CHANGES IN BANK POLICY

Before describing the circumstances which led up to the commercial crisis of 1847 we must consider the changes of policy imputed to the Bank in the years after the passage of the Bank Charter Act. The statement of Peel, which we have already quoted, clearly implies that the Bank should abandon the special duties and responsibilities of a central bank and enter into active competition with the private and joint-stock banks of London. The Bank never adopted such a policy, but it did make a number of changes which were hailed as steps in that direction.

The first change was in the discount policy of the Bank. Palmer had explained that Bank rate should normally be above market rate, and that the Bank should normally invest little of its funds in bills. The great influx of gold almost compelled the directors to add to their earning assets in some way, and they now chose to try to increase their discounts, rather than to buy securities. Morris explained their motives to the Select Committee of 1848, saying:

This marks a reversal of the policy of the previous fifteen years and a return to the views of Harman, Dorrien and Pole. In accordance with this decision, Bank rate was reduced in August 1844 to 2½%, at a time when Gurneys were charging 2 % for first-class bills. Up to 1844 the Bank had been in the habit of making all discounts at the published rate, though it sometimes altered the usance of bills which it would take. But in October 1844 rates above the published one were charged, and in March 1845 the form of notice was changed and the published rate was announced as a minimum.