THE MONEY MARKET AND CITY INTELLIGENCE.

Nelson Examiner and New Zealand Chronicle, Volume XVII, 23 January 1858, Page 1 (Supplement)

THE MONEY MARKET AND CITY INTELLIGENCE.

London, Friday, November 14.

Since our report of the 16th October the monetary world has experienced an excitement unparalleled since the height of the panic in 1847. In our last we had to announce an advance in the Bank rate to 7 per cent. We then pointed out the causes that had occasioned this advance, and stated that their gravity would have justified even a further enhancement in the price charged for accommodation. Since then it has been raised by rapid successive advances to the unprecedented rate of 10 per cent. On the 19th of October, the pressure on the Bank continuing unabated, the rate was raised to 8 per cent. ; again on Thursday, the sth of November, to 9 per cent. ; and on Monday, the 9th of November, to 10 per cent., at which it at present stands.

During the period over which these advances extend, and especially during this last week, the commercial world has been in a most feverish and excited state. This feeling was primarily generated by the failures in America, but did not reach to any alarmiug height until these had re-acted on us, and occasioned the suspension of the Western Bank of Scotland, | Messrs. Dennistoun and Co., &c. The stoppage of the Western Bank created distrust in Scotland, and, causing a run upon the other banks, necessitated the despatch of bullion to enable them to hold out. This rendered the position of the Bank of England more critical, but only for the time that such a run might continue. But in the meantime the various mercantile houses, anxious to be proTided against all possible ccmtircgecicLes, b&scecied to provide themselves to double and treble their ordinary requirements ; in consequence, the discount houses pressed upon the bank, and day by day the bank became more particular in granting assistance, until Wednesday, the 11th of November, on the morning of which day, the City of Glasgow bank having stopped payment, the pressure assumed the gravity of a panic, which may be said to have culminated in the failure of Sanderson, Sandeman, and Co. It then became evident to all unprejudiced onlookers that unless some remedial measures were adoted, the business of the country could not proceed. Next day, | (Thursday, the 12th of November), no business could be done ; the Bank of England refrained from discounting altogether until the result of | the interview of the directors with the Govern- 1 ment was ascertained. This transpired late in j the afternoon, to the effect that the expected relief had been granted, and that the Bank Act of 1844 had been temporarily suspeuded. Since then the feeling in the monetary circle has been one of relief and comparative confidence. The following is the notification of the Government : —

Downing-street, Nov. 12.

Gentlemen, — Her Majesty's Government have observed with great concern the serious consequences which have ensued from the recent failure of certain joint-stock banks in England and Scotland, as well as of certain large mercantile firms, chiefly connected with the American trade.

The discredit and distrust which have resulted from these events, and the withdrawal of a large amount of the paper circulation authorized by the existing Bank Acts, appear to her Majesty's Government to render it necessary for (hem to inform the Bank of England that if they should be unable in the present emergency to meet the demands for discounts and advances upon approved securities, without exceeding the limits of their circulation prescribed by the Act of 1844, the Government will be prepared to propose to Parliament upon its meeting a Bill of Indemnity for any excess so issued. In order to prevent this temporary relaxation of the law being extended beyond the actual necessities of the occasion, Her Majesty's Government are of opinion that the Bank terms of discount should not be reduced below their present rate. Her Majesty's Government reserve for future consideration the appropriation of any profit which may arise upon issues in excess of the statutory amount.

Her Majesty's Government are fully impressed with the importance of maintaining the letter of the law, even in a time of considerable mercantile difficulty ; but they believe that, for the removal of apprehensions, which have checked the course of monetary transactions, such a measure as is now contemplated has become necessary, and they rely upon the discretion and prudence of the directors for confining its operation within the strict limits of the exigencies of the case. We have, &c, Palmehston, G. C. Lewis, To the Governor and Deputy-Governor of the Bank of England. The best justification of the above notification is found in the Bank returns for the week ending November 12, which we subjoin. From these it is evident that the Bank reserve must have been diminished to such a point on Thursday, the 12th of November, as to render its situation excessively precarious, and completely to incapacitate it from giving any assistance to the joint-stock banks, should their depositors (as was very probable) press upon them for payment. But while we think that a temporary suspension of the Act of 1844 was not only prudent, but essentially necessary to allay the panic, we do not see that it necessarily follows that the act has been without use. It might be argued, indeed, a priori, that an act must be essentially wrong which, whenever the [ day of trial came, failed and required to be annnlled. But on a close examination it will be found that it has mitigated to a great extent the disaster, and that without any restrictive Act we should have been in such a plight that no remedy could prevent national insolvency. The Act of 1844 is fallacious in so far that it professes to accomplish what is an impossibility, viz., to prevent a monetary panic. This no legislation can do. It is also defective in so far as it has for its object the restriction of the note circulation. As it is impossible for the Bank to issue one note beyond what the public actually require, this provision is nugatory ; it is also mischievous, as it gives the false impression to many that the Act actually does this, and that the rescinding of the Act would increase the supply of accommodation. In these and some other minor respects, we think the Act of 1 844 capable of improvement, but certainly its working during the late crisis does not add any strength to the position of that small but noisy section of theorists who advocate what they call " free banking." We give an extract from the Times on this subject, which is valuable as ably reflecting the opinions of those who advocate the strict maintenance of the Bank Charter Act under all circumstances. We do not homologate the conclusions of the writer, though we regret that we have to allow that the facts are correct. The remedies proposed would never have succeeded because the public had no confidence in the banks :—: —

But there were remedies available other than that of breaking and destroying the law — for a law which has been contemned on each occasion of trial must be looked upon as destroyed. The state to which we had come had not been brought about by any fault of the Government, or of the community at large, and it was for those who had occasioned it to find their own means of extrication. They did not look about for those means, because they knew they could obtain relief elsewhere. If this conviction had not animated them, they would long before the present week have concerted measures of defence. The whole history of our situation is plain. For years bast certain provincial joint-slock banks have gambled to an incredible amount by means of what are termed re-discounts — that is, with a limited capital they have granted accommodation to an almost unlimited extent, sending the larger proportion of tho bills thus negotiated to the discount establishments in London, who, in turn, discount them for the joint-stock bank, on the

strength, chiefly of the endorsement of such bank, and not upon any careful estimate of the responsibility of the drawers or acceptors, or the legitimate character of the transactions they represent. •Of course we are safe with the endorsement of Liverpool Borough Bank "is the cry. " The character of its business may be doubtful, but its shareholders arc all liable to their last farthing." Again, " Why should we hesitate with the Western Bank of Scotland ? Among its proprietary are two or three names which are alone good for as many millions." But how is the money obtained which is thus freely granted by the London houses ? The security relied upon is the ultimate responsibility of a number of shareholders scattered over a large district, and which, so far from having anything in common with a sound banking security, is wholly unavailable in emergencies, and can never be realized, except through protracted legal processes ; but the money advanced consists of deposits lodged for the most part at call, with the discount bonu9, or at notice ranging perhaps to a month with the stock banka. Here then is a deliberate breach of every recognized banking principle, and it is one that on each occasion of trouble has led to the same results. The London money dealers cannot have been insensible to the peril ; but their practice is to carry on the system until its inevitable consequences developc themselves, and to seek safety by cutting off ' facilities,' and throwing the applicants upon the Bank of England. Then we have deputations to the Governors, threats that if something is not done the whole trade of the country will be brought to a stand, and an outcry of course successful after the requisite amount of alarm has been created, for the suspension of the Bank Charter Act. If, however, the example of 1847 had never been set, and these persons had been taught to feel that, happen what might, the laws of the country — in the full knowledge of which they had undertaken all their operations— would be rigidly kept inviolate, not only would the public never have been disturbed by predictions of coming rum, but every safeguard that ingenuity could devise would have been secretly prepared to provide for any casualty. If the discount houses and any of the joint-stock banks apprehended a withdrawal of their deposits to an extent to cause public inconvenience, it was their business to make common cause to guarantee each other's safety, and, if any nominal or contingent suspension were necessary, to bear the discredit of it themselves, and not to inflict it on the Bank of England and the country.

Consols have varied considerably, but large purchases continue to be made by the public ; and if the price of consols is to be taken as a conclusive argument that commercial confidence continues undisturbed, we may congratulate ourselves on the fact.