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Hankey should have observed that, as has been explained, in most panics, the principal use of a 'banking reserve' is not to advance to bankers; the largest amount is almost always advanced to the mercantile public and to bill-brokers. But the point is, that by our system all extra pressure is thrown upon the Bank of England.
In fact, in Lombard Street, the principal depositors of the bill-brokers are the bankers, whether of London, or of provincial England, or of Scotland, or Ireland. Such deposits are, in fact, a portion of the reserve of these bankers; they make an essential part of the sums which they have provided and laid by against a panic.
We need not too precisely examine such language; the element of truth in it is very plain the great advances made to Overends were a principal event in the panic of 1857; the bill-brokers were then very much what the bankers were lately they were the borrowers who wanted sudden and incalculable advances. But the bill-brokers were told not to expect the like again.
I say to every man, 'Don't come to me: I can get you money on much easier terms than any one else; and what's the result! You come so often that you ruin yourself; whereas a regular usurer without conscience frightens you. "Cent percent," you say; "oh, I must pull in." If you have influence over your friend, tell him to stick to his bill-brokers, and have nothing to do with Baron Levy."
The man of learning, then just differentiated from the ecclesiastic, spent the greater part of his life in earning his intellectual wares from Court to Court and from University to University, just as the merchant personally carried his goods from city to city in an age in which commercial correspondence, bill-brokers, and the varied forms of modern business were but in embryo.
They lend large sums on foreign bonds or railway shares or other such securities, and borrow those sums from bankers, depositing the securities with the bankers, and generally, though not always, giving their guarantee. But by far the greatest of these intermediate dealers are the bill-brokers. Mercantile bills are an exceedingly difficult kind of security to understand.
In a natural state of banking, that in which all the principal banks kept their own reserve, this demand of the bill-brokers and other dependent dealers would be one of the principal calls on that reserve. At every period of incipient panic the holders of it would perceive that it was of great importance to themselves to support these dependent dealers.
On the other hand, as the Bank carries on itself a large discount business, as it considers that it is itself competent to lend on all kinds of bills, the bill-brokers are its most formidable rivals. As they constantly give high rates for money it is necessary that they should undersell the Bank, and in ordinary times they do undersell it.
That rate is determined by the amount of deposits in the hands of bill-brokers and bankers, and the amount of good bills and acceptable securities offered at the moment.
The bankers who in time of panic had to help them would in ordinary times derive much advantage from them. But under our present system all this is reversed. The Bank of England never deposits any money with the bill-brokers; in ordinary times it never derives any advantage from them.
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