There is almost always some hesitation when a Governor begins to reign.  He is the Prime Minister of the Bank Cabinet; and when so important a functionary changes, naturally much else changes too.  If the Governor be weak, this kind of vacillation and hesitation continues throughout his term of office.  The usual defect then is, that the Bank of England does not raise the rate of interest sufficiently quickly.  It does raise it; in the end it takes the alarm, but it does not take the alarm sufficiently soon.  A cautious man, in a new office, does not like strong measures.  Bank Governors are generally cautious men; they are taken from a most cautious class; in consequence they are very apt to temporise and delay.  But almost always the delay in creating a stringency only makes a greater stringency inevitable.  The effect of a timid policy has been to let the gold out of the Bank, and that gold must be recovered.  It would really have been far easier to have maintained the reserve by timely measures than to have replenished it by delayed measures; but new Governors rarely see this.

Secondly.  Those defects are apt, in part, or as a whole, to be continued throughout the reign of a weak Governor.  The objection to a decided policy, and the indisposition to a timely action, which are excusable in one whose influence is beginning, and whose reign is new, is continued through the whole reign of one to whom those defects are natural, and who exhibits those defects in all his affairs.

Thirdly.  This defect is enhanced, because, as has so often been said, there is now no adequate rule recognised in the management of the banking reserve.  Mr. Weguelin, the last Bank Governor who has been examined, said that it was sufficient for the Bank to keep from one-fourth to one-third of its banking liabilities as a reserve.  But no one now would ever be content if the banking reserve were near to one-fourth of its liabilities.  Mr. Hankey, as I have shown, considers ‘about a third’ as the proportion of reserve to liability at which the Bank should aim; but he does not say whether he regards a third as the minimum below which the reserve in the Banking Department should never be, or as a fair average, about which the reserve may fluctuate, sometimes being greater, or at others less.

In a future chapter I shall endeavour to show that one-third of its banking liabilities is at present by no means an adequate reserve for the Banking Departmentthat it is not even a proper minimum, far less a fair average; and I shall allege what seem to me good reasons for thinking that, unless the Bank aim by a different method at a higher standard, its own position may hereafter be perilous, and the public may be exposed to disaster.

II.

But, as has been explained, the Bank of England is bound, according to our system, not only to keep a good reserve against a time of panic, but to use that reserve effectually when that time of panic comes.  The keepers of the Banking reserve, whether one or many, are obliged then to use that reserve for their own safety.  If they permit all other forms of credit to perish, their own will perish immediately, and in consequence.