the public money is particularly large at the bank,
and that at other times any application for an advance
should be considered excep tonal, and dealt with accordingly.
And the object of that regulation was officially stated
to be ’to make them keep their own reserve,
and not to be dependent on the Bank of England.’
As might be supposed, this rule was exceedingly unpopular
with the brokers, and the greatest of them, Overend,
Gurney and Co., resolved on a strange policy in the
hope of abolishing it. They thought they could
frighten the Bank of England, and could show that if
they were dependent on it, it was also dependent on
them. They accordingly accumulated a large deposit
at the Bank to the amount of 3,000,000 L., and then
withdrew it all at once. But this policy had
no effect, except that of exciting a distrust of ‘Overends’:
the credit of the Bank of England was not diminished;
Overends had to return the money in a few days, and
had the dissatisfaction of feeling that they had in
vain attempted to assail the solid basis of everyone’s
credit, and that everyone disliked them for doing so.
But though this un-conceived attempt failed as it
deserved, the rule itself could not be maintained.
The Bank does, in fact, at every period of pressure,
advance to the bin-brokers; the case may be considered
‘exceptional,’ but the advance is always
made if the security offered is really good.
However much the Bank may dislike to aid their rivals,
yet they must aid them; at a crisis they feel that
they would only be aggravating incipient demand, and
be augmenting the probable pressure on themselves
if they refused to do so.
I shall be asked if this anomaly is inevitable, and
I am afraid that for practical purposes we must consider
it to be so. It may be lessened; the bill-brokers
may, and should, discourage as much as they can the
deposit of money with them on demand, and encourage
the deposit of it at distant fixed dates or long notice.
This will diminish the anomaly, but it will not cure
it. Practically, bin-brokers cannot refuse to
receive money at call. In every market a dealer
must conduct his business according to the custom of
the market, or he will not be able to conduct it at
all. All the bin-brokers can do is to offer better
rates for more permanent money, and this (though possibly
not so much as might be wished) they do at present.
In its essence, this anomaly is, I believe, an inevitable
part of the system of banking which history has given
us, and which we have only to make the best of, since
we cannot alter it.
The Principles Which Should Regulate the Amount of
the Banking Reserve to Be Kept by the Bank of England.
There is a very common notion that the amount of the
reserve which the Bank of England ought to keep can
be determined at once from the face of their weekly
balance sheet. It is imagined that you have only
to take the liabilities of the Banking department,
and that a third or some other fixed proportion will
in all cases be the amount of reserve which the Bank
should keep against those liabilities. But to
this there are several objections, some arising from
the general nature of the banking trade, and others
from the special position of the Bank of England.