Charter shall be renewed or not, and a periodical publication during the course of its ordinary transactions. Of the ample means of the Bank of England to meet all its engagements, and of the high credit which it has always possessed, and which it continues to deserve, no man who reads the evidence taken before this Committee can for a moment doubt; for it appears that, in addition to the surplus rest in the hands of the Bank itself, amounting to 2,880,000l. the capital on which interest is paid to the proprietors, and for which the State is debtor to the Bank, amounts to 14,553,000/, making no less a sum than 17,433,000l. over and above all its liabilities. 11 Aug 1832. EVIDENCE. [The Figures between Parentheses refer to the Questions of the Original Report.] TUESDAY, MAY 29. HORSLEY PALMER, Esq. Governor of the Bank of England. 1. Explanation of Accounts, (question 1.) The profits of the branch banks are derived from the amount of interest on the securities invested from their proportion of the circulation and deposits. The bank derives a small profit from the agency of the branches, that is for the transmission of bills and money of persons who have no account with the bank. The circulation of the branch banks can only be obtained from the aggregate number of their notes. But it does not follow that that is their actual issue. They circulate no London notes. Forty thousand pounds is charged every year for the rent of the Bank of England. To this sum each branch bank supplies a portion. The rent was fixed on the opinion of Sir John Soane, 35,000l. for rent and 5000l. for fixtures. The charge on the public part of the bank, and that for the private accommodation it affords, are separately calculated according to the space occupied by each. 2. Silver Coin, (q. 18.) The bank receives daily a quantity of silver coin from different tradesmen, who wish to convert their current silver into standard money, gold or notes, and this the bank receives regularly, not because obliged to do so, but because if it refuses the silver, that coin would be depreciated. There is not any actual agreement with the government on this point, but it concurs in the necessity of the arrangement. The bank also pays out silver. There has been little accumulation in this metal since the surplus silver was melted down twelve months ago. The silver now in circulation is the exact quantity that is required: there is neither scarcity nor superfluity. 3. Explanation of Accounts, (p. 25.) The branch banks circulate 2,500,000l., the expense of which is 28,5087.; under the head of deposits, which amount to 500,000l., the expense is 5,7021.; making the whole expense of the branch banks annually 34,210l. The bank surplus now is 2,637,760l., and the advance to the trustees of the dead weight account is valued (cost price of the bullion) at 10,897,000l. The bank, in its dealing with government, never receives any premium on exchequer bills, whatever may be their price in the market. The bank has paid a premium on exchequer bills in the market, but not to government. If the bank render an account to the public, the buildings will be reckoned at their full value, just as the rent, 40,000l. a year, is considered at present. 18,051,000l. in bank notes includes the whole issue by bank and branches. 5,738,000l. covers the whole of the deposits in the bank and its branches. 2,951,000l. is the absolute amount of bills and notes discounted by the bank and its branches, and 5,293,000l. is the value of the cash and bullion in the branches, as well as in the bank. There is a large sum not realized, as in unpaid bills discounted, &c. and the bank has house property worth 100,000l. The value of the bank itself is not included. The government owe a sum of 133,000l. (arising out of some old transaction) over the amount of capital accounted for by the bank; the bank's debt to proprietors being 14,553,000l., and the permanent debt of government 14,686,000l. In 1830 the expenses of the bank were nearly double those of former years, 360,000l. having been lost by the forgeries of Fauntleroy. In 1832 there were heavy losses from discounting bills for the West Indian and other interests-the year ending February, 1832, brought a loss of 80,000l. from that source alone. There is a balance due for establishing the branch banks: the deficit is 17,8591. The original outlay is redeemed in a certain term of years by an annual application of such portions of capital as are necessary to repay the whole of the outlay called dead weight. A regular account is kept at the bank. The capital would thus be paid back in a term of years, and the profit would be the interest rendered, and the capital so received merges in the general assets for re-investment. Silver and bullion include coin in the accounts rendered. 106,000l. is the expense of issuing notes, independently of the expense for stamps. There are 193 pensioners, i. e. superannuated clerks on retired allowances. 243,000l. is the amount of salaries and pensions, including the branch banks. In 1830 the net profits were 930,7861., but the dividends paid amounted to 1,164,2357., the difference being paid out of the surplus profit. Branch Banks, Issues, &c. (p. 60.) There are bankers in the country who have never issued any but Bank of England notes. Others propose to withdraw their own notes and circulate those of the Bank at a reduced rate of interest. In this way the Bank accommodates country bankers to the amount of their fixed circulation. There is a third class of bankers who issue their own notes, but keep an account with the Bank, and are supplied with coin when necessary. Eleven bankers take fixed amounts of circulation; thirteen do not take fixed amounts, and the newly created banks are allowed a limited period to ascertain the extent of their circulation. There was a vastly increased issue from the branch banks in consequence of the extreme scarcity of money in 1831, and the depression of trade at that time; this is temporary, and is not likely to outlive the scarcity. There has been very ittle coin transmitted to the Bank of England from the branch banks. The losses of the branch banks are included in the general accounts before the committee. 5. Principle by which the Bank of England is guided in the In ordinary times, in a full period of currency, and at a par of exchange, the Bank regulates its issues by investing in securities bearing interest, a given proportion of the deposits, and the value received for the notes in circulation; the rest is kept in coin or bullion-two-thirds in security and one-third in bullion, the circulation being regulated afterwards by the course of exchanges with foreign countries. The Bank is bound to provide for all liabilities by having coin or bullion against a note, or liability to pay on demand. The liability of the Bank with regard to deposits is less dangerous to it than with regard to the issue of paper. "The bank are very desirous not to exercise any power in regulating the circulation of the country, but to leave the public to use the power which they possess of returning bank paper for bullion." The bank has the power to extend or contract the circulation, but the bank would never use that power; it would leave the public to act upon the bank so as to produce the effect in the end. It is important to keep the securities as nearly at the same amount as they can be managed, in order to enable the public to act for itself, without a forced action on the part of the bank, in returning notes for bullion to export when the exchanges are unfavourable. When the exchanges long continue favourable, the influx of treasure commands increased issues of notes, but as soon as the transfer to the continent of a portion of this bullion becomes evident, by necessity some of it must be transferred into securities in the proportion before named-two-thirds securities and one-third bullion. This proportion the witness conceived to be most correct from his practical management of the bank and his experience, but always with reference to full currency. The Bank of England requires a larger proportion of bullion always on hand than any other bank, for it has to supply the money market of London witn coin, as well as its own circulation to support. The country bankers are so wealthy and hold so many securities, that no contraction of bank paper in London could prevent their obtaining so much of it as might be necessary in order to obtain supplies of money at the bank. There are other circumstances besides the course of the exchanges which may cause a run upon the bank, such as a commercial panic, which forces the country bankers to draw bullion, as witness believes was the case in 1825, when the run which reduced so much the bank resources occurred, independently of the foreign export of bullion: so that having on the one side to meet the alterations in the exchanges, and on the other to supply the wants of timid men on every commercial emergency, the bank of course requires a larger deposit of bullion than would otherwise be needful. 6. Bank of England Notes a legal tender by Country Bankers. Securities held by the Bank ought to be marketable, &c. (p. 97.) Now a substantial relief might be afforded by passing a law to make it legal in country bankers, when run on, to pay in Bank of England notes instead of gold; but this measure would not wholly remove the difficulty. Indeed, at Norwich and one or two other places, the banks had recourse, in 1825, to the re-issue of 17. bank notes. However, although only one-third of the bank treasure is in bullion, yet all its securities ought to be marketable. The dead weight is marketable, and the deficiency bills might be sold if government consented. Against political alarm and political discredit the bank can never guard itself. It makes no preparation against a political demand for gold. The bank has still a supply of small notes ready for circulation in case of need. The issue of those notes in 1825 proved beneficial in checking the run on the country bankers. 7. Bank of England the only body that regulates its Issues by the Exchanges, (p. 120). The Bank of England is the only banking concern that, for prudential reasons, puts any check or restraint upon its issues. Country bankers give out notes in full proportion to the value of their securities. The Bank of England, however, is the only body that has knowledge of the actual state of foreign exchanges, and the only body (of course) that can regulate its issues on that principle. A demand on the bank for gold to be exported is the only criterion of an unfavourable exchange, and the inward flow of gold is the only indubitable proof that the exchanges are favourable. 8. Par of Exchange, (p. 129.) The par of exchange is the price of the gold currency in the foreign market. A par of exchange cannot exist between two countries, one of which has a gold currency and the other a silver currency. The standard of currency in France is silver, for a creditor cannot demand gold without paying an agio for it. Now the standard of currency in England is gold, and gold can always be demanded by the last creditor, therefore no par of exchange can exist between England and France. But when a bill for a certain amount will purchase a like quantity of gold in France and England, that may be looked upon as par; and you may form a par by comparing the intrinsic value of the Napoleon and the sovereign as representing the standard of the two countries. A par of exchange in the language of the bank, means "no demand for bullion to be exported." 9. Deposits, Discounts, &c. (p. 145.) The securities of country bankers are the most fluctuating of the bank deposits, and they are called upon, in all cases of commercial and political alarm; but even these, and the other deposits, are less liable to fluctuation than the amount represented by the bank note circulation. The bank does not restrict its discounts on the bills of private individuals, but when the private bills exceed their due proportion, the bank sells government securities to the amount; so that their securities continue the same in value, though slightly changed in their nature. The value of these securities is sometimes depreciated in the market by the great sale for country bankers and others, who have, in apprehension of a run, thrown all their securities on the market. And if the banker sells securities to draw on the bank for cash, and the bank sells securities to provide him with it, the effect of such action is often commercial distress and difficulty. The exchequer bills are the most easily realized of all the kinds of bank securities, and the discounts last of all. It would be a misfortune if the bank were obliged to refuse to discount any good paper, but if the market rate of interest should advance beyond the maximum allowed by law, then the bank must limit the amount or the description of bills to be discounted. There has been no such alteration in the market rate of interest since the peace. Now, if there were no maximum of interest established by law, the demand for discount might be gradually checked by advancing the rate of interest. The raising the interest to five per cent. during the panic of 1825 pro- \ duced no effect at all. The bank at that time advanced 7,000,000l. to bankers on their title-deeds and all kinds of securities, in order to check the panic. 10. Policy and Functions of the Bank. (p. 166.) The Bank never sells or buys stock. It has a stock of 300,0001., but it has never bought or sold it. It is not advisable for the Bank to deal in the stocks. The wisest policy is not to vary the Bank's rate of interest, but to keep it above the market rate: this has been the case of late years, and the demand for discount has been confined to special cases. But private paper is the worst means which a bank of issue can have to regulate its notes; it extends the circulation dangerously, and it interferes with private bankers. The Bank should be one of discounts in cases of emergency only. |