by Roger Outing

The 1844 Act

In 1844 the Bank Charter Act was passed in an attempt to rationalise the banking structure throughout England and Wales. The following provisions of the Act are relevant here:

• No more banks of issue could be established;

• Banknote circulation of existing banks of issue ‘frozen’ at 1844 levels;

• A provincial bank would lose its banknote issues if it opened a branch in London, through amalgamation or otherwise;

• If a joint stock bank took over a private bank only the banknote issues of the absorbing bank (if any) could be retained.

If any bank of issue closed then its banknote issues would lapse

The intention of these provisions was to restrict and eventually remove all banknote issues other than the Bank of England.  It was expected that the private banks would fail; or that joint stock banks would slowly absorb and replace the private banks; and that joint stock banks would in turn want to establish London branches.  In all such events the banknote issues would  have to be relinquished.  This was what, more or less, went on to occur – although it took many decades for the process to be completed.  Banknotes continued to be issued by private and joint stock provincial banks for a further 80 years or so before the final provincial bank issue was relinquished in 1921.

Slow Development

Development of joint stock banking after 1844 was slow and further legislative developments were required. It is important to emphasise that the joint stock banks thus far did not enjoy any limited liability – in the event of a banking failure the shareholders were liable to the full limit of their resources.  Until the middle of the 19^th Century the notion of limited liability, which we take for granted today, was not available to any form of business.  When the concept of limited liability was first introduced banks were specifically excluded from the provisions.  Eventually, in 1858, banks were finally allowed limited liability provided that they published twice yearly accounts.

Surprising as it may sound today the publication of accounts was something of a novelty at this time.  Private banks would never dream of such a thing – after all they were private.  There was also some resistance to the notion of published accounts from certain joint stock banks

It was perhaps for this reason that only a few banks initially took advantage of this limited liability provision.  Eventually in the 1870’s, after some significant banking failures had bankrupted many shareholders, the banks did increasingly began to take on limited liability. Accounts began to be published for the first time and so the modern corporate structure was adopted by the banking system. The appendix ‘Ltd’ at the end of a banking company name denotes exactly this provision and was a matter of some considerable importance at the time.

Amalgamation

A joint stock corporate structure protected by limited liability finally supported the development of the major banking firms that came to dominate the next 100 years, namely:  Barclays, Midland, National Provincial, Lloyds, and Westminster Banks.  The period from 1880 to 1920 was a period of almost continuous amalgamation and consolidation as the joint stock banks absorbed the private banks and each other as well. 

At the beginning of this amalgamation movement the banking structure in 1884 can be summarised as follows;

In comparison with the position in 1844 (as detailed in Coin News for September 2002) there has been a 26% reduction (442 to 326) in the number of different banks but a 264% increase (569 to 2,075) in the number of branches.  There has clearly been a vast increase in the provision of banking facilities to the public but this was now being provided by fewer banks.   This feature of steadily increasing numbers of branches being provided by an ever decreasing number of banks would accelerate in the next two decades.

Also the banknote issues of the provincial banks had reduced by 72% to a combined total of £2.9m whilst the Bank of England issues had increased by 38% to £25.1m.  By this time banknotes were becoming a subsidiary element of the money supply.  The entitlement to issue banknotes was no longer the essential element of the banking business that it had been 100 years previously.  Cheques had now replaced the banknote as the major medium of settlement, especially in the business world.  It could be said that coins were the small change to banknotes, and that banknotes were the small change to cheques.

Cumberland Union Bank

Charting this ever changing and developing amalgamation process provides almost endless collecting opportunities.  Fig. 1 shows an unissued cheque of The Cumberland Union Banking Co. Ltd. from the Ulverston Branch.  This bank was one of the early joint stock concerns and furthermore adopted limited liability in the 1860’s which was quite a progressive initiative.  This cheque has a one penny duty stamp dated 1898 and most conveniently lists, on the left side of the cheque, the 25 branches that the bank had established at that time.  This successful joint stock bank was taken over by the York City & County Bank Ltd in 1901 and which subsequently became part of Midland Bank

Scarborough Old Bank

Fig. 2 actually shows the amalgamation process in action.  Illustrated is an issued cheque dated “March 29^th 1900” from Barclays Bank, Scarborough. It also bears the title, “Old Bank, Scarborough” and a reference to “Messrs. Woodall, Hebden & Co.”  The original Scarborough Old Bank had been established as a private bank in 1788 and was taken over by Barclays, then a brand new joint stock operation, in 1896.  Obviously local sensibilities and loyalties were being accommodated by maintaining the visible reference to a long established and highly respected private bank. 

The newcomer, Barclays Bank, was being ‘carried’ into a new region by the old established firm of Woodall, Hebden & Co.  This was a highly successful strategy for Barclays Bank.  Later Bridlington cheques would of course only carry a reference to Barclays Bank and so a little piece of social history would be lost.  Such ‘transitional cheques’ provide a tangible and readily collectable record of English banking history

Westminster Bank

Other cheques provide a record of relatively short lived bank titles. An example is shown in Fig 3 which is an unissued cheque, with a revenue stamp date of 1922, for the “London County Westminster & Parrs Bank Ltd” from the Arundel Branch.  This somewhat cumbersome title was used from 1918 and was the immediate precursor to the more familiar “Westminster Bank Ltd” which became the company title in 1923.  Most of the ‘Big Five’ banks underwent changes in their corporate title as they progressed and developed between 1880 and 1925.  These can readily be charted by collectors through the various and numerous cheques issued by the branch banks of each banking institution. 

20^th Century Banknotes

After 1900 provincial banks of issue were very much an endangered species.  Their banknote issues were small, local and largely symbolic.  Fig. 4 shows the Stamford, Spalding and Boston Banking Company Ltd £5 note of 1905.  It is ‘cut cancelled’ at the signature on the lower right – a common practice for these issues.  This bank had been an early pioneer of joint stock banking having been established in 1831.  This £5 note refers to “Barclays & Co” as the London agent and the Stanford, Spalding and Boston Bank finally amalgamated with Barclays Bank in 1911. 

The Modern Era

By 1928 the logical conclusion of amalgamation was reached.  Five large national banks; Barclays, Lloyds, Midland, National Provincial, and Westminster now dominated English banking.  An informal agreement was reached amongst these banks that no further amalgamations between them would be attempted, although they did continue to compete vigorously in service provision.  The ‘Big Five’, as they were known, provided comprehensive banking services to the whole population through the many thousands of their branches which now covered the entire country.  They became the accepted and almost unquestioned banking landscape.

The Bank of England had now become the national central bank, functioned as lender of last resort and had the monopoly of banknote issue across the whole country.  It was still notionally a private company and was not nationalised until 1946.  Its banknotes were legal tender and universally accepted. The phrase “as safe as the Bank of England” became part of the national consciousness.

In 1968 the National Provincial Bank and the Westminster Bank amalgamated to become National Westminster and so the ‘Big Five’ became the ‘Big Four’.  The ‘Big Four’ currently trade as Barclays, HSBC, LloydsTSB and Natwest.  Few people appreciate that these national concerns are the end result of over 300 years of banking development.

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