In 1825, when only coin was a legal tender, and when there was only one department in the Bank, the Bank had reduced its reserve to 1,027,000 L., and was within an ace of stopping payment.
But the danger to the depositing banks is not the sole or the principal consequence of this mode of keeping the London reserve.
The main effect is to cause the reserve to be much smaller in proportion to the liabilities than it would otherwise be.

The reserve of the London bankers being on deposit in the Bank of England, the Bank always lends a principal part of it.

Suppose, a favourable supposition, that the Banking Department holds more than two-fifths of its liabilities in cash--that it lends three-fifths of its deposits and retains in reserve only two-fifths.

If then the aggregate of the bankers' deposited reserve be 5,000,000 L., 3,000,000 L.of it will be lent by the Banking Department, and 2,000,000 L.will be kept in the till.

In consequence, that 2,000,000 L.is all which is really held in actual cash as against the liabilities of the depositing banks.