by Roger Outing

Joint stock banking effectively started in 1826.  Private banks had been the major force in English banking throughout the 18^th Century and for the first decades of the 19^th Century.  By the 1820’s there was considerable discussion about the perceived limitations of the private banks and whether joint stock banks should be permitted, similar to banking developments in Scotland.  Up to this period all the private banks, of which there were now 700 or so, were restricted to a simple partnership structure with a maximum of 6 partners.  This limited the size of their resources and consequently their ability to withstand periods of financial crisis.  In December 1925 there was a widespread financial crisis as a result of which over 100 private banks closed. Whilst some did re-open, about 80 private banks actually failed. 

New Legislation

This crisis finally stimulated the authorities to action.  In 1826 legislation was passed which allowed banks to be created on joint stock principles (e.g. not limited to 6 partners) provided that they were not situated within 65 miles of London.  This 65-mile restriction was to protect the Bank of England from direct competition.  At the same time the Bank of England was specifically authorised to open branches anywhere in England & Wales. 

Table 1 gives a list by date of the first joint stock banks (other than the Bank of England) to be established:

It is noteworthy and somewhat ironic that the very first joint stock bank, Stuckeys & Co. of Langport and Bridgewater in Somerset, was in fact a converted private bank.  All the other banks listed were new banks and further joint stock banking operations followed these early pioneers.

Further Legislation

All the early joint stock banks were of necessity provincial banks as none were permitted to locate themselves within 65 miles of London.  However in 1833 further legislation removed this restriction and allowed joint stock banks in London provided they did not issue their own banknotes.  This restriction on banknote issues within 65 miles of London was, once again, intended to protect the Bank of England. Also in1833 the Bank of England notes became legal tender for the first time.  Banknotes from private or joint stock banks were never given legal tender status at any time.

During the next decade just five London joint stock banks were established.  Some of these new banks began to develop the branch networks that were one of the major benefits of the joint stock banking structure.

London Origins

The London Joint Stock Bank, established in 1836, was one of the early joint stock pioneers in London.  (See Fig 1).  The first branch was opened in Coleman Street in the City of London but in 1837 the Bank moved to nearby Princess Street.  The London Joint Stock Bank had influential City support and deposits rose from £600,000 in 1837 to £2.25 million by 1845.  This was serious money at the time.  In 1840 a “Western Branch” was established by the purchase of a private bank (Wright & Co) in Covent Garden.  This “Western Branch” quickly moved to 69, Pall Mall and Fig. 1 shows an early London Joint Stock Bank cheque from this location.  This cheque bears a red serial number “11,423” and, like most cheques of this period, is uncrossed, payable to ‘bearer’ and is not personalised for individual use. 

In 1917 the London Joint Stock Bank became a part of the Midland Bank. This amalgamation created the largest bank in the country (some say the world). This bank is, of course, known as HSBC on the High Street today. 

Newcastle Attempt

Shown in Fig. 2 is a £5 note issued by the Newcastle Joint Stock Banking Company. This note is dated “2^nd July 1836” and hand signed by “John Morrison” the Manager.  There is a vignette of a sailing ship in the upper centre, masked by a black “cancelled” stamp that is usually found on the surviving notes of this bank.  The text of the note states that it is payable in Newcastle or at “London & Westminster Bank, London” who operated as the Bank’s London agents.  This note is well used and quite grubby.  This was entirely typical of banknotes circulating at this time in the industrialised north of England.

The Newcastle Joint Stock Banking Company is recorded as commencing business from premises in the Royal Arcade, Newcastle, on 2^nd August 1836.  The bank later moved to St. Nicholas Square but always operated as a single site bank without opening any branches.  The date on the illustrated £5 note, “2^nd July 1836”, precedes by one month the formal opening of the Bank.  Clearly the proprietors were very keen to get their notes into circulation.  Also this note bears the printed number “15” so this example may well have been amongst the very first notes issued by this bank.  

The Newcastle upon Tyne Bank was always a small and modest affair with about 100 subscribers taking up its shares of £25 each with a minimum allocation of 5 shares.    First payment was £2-10-0d per share so a minimum investment of just £12-10-0d was all that was required to become a shareholder.  Although a joint stock concern the Bank’s method of operation did not appear to be significantly different to a private bank.  The bank failed in 1846 but is recorded as paying off all its depositors so that individual losses to customers were minimised.  Neither its presence nor departure appears to have made any lasting impact upon the commercial development of Newcastle.  This example demonstrates the difficulty of starting a completely new bank without any pre-existing business connections.

Richmond Success

In contrast, existing and well established private banks could often transform themselves into successful joint stock banks.  This was the case with the private firm of Hutton, Other & Co. of Richmond, which had successfully traded as the Richmond & Swaledale Bank since 1805.  In 1836 this private bank was transformed into the Swaledale & Wensleydale Banking Company by the issue of 20,000 shares of £20 each with a first payment of £2-10-0d per share.  Significantly, most of the shares were distributed to existing partners of the pre-existing private bank of Hutton, Other & Co.

Fig. 3 shows the unissued £20 banknote of the Swaledale and Wensleydale Banking Company.  This example dates from the 1860’s and is a high quality and well designed banknote that was printed by Perkins & Bacon, Security Printers of London.  The note has two excellent vignettes of Richmond Castle and Bolton Castle.  The London agents are, “Messrs. Glynn, Mills, Currie & Co., Bankers, London”.   The bank also issued £5 notes of which issued examples are known.  Local notes of a reputable bank such as these were exactly the type of notes that were commonly preferred instead of Bank of England notes.  A branch of the Bank of England had been established in Leeds in 1827 but it had great difficulty in displacing the issues of such banks as the Swaledale & Wensleydale Banking Company.

This is an example of a well-established private bank becoming a successful joint stock enterprise before becoming part of the Barclays Bank network of branches in 1899.  Upon absorption by Barclays the Swaledale & Wensleydale Bank was required to relinquish its own banknote issues but it did thereby establish itself within the 20th Century banking system

1844 Banking Structure

By 1844 the banking structure in England was both complex and confusing.  The following summary is offered:

In 1844 there were 442 different banks operating from 569 branches issuing a total of £30.4m in banknotes.  Of the £30.4 million of circulating banknotes the Bank of England issued just £18.1m.  The remaining £12.3m of banknotes came from 280 provincial banks (208 private + 72 joint stock – not all provincial banks issued banknotes). None of the provincial banks that issued notes (private or joint Stock) could open branches in London – although such banks that did not issue notes could do so.

This situation is so complex that it is difficult to fully comprehend, defies any easy summary and is difficult to believe that it actually worked.  This somewhat chaotic system could not prevail.  Next month we will look at the impact of the Bank Charter Act 1844 that attempted to rationalise the situation.

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