Lombard Street: A Description of the Money Market

Walter Bagehot
Bagehot, Walter
Display paragraphs in this book containing:
E. Johnstone; Hartley Withers, eds.
First Pub. Date
London: Henry S. King and Co.
Pub. Date
Includes editorial notes and appendices from the 12th (1906) and the 14th (1915) editions.

* At the end of April, 1914. [Note to the 14th Edition.]

Chapter I

1. [Note to the 14th Edition. See Appendix II., Note I.]

2. [Note to the 14th Edition. In his turn the small trader is now being displaced by the joint stock company.]

3. [Note to the 12th edition. In 1905, merchant steamships with a total tonnage of 9,398,374 tons passed through the Canal, and of these 7,224,181 tons were British. Germany, however, came first with mail-steamers, which were returned at 1,013,645 tons, against 705,890 tons British. The total net tonnage of all ships using the Canal was 13,134,105, out of which 8,356,940 were British.]

4. See Note A at the end of the volume. [Note to the 14th Edition. In Appendix A.—Ed.]

5. [Note to the 14th Edition. More recent instances of amazing indiscretion on the part of great firms have been afforded by the collapse of Messrs. Baring Brothers and Messrs. Murrieta & Co.]

6. [Note to the 14th Edition. See Appendix II., Note II. The distinction between London and other joint stock banks is now virtually a thing of the past. The modern analogy of the comparison given in the text may be expressed as follows:—

Aggregate deposits of English Banks (excluding Bank of England) at December 31st, 1913 £809,351,700.
Private deposits of the Bank of England £61,087,100.


Chapter II

7. [Note to the 12th edition. Mr. Bagehot was dealing with the period prior to the resumption of specie payments by the United States in 1879. Since then there has been no fluctuation in the value of the "greenback."]

8. [Note to the 14th Edition. This was the limit of issue against Government securities at the time of writing. By the Bank Act of 1844 the Bank was authorised to issue £14,000,000 against securities, and it was further provided that if any other English note-issuing Banks allowed their powers of issue to lapse, the Bank might be authorised to increase its issue against securities to the amount of two-thirds of the lapsed issues. Since 1844 the Bank has been empowered by successive Orders in Council to increase its issue against securities to the extent of £4,450,000 as follows:—

Bank of England Issue Against Securities.
Authorised by Act of 1844 £14,000,000
" Orders in Council, December, 1855 475,000
" " June, 1861 175,000
" " February, 1866 350,000
" " April, 1881 750,000
" " September, 1887 450,000
" " February, 1890 250,000
" " January, 1894 350,000
" " March, 1900 975,000
" " August, 1902 400,000
" " August, 1903 275,000


Up till 1903 the Bank had taken advantage of its power to increase the fiduciary issue, but since then the powers of issue of the provincial joint stock banks have been reduced from £1,183,426 to £94,421, and of the private banks from £767,788 to £334,615 without any increase in the Bank of England's authorised issue against securities.

The Bank of England's Return for the week ended Dec. 31st, 1913, stood thus:—

Notes issued £52,324,535 Government debt £11,015,100
Other securities 7,434,000
Gold coin and bullion 33,874,535



Proprietor's capital £14,553,000 Government securities £13,199,062
Rest 3,252,192 Other securities 52,137,739
Public deposits* 10,256,489 Notes 22,716,900
Other deposits 61,087,066 Gold and silver coin 1,108,614
Seven-day and other bills 13,568


* Including exchequer, Savings Banks, Commissioners of National Debt, and Dividend Accounts.

Dated January 1st, 1914. J. G. NAIRNE, Chief Cashier. ]

9. [Note to the 14th Edition. See Note 8.]

10. [Note to the 14th Edition. In recent years the big London banks have been building up gold reserves of their own, but their balance sheets, with one exception, do not state cash actually in hand separately from their Bank of England balances. The balance sheet of the Union of London and Smiths Bank at December 31st, 1913, showed "cash" in hand at £3,376,189, "cash at the Bank of England, £3,086,620." Some of the London bankers are in favour of publishing the aggregate amount of these independent reserves, and it is possible that this may be done before long.]

11. [Note to the 14th Edition. On December 31st, 1913, the liabilities of the Bank of England were:—

Public deposits £10,256,500
Private deposits 61,087,100
Seven-day and other bills 13,600

And the reserve stood at


12. [Note to the 14th Edition. A larger reserve has since been maintained. In quinquennial periods since 1870 the average has been:—

1871-5 £12,200,000
1876-80 14,722,000
1884-5 13,275,000
1886-90 13,015,000
1891-5 20,801,000
1896-1900 25,073,000
1901-5 24,375,000
1906-10 25,625,000

13. [Note to the 14th Edition. The Bank of France resumed specie payments on January 1, 1878, since when its notes have not suffered any depreciation, and there is now a third available stock of gold in Europe—that held by the Imperial Bank of Germany. Neither the stock at Paris nor that at Berlin, however, is so accessible as that held by the Bank of England, because the Bank of France can exercise an option to pay in silver, while the Bank of Germany at times makes a difficulty about paying in gold, not absolutely refusing, but putting obstacles in the way. A stock of about £158,000,000 in gold is now (May, 1914) held by the Bank of Russia, but that is so safeguarded as to be unavailable for international payments, as is also the stock of about £52,000,000 held by Austro-Hungarian Bank.]

14. [Note to the 14th Edition. See Note 13.]

15. [Note to the 14th Edition. The Bank of England dividend declared in April, 1914, in respect of the half year ended February 28, was at the rate of 10 per cent. per annum subject to deduction of income tax as compared with 9 per cent. per annum free of income tax for each half year since 1904. The price of Bank Stock at the end of April, 1914, was 249½. The dividend of the London County and Westminster Bank was at the rate of 21¼ per cent., and the £20 shares £5 paid up were quoted at 21¾.]

16. [Note to the 14th Edition. The London joint-stock banks have considerably increased their cash reserves since then. On June 30, 1890, the proportion of reserve to liabilities to the public of the London and Westminster Bank was 12.6 per cent., on Dec. 31, 1905, it stood at 14 per cent. and on Dec. 31, 1913, it had risen to 15.6 per cent. The Bank of England Reserve on the latter date stood at 33 3/8 per cent. of the liability, but being made up on the last day of the year the ratio was much below the average during the year, which was 49.7 per cent.]

17. [Note to the 14th Edition. Public opinion is now unanimous in recognising the special responsibilities of the Banking Department of the Bank of England.]

18. See Note B, in Appendix I.

Chapter III.

19. Smith's 'Wealth of Nations,' Book IV. Chap. iii. 'Digression concerning Banks of Deposit,' &c. [Note to the 14th Edition. See pars. IV.3.12-15—Ed.]

20. See Note C, in Appendix I.

21. [Note to the 14th Edition. This is still true at the end of 1913 the private deposits were £23,013,000 and the circulation £228,542,000.]

22. [Note to the 14th Edition. On Dec. 31st, 1913, the Imperial Bank of Germany held deposits to the amount of £37,159,000, and its note circulation stood at £102,115,000.]

23. [Note to the 14th Edition. At the end of 1913 the Bank of France had offices as follows:—

Head Office 1
Branches 139
Auxiliary Offices 71
Agencies 360


24. These are the amounts at December 31st, 1865. See 'Grundzüge der National-Œkonomie,' von Max Wirth, Dritter Band, p. 491.

[Note to the 14th Edition. The Swiss National Bank is now the only Swiss Bank authorised to issue notes. At the end of 1913 it had—

Deposits £1,880,000
Circulation £10,999,000


Chapter IV.

25. [Note to the 14th Edition. The functions of the old Metropolitan Board of Works are now vested in the London County Council, which has continued the arrangement with the bank (now the London County and Westminster Bank) for the deposit of security, and similar arrangements have been entered into by certain other banks who keep the accounts of other local authorities.]

26. [Note to the 14th Edition. It may be noted that Parliament has for the time being endowed the Chancellor of the Exchequer with large powers of borrowing by Treasury bills. And as these are tendered for not only by home, but also by foreign capitalists, his field of borrowing is very extensive, and he gets the full advantage of the competition of lenders. Still the fact remains that, except with the special leave of Parliament, the Chancellor of the Exchequer cannot borrow except from the Bank of England on "deficiency bills." And as regards the fixing of rates by the Bank, while in the case of Ways and Means advances the rate of interest to be charged is a matter of negotiation between the Treasury and the Bank, the rate to be paid for Deficiency advances is under existing arrangements fixed at one-half of the Bank rate at the time.]

Chapter V.

27. [Note to the 12th Edition. In this respect the practice of the Bank of England has undergone a change. In transactions with its own customers its published rate is not now its minimum rate. To those who keep their sole, or at all events their principal, account with it, it will discount at or about market rates.]

Chapter VI.

28. [Note to the 14th Edition. Something safe that will yield 4 to 4½ per cent. would better represent the ideal now.]

Chapter VII.

29. See Note D, in Appendix I.

30. Vide Economist of September 22, 1866.

31. [Note to the 12th Edition. Occasionally the Bank now moves by steps of ½ per cent.; but the rule that may be said to be broadly observed is that while in lowering the rate it may be expedient to move by steps of ½ per cent., in raising it the advance should be by steps of 1 per cent.]

32. [Note to the 12th Edition. The Bank of France resumed specie payments on January 1, 1878, and there are now three bullion markets in Europe—those of London, Paris, and Berlin. There is also the New York market.]

[Note to the 14th Edition. See Note 13.]

Chapter IX.

33. [Note to the 14th Edition. The profits of all the joint stock banks of the United Kingdom that publish profit and loss accounts amounted for the year 1913 to £13,400,000, of which £9,100,000 was distributed in dividends. The average dividend of the banks of England and Wales was 15.2 per cent.; of the Scottish banks 15.8 per cent.; and of the Irish banks 10.4 per cent. The average dividend on the aggregate paid-up capital of £62,400,000 was 14.65 per cent.]

34. [Note to the 14th Edition. At the end of 1913 the accumulated reserves of all the joint stock banks of the United Kingdom (exclusive of the Bank of England) amounted to about £45,400,000 paid up, the capital being £65,000,000.]

35. [Note to the 14th Edition. In 1913, upon a paid-up capital of £9,241,070, the Scottish banks distributed dividends to the amount of £1,437,200. The rates of distribution ranged from 20 per cent. free of income tax to 5 per cent. free of income tax, this rate being paid by a relatively young and unimportant bank.]

Chapter X.

36. [Note to the 14th Edition. The number is now reduced to 1. Of the 13 referred to be Mr. Bagehot, 11 have been absorbed by, or converted into, joint stock banks, and one has been extinguished.]

37. [Note to the 14th Edition. In accordance with an understanding arrived at between themselves in 1891, nearly all the more important private banks now publish their accounts.]

38. [Note to the 14th Edition. They have not done so. Many of the more important have constituted themselves joint stock companies, and a considerable number of the less important have been absorbed by joint stock banks.]

Chapter XII.

39. [Note to the 14th Edition. The example quoted is now only of historic interest, but the principle which it illustrates still holds.]

40. [Note to the 14th Edition. The Bank of France resumed specie payments on Jan. 1, 1878.]

41. [Note to the 14th Edition. The "apprehension minimum" must now be placed at a much higher figure. The Bank's own liabilities have increased and the demands to which it is exposed have also become greater. Of late years the reserve has never been suffered to fall lower than £20,000,000 and it has seldom been so low. It may be said, therefore, that the Bank is now expected to take precautions before the reserve approaches £20,000,000.]

Appendix I.

42. The Bank did not begin to receive deposits until 1792, in which year they amounted to 35,944l.

End of Notes

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