The Bank of England – Part III

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Part III of our series on the origins of the Bank of England – its from the book London – Volume 3 published in 1824 by Sholto and Reuben Percy – Brothers of the Benedictine Monastery.

Read other posts in this series on the Bank of England

Read other posts in the London series

The Bank of England – Part III

A more imminent danger threatened the bank, which had been steadily increasing in prosperity and consequently in capital, during the fanatical riots of [1780]. Fortunately, this great establishment was not the object of attack at the commencement of those daring outrages; for, unprepared as it then was, it is almost certain that it would have been entirely despoiled.  Dr. Johnson, in his Letters to Mrs. Thrale, when giving what he calls a journal of “a week’s defiance of government,” unhesitatingly states that if the mob had attacked the bank “at the height of the panic,” on Tuesday instead of the Wednesday night, “when no resistance had been prepared, they might have carried irrecoverably away whatever they had found.”  Wilkes headed the party who drove the rioters away, and this was the first effectual resistance they encountered. Since this period, a guard of soldiers has been regularly sent every evening from the Horse Guards, or from the Tower, and lodged in the bank for its protection.

The punctuality with which the interest on the bank stock, and the dividends on government securities were paid, and the facility with which the principal is obtained, soon pointed out the funds as the most convenient, and often the most advantageous modes of investing capital, and to such an extent was this done, that in the year [1791], when government called for a return of the unclaimed dividends which had accumulated in the bank, they were found to amount to £660,000 of which half a million was advanced to government without interest.

When the French revolution, that pivot on which so much of European history turns, was extending its principles to neighbouring states, and strong symptoms of attachment to them had been, manifested in England, the stability of the government, and consequently of the bank, began to be questioned, and several persons withdrew their confidence and their money from the public funds; this had been done to such an extent, that in the year 1797, the bank felt some difficulty in obtaining the requisite quantity of specie, which had been drained out of the country by loans and subsidies, to meet the demand, The bank had also been so liberal in its advances to government, that it had felt some inconveniences on this account; but the minister still sued for aid, and the directors, though protesting against further advances, could not refuse them. At length, when the wants of the government and the demands of the public threatened to drain the bank of its last guinea, the directors sent a deputation to Mr. Pitt, then Premier, on the 24th of February, 1797, to represent the state in which they had been placed, and to ask him “how far he thought the bank might go on paying cash, and when he would think it necessary to interfere before their cash was so reduced as might be detrimental to the immediate service, of the state.” Mr. Pitt was not the minister to hesitate on such an occasion; a meeting of the Privy Council was held two days afterwards, who passed an order, declaring it necessary for the public service, that “the Directors of the Bank of England should forbear issuing any cash in payment until the sense of Parliament could he taken on the subject.”

This order was extensively circulated, accompanied by a notice from the Secretary of the bank, stating, “that the general concerns of the bank were in the most affluent and prosperous situation.” The merchants and bankers of London, with that generous confidence which has always marked their conduct, again assembled, as in the year 1745, to declare their confidence in the Bank of England, and their determination to receive bank notes on all occasions. Upwards of four thousand of the most eminent mercantile men in London signed this declaration, but the panic had spread to the country, and a great shock was given to public credit. A parliamentary committee was soon afterwards appointed to examine into the affairs of the bank, when it was ascertained that the company had a surplus of £3,826,890 beyond all their debts, exclusive of a sum of £11,686,800. due to them from government, forming a total net capital of £15,513,690.  

This assurance was deemed satisfactory, though it was some time before the funds recovered the shock they had received. In consequence of cash payments being abolished, it became necessary to substitute a paper currency in notes of smaller sums than had been hitherto issued. Until the year [1759] no bank notes of less than £20. had been circulated, but in that year, others of £10 and £15 were used; in [1790], bank notes for £5 were put in circulation, and in 1797, when it was no longer obligatory on the bank to pay in cash, notes of £1 and £2 were issued, and continued in circulation until the year [1822], when they were wholly withdrawn, and cash payments resumed, an event which sadly disconcerted political economists, who declared that a return to cash payments was totally impossible. Although in 1797, a paper succeeded a metallic currency, yet the actual amount of bank notes in circulation in the month of December in that year did not exceed those issued in February by more than two millions, and the sum was altogether less, by about three millions, than in [1795].

The run on the Bank, as the call for cash in 1797 is generally called, reduced the issues of bank notes very considerably; and at the moment that the Bank was relieved from the necessity of cash payments, the amount in circulation was only £8,601,964. From this period, however, the issues were continually augmented, and they appear to have reached their maximum in the month of August, [1817], when the Bank had actually in circulation, bank-notes and bank post bills, to the amount of £30,099,908.

Excerpt from London Volume 3 1824 by Sholto and Reuben Percy – Brothers of the Benedictine Monastery


Further reading and external links

The Bank of England on Wikipedia 

The Bank of England Archives