In 1866 undoubtedly a panic occurred, but I do not think that the Bank of England can be blamed for it.  They had in their till an exceedingly good reserve according to the estimate of that timea sufficient reserve, in all probability, to have coped with the crises of 1847 and 1857.  The suspension of Overend and Gurneythe most trusted private firm in Englandcaused an alarm, in suddenness and magnitude, without example.  What was the effect of the Act of 1844 on the panic of 1866 is a question on which opinion will be long divided; but I think it will be generally agreed that, acting under the provisions of that law, the directors of the Bank of England had in their banking department in that year a fairly large reserve quite as large a reserve as anyone expected them to keepto meet unexpected and painful contingencies.

From 1866 to 1870 there was almost an unbroken calm on the money market.  The Bank of England had no difficulties to cope with; there was no opportunity for much discretion.  The money market took care of itself.  But in 1870 the Bank of France suspended specie payments, and from that time a new era begins.  The demands on this market for bullion have been greater, and have been more incessant, than they ever were before, for this is now the only bullion market.  This has made it necessary for the Bank of England to hold a much larger banking reserve than was ever before required, and to be much more watchful than in former times lest that banking reserve should on a sudden be dangerously diminished.  The forces are greater and quicker than they used to be, and a firmer protection and a surer solicitude are necessary.  But I do not think the Bank of England is sufficiently aware of this.  All the governing body of the Bank certainly are not aware of it.  The same eminent director to whom I have before referred, Mr. Hankey, published in the ‘Times’ an elaborate letter, saying again that one-third of the liabilities were, even in these altered times, a sufficient reserve for the Banking Department of the Bank of England, and that it was no part of the business of the Bank to keep a supply of ’bullion for exportation,’ which was exactly the most mischievous doctrine that could be maintained when the Banking Department of the Bank of England had become the only great repository in Europe where gold could at once be obtained, and when, therefore, a far greater store of bullion ought to be kept than at any former period.

And besides this defect of the present time, there are some chronic faults in the policy of the Bank of England, which arise, as will be presently explained, from grave defects in its form of government.