And with the Bank of England, as with other Banks in the same case, these advances, if they are to be made at all, should be made so as if possible to obtain the object for which they are made.  The end is to stay the panic; and the advances should, if possible, stay the panic.  And for this purpose there are two rules:  First.  That these loans should only be made at a very high rate of interest This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it.  The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible.

Secondly.  That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them.  The reason is plain.  The object is to stay alarm, and nothing therefore should be done to cause alarm.  But the way to cause alarm is to refuse some one who has good security to offer.  The news of this will spread in an instant through all the money market at a moment of terror; no one can say exactly who carries it, but in half an hour it will be carried on all sides, and will intensify the terror everywhere.  No advances indeed need be made by which the Bank will ultimately lose.  The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business.  That in a panic the bank, or banks, holding the ultimate reserve should refuse bad bills or bad securities will not make the panic really worse; the ‘unsound’ people are a feeble minority, and they are afraid even to look frightened for fear their unsoundness may be detected.  The great majority, the majority to be protected, are the ‘sound’ people, the people who have good security to offer.  If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned a good securityon what is then commonly pledged and easily convertible—­the alarm of the solvent merchants and bankers will be stayed.  But if securities, really good and usually convertible, are refused by the Bank, the alarm will not abate, the other loans made will fail in obtaining their end, and the panic will become worse and worse.

It may be said that the reserve in the Banking Department will not be enough for all such loans.  If that be so, the Banking Department must fail.  But lending is, nevertheless, its best expedient.  This is the method of making its money go the farthest, and of enabling it to get through the panic if anything will so enable it.  Making no loans as we have seen will ruin it; making large loans and stopping, as we have also seen, will ruin it.  The only safe plan for the Bank is the brave plan, to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent.  This policy may not save the Bank; but if it do not, nothing will save it.