But under a one-reserve system of banking, the position of the bill-brokers is much more singular and much more precarious.  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.  Accordingly, in every panic these sums are sure to be called in from the bill-brokers; they were wanted to be used by their owners in time of panic, and in time of panic they ask for them.  ’Perhaps it may be interesting,’ said Alderman Salomons, speaking on behalf of the London and Westminster Bank, after the panic of 1857, to the committee, ’to know that, on November 11, we held discounted bills for brokers to the amount of 5,623,000 L. Out of these bills 2,800,000 L. matured between November 1 and December 4; 2,000,000 L. more between December 1 and December 31; consequently we were prepared merely by the maturing of our bills of exchange for any demand that might come upon us.’  This is not indeed a direct withdrawal of money on deposit, but its principal effect is identical.  At the beginning of the time the London and Westminster Bank had lent 5,000,000 L. more to the bill-brokers than they had at the end of it; and that 5,000,000 L. the bank had added to its reserve against a time of difficulty.

The intensity of the demand on the bill-broker is aggravated therefore by our peculiar system of banking.  Just at the moment when, by the nature of their business, they have to resort to the reserves of bankers for necessary support, the bankers remove from them large sums in order to strengthen those reserves.  A great additional strain is thrown upon them just at the moment when they are least able to bear it; and it is thrown by those who under a natural system of banking would not aggravate the pressure on the bill-brokers, but relieve it.

And the profits of bill-broking are proportionably raised.  The reserves of the bankers so deposited with the bill-broker form a most profitable part of his business; they are on the whole of very large amount, and at all times, except those of panic, may well be depended upon.  The bankers are pretty sure to keep them there, just because they must keep a reserve, and they consider it one of the best places in which to keep it.  Under a more natural system, no part of the banking reserve would ever be lodged at the brokers.  Bankers would deposit with the brokers only their extra money, the money which they considered they could safely lend, and which they would not require during a panic.  In the eye of the banker, money at the brokers would then be one of the investments of cash, it would not be a part of such cash.  The deposits of bill-brokers and the profits of bill-broking are increased by our present system, just in proportion as the dangers of bill-brokers during a panic are increased by it.