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BRITISH]
337
BANKS AND BANKING

Besides the banks in London already mentioned, one in the provinces claims to have been established before the Bank of England. Smiths' of Nottingham, since amalgamated with the Union of London Bank, is stated to have been founded in 1688. Others also claim considerable antiquity. The old Bank of Bristol (Bailey, Cave & Co.) was founded in 1750; the business amalgamated with Prescott & Co., Ltd., of London. The Hull Old Bank (Pease & Co.) dated from 1754; this business also still continues (amalgamated, 1894, with the York Union Banking Co., Ltd., and since with Barclay & Co., Ltd.). The banks of Gurney & Co., established at the end of the 18th century in the eastern counties, have with numerous other banks of similar standing amalgamated with the firm of Barclay & Co., Ltd., of Lombard Street.

The business of banking had been carried on by the goldsmiths of the city, who took deposits from the time of James I. onwards, and thus established "deposit-banking" as early as that reign. This is described in a pamphlet published in 1676, entitled The Mystery of the New-Fashioned Goldsmiths or Bankers Discovered, quoted by Adam Anderson in his History of the Great Commercial Interests of the British Empire, vol. ii. p. 402. During the Civil War "the goldsmiths or new-fashioned bankers began to receive the rents of gentlemen's estates remitted to town, and to allow them and others who put cash into their hands some interest for it, if it remained but for a single month in their hands, or even a lesser time. This was a great allurement for people to put their money into their hands, which would bear interest till the day they wanted it. And they could also draw it out by £100 or £50, &c., at a time, as they wanted it, with infinitely less trouble than if they had lent it out on either real or personal security. The consequence was that it quickly brought a great quantity of cash into their hands; so that the chief or greatest of them were now enabled to supply Cromwell with money in advance on the revenues as his occasion required, upon great advantage to themselves."

The Bank of England, as stated before, was incorporated by the act of 1694. The position of the other banks at that time was defined by that act and the act of 1697, which declared that no bank, that is, no joint-stock bank, was "to be established within England during the continuance of the Bank of England," and also by the act of 1708, which provided that "during the continuance of the Bank of England, no company or partnership exceeding six persons in England" should "borrow, owe or take up any sum or sums of money on their bills or notes payable on demand or at any less time than six months from the borrowing thereof." This was confirmed by the act of 1800. No change of importance was made till the act of 1826, which prohibited "bank notes under £5," and the second Banking Act of that year which allowed the establishment of co-partnerships of more than six persons, which necessarily were joint-stock companies, beyond 65 m. from London. The act of 1833 allowed the establishment of joint-stock banks within the 65 m. limit, and took away various restrictions of the amounts of notes for less than £50. But the power of issuing notes was not allowed to joint-stock banks within the 65 m. radius.

In the early days in England, issuing notes formed, as Bagehot says in his Lombard Street, the introduction to the system of deposit-banking—so much so, that a bank which had not the power of issuing notes could scarcely exist out of London.

Bank notes in England originated in goldsmiths' notes. Bank notes. Goldsmiths received deposits of moneys and gave notes or receipts for such moneys payable on demand. The London bankers continued to give their customers notes or deposit-receipts for the sums left by them until about 1781, when in lieu of such notes they gave them books of cheques. Before the invention of cheque-books, the practice of issuing notes was considered so essentially the main feature of banking, that a prohibition of issue was considered an effectual bar against banking. Accordingly the prohibitory clause in the act of 6 Anne, c. 50, 1707 (in Record edition), which was repeated in the Bank of England Act 1708, 7 Anne, c. 30, § 66 (in Record edition), prohibiting more than six persons from issuing promissory notes, was intended to prevent any bank being formed with more than six partners, and was so understood at the time; and it did have the effect of preventing any joint-stock bank being formed.

The prohibition, as already related, was modified in the year 1826 and removed in 1833. Even then the privilege of limitation of liability was not permitted to any other bank but the Bank of England. The result was that when joint-stock banks were first formed many persons of good means were kept back from becoming shareholders, that is to say partners, in banks. For up to the date of the act of 1862 permitting "limited liability," every shareholder in a joint-stock bank was liable to the extent of the whole of his means (see the article Company). Even as late as 1858 when the Western Bank of Scotland and 1878 when the City of Glasgow Bank failed, very great hardship was inflicted on many persons who had trusted with over confidence to the management of those banks. The failure of the City of Glasgow Bank was the cause of the Companies Act of 1879, passed to enable unlimited companies to adopt limited liability. In limited companies the shareholder who has paid up the nominal amount of his holding is not liable for any further amount, unless the company issues bank notes, in which case the shareholders are liable in the same way as if the company were registered as an unlimited company. The facilities allowed by this act were used by almost every joint-stock bank in the United Kingdom except those banks which were at that date limited by charter or by special act.

To return to the early history of banking—thus, as no bank Private banks. could be formed with more than six partners during the whole of the period from 1694 to 1826 and 1833, the majority of the banks formed throughout England and Wales for more than a century were necessarily small and usually isolated firms. Further, when a partner died, his capital not infrequently went out of the business; then a fresh partner with sufficient means had to be found, constant change was the result, and confidence, "a plant of slow growth," could not thrive, except in those instances when a son or a relation filled the vacancy.

The banks in the country districts had frequently branches in the small market-towns close to them; those in London had never more than one office. These banks were sometimes powerful and generally well managed, a considerable number being established by members of the Society of Friends.

The restriction of partners in private banks to the number of six continued till 1862. By the act of that year they were allowed to be ten. This power, however, did not extend to issuing private banks, which were restricted to six partners as before. The power of increasing bank partnerships to ten has been made but little use of. The difficulties of carrying on business on a large scale by private firms were augmented by certain legal technicalities which practically rendered large private banks impossible in ordinary circumstances. Hence banking business did not begin to assume its present form till almost half-way through the 19th century. The gradual change followed the passing of the acts of 1826-1833, of 1844-1845, of 1862 and of 1879. Incidentally the act of 1844