the world of private banking

66
THE WORLD OF PRIVAtE BANKING
in figure 4.3 is the series’ declining trend after the mid-1860s, a notable period
of high nominal rates, the fall in nominal interest rates thereafter being apparent
whether peaks or troughs are compared. The very pronounced fluctuations in interest
rates over the entire period were the product of many forces and, equally, had a
diverse range of effects, with Goschen in particular commenting at the time on the
consequences for ‘John Bull’ of ‘dear money’ and ‘cheap money’.
Bankers’ balances at the Bank of England’s head office, in terms of quarterly
averages, are plotted as a bar chart in figure 4.4. As with interest rates, this series
provides greater detail on the period’s stormy monetary conditions. It should be noted
that the weekly data from which figure 4 is derived display pronounced seasonal
movements caused by the quarterly collection of taxes and the payment of interest
on the National Debt. These very marked fluctuations may not have been totally
muted by the transformation of the original weekly series into quarterly averages
This is because the third quarters of years (July–September) in the derived quarterly
series display no troughs (major or minor) while being the most distinct periods
of peaks (major or minor). Indeed, 17 of the 25 peaks in the quarterly data occur
during the third quarter. Such an outcome may be related to the dominance of the
underlying seasonal pattern of fiscal payments and disbursements (which gave rise
to the Bank of England’s providing special market facilities during the ‘shuttings’ of
the stock transfer books). Nevertheless, it is possibly not a coincidence that financial
and monetary panics, whether major or minor events, occurred during the autumn.
The only significant exception is the 1866 crisis, which erupted during the spring.
Bankers’ balances with the Bank of England were the domestic commercial
banking system’s second line of reserves after till money. Figure 4.4 clearly
displays their secular expansion over the period – at least until the early 1880s.
Their growth points to the almost relentless expansion of commercial banking over
the mid-century in terms of increasing deposits and, in turn, their mobilization as
credit facilities. However, the series’ rising secular trend, albeit only to the early
1880s, indicated in figure 4.4 was also the product of another operative factor.
This was the recognition by domestic commercial bankers of the need to hold
greater liquid reserves, brought home to them by their experiences of the period’s
Viscount Goschen, ‘Seven Per Cent’, first published in Edinburgh Review (Jan.
1865); and ‘Two Per Cent’, first published in Edinburgh Review (Jan. 1868); with both
reprinted in Essays and Addresses on Economic Questions (London, 1905).
Calculated from Bank of England, Bank of England Liabilities and Assets: 1696 to
1966 (London, 1967) [reproduced from Bank of England Quarterly Bulletin (Jun. 1967)],
Table B, pp. 16–66.
On the role of bankers’ balances, see L.S. Pressnell, ‘Gold Reserves, Banking
Reserves, and the Baring Crisis of 1890’, in C.R. Whittlesey and J.S.G. Wilson (eds),
Essays in Money and Banking in Honour of R.S. Sayers (Oxford, 1968), pp. 186–7; C.A.E.
Goodhart, The Business of Banking 1891–1914 (London, 1972), pp. 209–11, 218–9; and
P.L. Cottrell, Investment Banking in England 1856–1881: a Case Study of the International
Financial Society (New York/London, 1985), vol. II, pp. 671–6.