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 cashthat 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. If Lombard Street were on a
sudden thrown into liquidation, and made to pay as much as it could
on the spot, that 2,000,000 L. would be all which the Bank of
England could pay to the depositing banks, and consequently all,
besides the small cash in the till, which those banks could on a
sudden pay to the persons who have deposited with them.

We see then that the banking reserve of the Bank of England--some
10,000,000 L. on an average of years now, and formerly much less--is
all which is held against the liabilities of Lombard Street; and if
that were all, we might well be amazed at the immense development of
our credit systemin plain English. at the immense amount of our
debts payable on demand, and the smallness of the sum of actual
money which we keep to pay them if demanded. But there is more to
come. Lombard Street is not only a place requiring to keep a
reserve, it is itself a place where reserves are kept. All country
bankers keep their reserve in London. They only retain in each