amount of trouble
and expense involved. Roughly speaking, a remunerative balance in
ordinary cases is considered to be an average balance throughout the
year of one pound for each cheque drawn. Thus if a customer draws two
hundred cheques in a year and keeps an average balance of £200 his
account is probably considered remunerative. Cheques may be drawn on
the Bank of any amount however small, though there was, I believe,
many years ago, a sort of understanding that customers should not draw
cheques for an amount under five pounds. The Public Drawing Office, as
its name implies, is devoted to the custody of the drawing accounts
of the Government and various public companies and institutions. The
Discount Office is charged with the reception of all bills offered for
discount by parties who have opened discount accounts with the Bank.
These bills are submitted to a committee of directors (sitting daily
for the purpose) who decide upon the amount of accommodation to be
granted and the rate of discount to be charged. The net proceeds of
the bills discounted are then passed to the credit of the customer’s
account, while the bills themselves are entrusted to the care of
the Bill Office, which occupies itself with the duty of sorting and
arranging them (together with bills belonging to customers) so that
they may be duly presented for payment at maturity. In the Post Bill
Office the Bank issue to the public their acceptances at seven or sixty
days’ sight, technically called “Bank post bills,” for any required
amount, in even or uneven sums. The amount of business transacted in
this office has considerably diminished of late years, owing to similar
facilities being granted by bankers generally throughout the country.
The Bank of England have nine country branches, which keep separate
accounts for the Issue and Banking departments, and the particulars of
each day’s transactions, together with the balance sheets, are posted
nightly to the Branch Banks Office in London, through which office
all the correspondence and business transactions connected with the
branches are carried on. There is also one branch in London at the
West-End.
The economy of the Bank of England is controlled by the Governor, the
Deputy-Governor, and twenty-four Directors. The clerical machinery
is divided into the “Cash side” and the “Accountant’s side.” The
former, under the practical charge of the chief cashier, comprises the
transaction of all business where actual cash is concerned, together
with the necessary book-keeping which it involves; the latter, under
the charge of the chief accountant, takes cognizance of all matters
of pure book-keeping where no actual cash is concerned, such as those
which relate to the National Debt accounts, the registration of Bank
notes, and so on. In olden times these divisions were kept much more
distinct than they are at present. There was formerly a certain
antagonism between the two “chiefs” which, however, has long since
disappeared, and they now live together in a state of remarkable
harmony, without even fighting over the question of precedence
which the chief accountant is supposed to claim—mainly, I fancy, on
alphabetical grounds, because A comes before C. The supervision of each
office on both “sides” of the Bank, is intrusted to a principal and
deputy-principal, who are accountable in the first place to the chief
cashier or chief accountant, as the case may be, and afterwards to a
committee of directors. The secretary is a separate officer of the
Bank. He stands midway, as it were, between the two “sides,” having
certain relations with each. He nurses the charter, and sees that its
forms and ceremonies are complied with; he records the proceedings of
the courts, summons and attends all committees, and “picks up their
bits.” He waits upon the governors, and does odd literary jobs, stops
notes, puts the candidates for clerkship through their preliminary
examination, collects income-tax, and grants orders to view the Bank,
&c. His duties, in short, are as multifarious as those of the General
Post Office, and it is satisfactory to think that they are as equally
well performed by the present incumbent and his staff.
The total number of employés all told in the Bank is about 1,100, and
the salary list, including pensions, is about £300,000 per annum. There
is an excellent library and reading-room in the Bank, to which the
directors have liberally contributed both money and books. There are
also a Widows’ Fund and Guarantee Society, a Life Insurance Company, a
Volunteer Company, and a Club, or dining room, where clerks can dine
cheaply and well, connected with the Bank, which owe very much of their
prosperity to the liberality and kind consideration of the directors.
The governors and directors of the Bank divide between them £14,000 per
annum. Of this the governors receive £1,000 each and the directors
£500 each. Beyond the status which their position gives them, they
derive no benefit from their office, while they tax themselves most
liberally by their contributions towards the welfare of their clerks.
The governor and deputy-governor remain in office for two years only,
and this short tenure of office is, with considerable reason, thought
to be detrimental to the efficient and consistent administration of
the functions of government. The great blot of the system seems to
be the want of continuity of policy which is engendered. A governor,
let us say, is an enlightened financier; for two years his policy
is paramount; but his successor then comes, and perhaps reverses
everything, and the onus of the change, so far as the Bank customers
are concerned, is left to be borne by the permanent officers of the
Bank, who have perhaps never been consulted in the matter, or whose
opinions, based on the experience of many years, may be ruthlessly
ignored. The two years’ system undoubtedly has its advantages in the
constant introduction of new blood, it also strengthens the governors
from above and below the chair. The directors below the chair give the
governor a loyal and hearty support, because they feel that one day
their own turn may come, while those above the chair, having passed
through the ordeal, know the value of their colleagues’ support. But
the result of this is nevertheless the institution of a sort of
one-man power, which is well enough when there is a Hubbard, Hodgson,
or Crawford in the chair, or if there is a Baring, Hambro, Rothschild,
or Goschen to follow, but which may have its disadvantages.
I have thus traced the rise, sketched the progress, and dwelt briefly
on the present position of the Bank of England. In spite of the gradual
abolition of their monopoly, in spite of the curtailment of their
exclusive privileges, and in spite of all consequent competition, the
“governor and company” have never failed to lead the van of the banking
progress of the kingdom, and to maintain their proud position as the
first banking institution in the world. Bill-brokers may occasionally
grumble at the late revival of an old rule restricting the periods
of advances to six weeks before dividend time, and customers may
occasionally smile or fume at the traces of red-tapeism which still
linger in the establishment; but no one can look back, as I do, over
a period of forty years, without fully appreciating the value of the
important and beneficial changes and improvements which have lately
been effected in every department of the Bank for the purpose of
facilitating the transaction of business and studying the convenience
of the public, or without feeling an increased veneration and respect
for “the old lady in Threadneedle Street.”—_Fortnightly Review._