Cause of the Restriction.

In 1796, the great powers being allied against France, and England assisting chiefly by subsidies, Pitt began to draw upon the Bank for the necessary supplies. Originally the Bank was forbidden to lend to government, except by permission of Parliament, but Pitt took advantage of an act of indemnity which was asked for in 1793 to cover previous cases in which the Bank had done this, to make the act so read as to repeal the prohibition entirely. His drafts becoming more and more exhaustive to the specie of the Bank, it proceeded to contract its notes. To the alarm thus occasioned, came, in addition, a rumor of intended invasion. A run on the country banks followed, which precipitated a demand on the Bank of England. In February, 1797, the specie reserve was but little over one million. The Bank was meanwhile contracting its circulation with all its energy, and had reduced it in February, 1797, to nine millions. The directors declared to the Bullion Committee, in 1810, that they thought this had been a grave error and had greatly enhanced the crisis. The necessities of the government, in the meantime, were greater than ever.

Under these circumstances an Order in Council was issued forbidding the Bank to pay specie until the will of Parliament could be known. This order was issued on the 27th of February, and was extended to the Bank of Ireland on the 2d of March, 1797. Tooke (“Prices.” I. 204), says that the suspension might have been avoided by one or two days' more perseverance, and that the run on the Bank of Ireland was over before the order to suspend was received. The directors of the Bank of Ireland did not want to suspend. On the 3d of May, Parliament passed an act suspending payments in England and Scotland until the 24th of June. Notes under £5 were at the same time allowed to be issued. From the manner in which this suspension came about, by an injunction of the government, it is known as the Bank Restriction.