Both those circumstances would very materially aggravate the pressure in trade? Clearly; they affect the trading community very decidedly; injuriously.

John Horsley Palmer, Esq., Examined.

Chairman. You are in the direction of the Bank of England?I am.

Will you have the goodness to state to the Committee what you consider to have been the state of trade at the commencement of 1847?—I think it was in a very good state.

You think, generally speaking, trade was in a wholesome state?Yes, I do.

What is the state of the commercial classes now?-Generally speaking, there is a great destruction of credit, and very considerable distress even still, I believe, exists in the manufacturing districts; prices are very low, and great losses attend all importations.

His objections to the Bank Act.

What is your opinion of the working of the Act of 1844 ?—I have not objected to the principle of that Act of forming the issue of notes upon £14,000,000 of securities, and the remainder upon gold and silver; but while entertaining an opinion in favor of that part of the Act, I have not been able to perceive the advantage of the separation of the accounts, in the forms prescribed, and of their weekly publication. The latter, I believe, proved decidedly prejudicial during the year 1847, when the reserve in the banking department was greatly reduced. It further appears to me that other objections to the working of the Act were exhibited upon two different occasions during the past year; the first in April, when the reserve in the banking department was reduced from £5,600,000 to £3,000,000, which imposed upon the Bank the necessity of enforcing contraction, thereby endangering commercial credit, which might have been avoided, had the power of extending the issue at an advanced rate of interest beyond the £14,000,000 upon securities (if required) then existed; the bullion in the issue department, having been £9,300,000, and the foreign exchanges having shortly afterwards turned in favor of this country. The second period, which is the more material of the two, occurred in October last, during a time of great commercial distress, consequent upon the extensive failures which had occurred in August and the succeeding months; the general discredit then prevailing had been the cause of an abstraction of at least £5,000,000 or £6,000,000 of the circulating medium of coin and notes, to replace which, and to uphold the credit of solvent houses, a demand was made upon the Bank to an extent which reduced the reserve towards the end of October, to about £2,000,000, including London and the branches, by which the demand continuing without the power of extension beyond £14,000,000 upon securities, the Bank itself was placed in danger, and the commercial credit of the whole country nearly paralyzed; both which would have been obviated had

the power of extension beyond £14,000,000 then existed on the part of the Bank, and which, if required, could have been acted upon without advancing the rate of interest in the then state of the foreign exchange; deprived of that power, the Bank endeavored to check the growing demand by advancing the rate of interest in September and October to 5, 6, 7, and even 9 per cent. per annum, but which tended to an increase of the demand instead of a diminution, while it aggravated the distress in the manufacturing districts during a period when the foreign exchanges were in favor of the country, and when it was reasonable to expect a moderate rate of interest instead of the high rates then charged by the Bank, which governed the extravagant rates demanded in the money-market; such have been the prominent objections to the working of the Act during the past year. It may further be submitted whether the management of the banking department by repeated fluctuations in the rate of interest, particularly in the years 1844, 1845, and 1846, thereby attempting to act upon the same principle which governs all private banking establishments, is not prejudicial to the public interest, and without benefit to the Bank. The last objection I have to offer to the Act is the limitation of the quantity of silver bullion permitted to be held in the issue department; seeing that silver is equally available with gold for foreign payment, a portion of that restriction might with perfect safety be withdrawn, and thereby greater facilities afforded in meeting an unfavorable foreign exchange.

Description of the system of management of the Bank adopted
by the Directors.

Chairman.-From your experience of the constitution of the Bank, do you think that it is capable of improvement?—I do not see in what form an improvement could be effected.

You think that its present constitution is as good as it is possible to be? That is my opinion.

You think it commands the confidence of the commercial body?— Yes, I think so.

What power have the Governor and the Deputy-governor practically?—They have no power beyond that of acting from week to week between the court days; on certain occasions there is a discretion exercised by them, which being reported at the ensuing court-day, is either confirmed or disapproved, as the case may be.

What is the Treasury Committee at the Bank?—It consists of all gentlemen who have passed through the office of Governor, with, generally speaking, one other individual, who is considered the next to be recommended to succeed the Deputy-governor.

The body of directors meet once a week?—Yes.

What is the distinction between the Treasury Committee and the general body of directors?—There is no other distinction but this; the former is the senior committee of the house.

Is there any distinction in point of management?-They have no power of managing but through the Court; they may recommend measures to the Court; but they have no power of action; they have

upon one or two occasions, within my recollection, taken a responsibility upon themselves in adopting measures which have been afterwards sanctioned by the Court; upon a great emergency, in the year 1832, before I left the chair, and before the adverse foreign exchange terminated, I think the committee authorized a negotiation upon Paris, and the transmission of about £1,000,000 of silver, which I do not think, as far as my memory serves me, came before the Court until after the negotiation had been concluded; I think again, in 1836 or 1837, through the medium of the committee, private credit was used upon Paris through some merchant's house in London, either Rothschild's or some other house.

Are the committee of the treasury in constant sitting? They sit only once a week, unless specially called together by the Governor. Are they in the habit of being called together?-Not often

During the difficulties of the last year, were they in constant sitting? -No; they may have been called together three or four times upon some special application for assistance; when the Governor and Deputygovernor took upon themselves the responsibility of granting that assistance, they afterwards obtained the concurrence of the committee of the treasury and the Court of Directors.

Then, from one week to the other, the whole discretion rests upon the Governor and the Deputy-governor ?—It does, unless matters arising are of sufficient importance to lead the Governor to call a committee of the treasury together.

Which it appears he rarely does?—He has done so during the last period of difficulty.

But it is not a usual transaction?—It is not the general course.

Consequently, generally speaking, it rests upon the discretion of the Governor and the Deputy-governor?-The Governor and Deputygovernor seldom, if ever, take upon themselves the power of acting without the concurrence of the committee of the treasury, though there have been occasions where they have so acted in advancing the rate of interest; during the last period of distress, they have advanced the rate upon one or two occasions without the immediate concurrence of the committee of the treasury or of the Court at the moment, but it was only for a few days.

Are the Committee to understand that the Governor and Deputy-governor, without communication with either the committee of the treasury or the Court of Directors, have the power of advancing the rate of interest? They have from court-day to court-day, under special cir

cumstances.

Subject to the approbation afterwards of the Court?-Certainly.

Practically, are the Governor and Deputy-governor in the habit of frequently communicating with the members of the committee of the treasury-Yes.

Mr. Glyn. Then everything is finally determined by the Court itself? Yes; except between the court-days.

The action of the Governor and Deputy-governor is brought before the Court on the next court-day?—Yes.

And the Court either confirm or negative what has been done?— They do.

Then the whole control, in fact, is with the Court of Directors ?— Yes.

Mr. Alderman Thompson.-And the Governor and Deputy-governor have an opportunity of almost daily communications with the members of the committee of the treasury and the members of the Court?Certainly.

Is it not the practice of almost every director, if he is in London, to be in the Bank of England during some portion of the day?-Generally speaking, it is so.

You have described the functions of the committee of the treasury, is not the Bank managed in its several departments, with reference to details, by committees formed of members of the Court of Directors, and are not the proceedings of the committees reported to the Court of Directors, who hold their meetings weekly, for approval?—I think the proceedings of the committees of detail are not reported every week.

In the Bank of England, as in other great establishments, the business is divided into departments, there is a chairman for each department, and a certain number of Directors who are appointed to cooperate with him in the supervision of the particular department as often as occasion arises, when the chairman directs the committee to be summoned, and the business done by that committee is reported at the next meeting?—If there is any important business upon which the proceedings of the committee require to be confirmed, it is reported; but if very trifling, it is not reported.

Every act of the Governor, or the committee of the directors, is reported to the general Court, at the next meeting?-Certainly, if deemed important.

And you consider, therefore, that the act of the Governor and the Deputy-governor is the act of the Court of Directors ?-Certainly.

Do you think that in a time of pressure and panic, it is a protection to the Bank of England to be able to raise to a great extent, say to 8 or 9 per cent., the rate of interest?—I think that it is extremely prejudicial to commerce, and that it is totally uncalled for when the exchanges are in favor of this country, which they must be at those times of commercial pressure.

From that answer are the committee to collect that you thought it unnecessary to raise the rate of interest in October last to 8 per cent? -Certainly.

Regulation of the Foreign Exchanges.

Chairman. Are you in favor of the Bank of England holding foreign stocks?-Except that there is greater risk of fluctuation in foreign stocks, a benefit would be derived from the Bank holding foreign stocks and making foreign payments by selling them, instead of sending over bullion.

But the times when the Bank would want to make those stocks available might be times when there was a fall in the value of those foreign stocks? That is my great objection to the Bank holding foreign stocks; the want of security in them.

Mr. Wilson. With regard to the negotiation which you suggest of

the Bank of England holding foreign securities, and the facility that that would afford for making foreign payments by arrangements with banks on the continent, are you not of opinion that that is partly done now by the exchange merchants, who are constantly upon the alert to see how they can purchase securities under favorable circumstances, and do you think that the Bank of England could do that better than exchange merchants, who devote their whole attention to it?—I never meant to suggest the propriety of the Bank of England holding foreign securities; that is not a measure that I should advocate, unless the credit of all banks were equal.

The Bank Act of 1844 the Cause of the Crisis.

I understand you to say that the evils from which we suffered last year were mainly attributable to the export of bullion for the payment of corn?—I do not believe that any evil would have been suffered last year, for the exchanges turned at the end of April, if it had not been for the provisions of the Act of 1844; I believe, but for that, no evil whatever would have been sustained by commerce.

Then you attribute all the evils to the Act of 1844 ?—I attribute them to the provisions of that Act which prevented our gaining time to meet the demand.

Do you think that there would have been any run upon the Bank if the banking department had stopped?-It is very improbable that the banking department should have stopped; there are some deposits with the Bank which cannot be reduced; the deposits that I refer to are the deposits of the Exchequer, private deposits, and Bank-post bills; so long as the credit of the Bank is preserved, none of these deposits are likely to be materially affected, and they constitute the largest portion of the Bank deposits.

With reference to the letter that the Government issued to the Bank, are you of opinion that it was issued early enough?—No.

At what time, in your opinion, ought that letter to have been issued? -The great objection I have to the Act is to the restrictive clause existing at any time.

You would entirely throw that clause aside ?-Yes, subject to the control of Parliament.

But, under the Act, do you think that they could have relaxed the rule more safely than as it was relaxed?-There would have been no occasion to relax the Act if the restriction had not existed; in fact the Bank never exceeded the reserve; it was the apprehension on the part of the public of a limitation of the power of the Bank that created the alarm itself.

Convertible Securities held by the Bank.

Mr. Palmer thinks that Exchequer bills are a better security to hold than Consols. He says, "I have always found, as far as my observation extended, that it was better to hold a certain amount of Exchequer bills in preference to holding stock; but that is not the opinion of the Court generally; they consider it preferable to hold stock rather than Exchequer bills."