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THE period which falls to
be treated of in the present chapter extends from the crisis of 1825-6
to the death of King William IV. in 1837. It is a well-marked
illustration of the theory of cycles in financial and commercial
experience. From 1827 to 1832 there was commercial depression,
consequent upon the sufferings and losses of the preceding crisis. With
1833 there came a change for the better—activity and enterprise were
abundantly manifested, and prosperity shone on the land. Then followed
renewed confidence, drifting into speculation, and culminating in the
inevitable crisis. In its political aspects, the period is noticeable
for the almost profound peace which Britain enjoyed, the only important
exception being a short conflict with Turkey in 1827, when the battle of
Navarino; fought by the allied squadrons of Britain, France, and Russia,
gained the independence of Greece. In the earlier years of the period,
much distress prevailed among the working classes, which broke out in
riots, among which those at Bristol, in the autumn of 1831, acquired
pre.-eminence. The Corn Laws were pressing heavily upon the people by
maintaining the price of bread. The sliding scale of duties introduced
in 1828 may have mitigated the sufferings; but the high price of corn
was in itself a sufficient affliction. The cholera epidemic of 1831-2
found the country in an unfavourable condition for resisting such a
scourge. Meanwhile, however, the spirit of mechanical enterprise, to
which we have referred in previous chapters, continued to develop.
Following on the establishment of oceanic steam communication, the
foundation of the great system of railways was laid on 15th September
1830, by the opening for traffic of the Manchester and Liverpool
Railway; and the application of steam power to various departments of
industry was continually on the increase. The final abolition of
Colonial slavery, the rapid increase of periodical literature,
Parliamentary reform, the manifestation of the power of trade-unionism,
and the adjustment of the Poor Laws, were other notable features of the
period.
In the department of
banking a rapid development took place. This is specially noticeable
subsequently to 1833, when the Bank of England Charter Act was passed.
By it the formation of joint-stock banks in London and the provinces was
greatly facilitated. The Act of 1826, dealing with this matter, does not
seem to have been explicit enough, or sufficiently wide in its
provisions. Under the powers of the new Act, however, a mania for
joint-stock banks sprang up, and this species of investment was greatly
overdone. In 1835 and 1836 upwards of one hundred new banks were
established in England and Wales alone, and thirteen in Ireland. In 1827
the directors of the Bank of England adopted an important resolution for
the conduct of their business. This was, that in future the foreign
exchanges, the variations in which had been systematically ignored since
1819, should be deemed a necessary factor in their calculations. Under a
provision of the Act of 1833, moreover, they were required to publish a
weekly statement of the position of the bank.
Turning to Scotland,
which is the main subject of our record, there is much to chronicle. In
1826 there appear to have been about thirty-four individual banks, of
which several had numerous branches, and most had some. The total number
of offices is stated as 167, or 1 to every 13,000 inhabitants. An
evidently very loose estimate of the deposits held by these
establishments places the amount at from ten to twenty-five millions
sterling; but two estimates which seem to have been thought competent
give £20,000,000 and £24,000,000 as the amount. Such calculations are,
of course, of little practical use ; but they show, at all events, the
ideas of magnitude in banking business held at that time. The par of
exchange on London was 20 days, to which it had been reduced from 40 or
50 days, by the action of Maberly & Co. Gold and silver were scarce; and
it is probable that a permanent issue of 5s. notes would have been very
serviceable; but the banks do not seem to have favoured denominations
under £1, perhaps because the trouble and expense would have been more
than the profit. Of these banks, several passed out of existence during
the succeeding ten years. In 1829 the Montrose Bank, which had been
established in 1814, was amalgamated with the Dundee Union Bank. The
firm of James & Robert Watson failed in 1832. The house had been
established in Glasgow in 1763 by David Watson, the later firm dating
from 1793. At the time of their failure this firm were agents for a
large number of banks; and it would seem that this department of banking
constituted the main part of their business; but they are stated to have
held the greatest amount of agency business of any bank in Glasgow.
In 1831 their office was
robbed by London thieves. The robbery took place "on Sunday, 26th
December 18 31. The thieves escaped with their booty, but one of them,
William Heath, was afterwards captured, tried, and executed. While under
sentence of death, this villain confessed that he had nearly committed
murder. One Sunday before the robbery, he was in the bank trying the
false keys, when one of the gentlemen of the bank came in. The robber
had only time to glide behind a door. He saw the gentleman sit down,
read a letter, and afterwards go out. The robber had a drawn dagger in
his hand, and declared that if the gentleman had . discovered him, he
would at once have stabbed him to the heart." [Banking in Glasgow, p.
42.] Whether owing to this disaster, or to unsoundness in their business
arrangements, they stopped payment in June of the succeeding year. The
two Edinburgh firms of Thomas Kinnear & Sons, and Donald Smith & Co.,
amalgamated their business in 1831 as Kinnears, Smith & Co. This
arrangement ended, however, three years later by the failure of the new
firm, with about £320,000 of liabilities—an event which caused a
considerable run on one or two of the other private banks in Edinburgh.
[Tait's Edinburgh Magazine, September 1834. This firm issued notes of
the Bank of Scotland only.] In 1832 the exchange and deposit firm of J.
Maberly & Co., who were also manufacturers in England, closed their
doors after an existence of fourteen years. Their business was an
important one on account of the number of offices at which it was
conducted, and the active competition they carried on with the Scotch
banks proper. The failure disclosed a large deficiency. The Commercial
Banking Company of Aberdeen amalgamated with the National Bank of
Scotland in 1833. The private firm of Robert Allan & Son, established at
Edinburgh in 1776, stopped payment in 1834, with about £108,800 of
liabilities. [They did not issue their own notes, but used those of the
Royal Bank exclusively.] About the same time, the younger firm of James
Inglis & Co. (formerly Inglis, Borthwick, Gilchrist & Co.) also failed,
their liabilities being stated at £23,000. It is probable that these
events were connected with the failure of Kinnears, Smith & Co. just
alluded to.
The Thistle Bank Company,
established at Glasgow in 1761, amalgamated in 1836 with the Glasgow
Union Bank. Another event of that year was the absorption of the Perth
Union Banking Company by the National Bank of Scotland. Next year
Messrs. Ramsays, Bonars & Co., private bankers in Edinburgh, withdrew
from business. It is understood that their business had not, latterly,
been of a favourable character; but their retirement was quite
voluntary, and the business was wound up by themselves. [Mr. Wenley
gives the date as 1834; but the circular, stating that the "surviving
partners, having determined to retire from business, hereby intimate
that they will cease to receive any money on deposit, or to issue
notes," is dated 6th February 1837. The business was continued for the
convenience of customers, 3 per cent interest being allowed to
depositors. Notes were to be retired on presentation either at their own
office or at the Bank of Scotland.] In November of this same year, the
Paisley Banking Company, on the expiry of their contract of
copartnership, made over their business, which included branches at
Glasgow, Irvine, and Stranraer, to the British Linen Company. An
important amalgamation, which took place in the same year, was that of
the old Ship Bank and the Glasgow Bank Company, under the designation of
the Glasgow and Ship Bank.
It will thus be seen that
the period with which we are at present dealing witnessed the extinction
of an unusual number of banking companies. It would seem as if those
companies who, either from the smallness of their business, or from
old-fashioned habits of mind on the part of their managers, were unable
to adapt themselves to the altered and continually expanding
circumstances of the country, were destroyed or swallowed up by their
larger or more vigorous rivals. The doctrine of the survival of the
fittest came powerfully into play amid the rapid development of the
national industries, fostered by the achievements of mechanical skill.
But while old banks disappeared, new ones arose ; and the system of
branches received a great impetus. The single office system appears to
have been discarded almost entirely by the older establishments, and all
the new banks seem to have considered branches as indispensable to their
business. Private banking also was rapidly dying ; and, although a few
firms survived this period, their real character was almost always
veiled under a local designation. The old system of local, or, at best,
district, banks, was rapidly giving way before the modern system of
broad-based establishments, partaking to a greater or less extent of a
national character. Greater safety and economy in management were thus
secured; but the new system, in its now largely-developed form, while in
the main more satisfactory than its predecessor, has not been without
its disadvantages to the trading community.
In the earlier years of
the period under review, the great depression existing in connection
with trade and finance prevented the formation of any new
establishments, and very few new branches were opened. In 1830, however,
the Ayrshire Banking Company, with a head office at Ayr, and five
branches in the county, was established. A still more important movement
was the formation of the Glasgow Union Bank, with branches at Edinburgh,
Greenock, and Bathgate. Its capital was £350,000, held by 488 partners.
By the rapid absorption of a multiplicity of large and small banks
throughout the country, this bank fairly justified its name, and fully
earned the designation of the Union Bank of Scotland, assumed by it in
1843.
Another great bank was
formed in Glasgow in 1832, whose growth was still more rapid than that
of the Union, and whose career was destined to secure to it a more
unenviable notoriety than any of its predecessors had procured. The
Western Bank of Scotland commenced business on 2nd July 1832. At its
annual balance on 29th May 1833, the capital is placed at £209,170, held
by 430 partners. From the outset it was managed with great activity, and
it soon distanced its contemporaries in the growth of its business. But
it achieved this result by setting at defiance the soundest principles
of good management, in the face of the often-repeated remonstrances of
friends and rivals; until, twenty-five years after its establishment, it
became a wreck, such as had never been seen previously in the financial
history of Scotland. So innate do vicious principles of management
appear to have been to it, that little more than two years after its
formation we find that the London house of Jones, Lloyd & Co. declined
to honour their drafts, and the Edinburgh banks refused to receive their
notes, remonstrating with them in lengthened correspondence as to their
action, and particularly as to their omission to maintain a sufficient
cash and investment reserve. At length a reluctant consent appears to
have been obtained from them. The manager was dismissed; and it may be
presumed some show of amendment was made.
Two years later than the
Western Bank, the Central Bank of Scotland, with a capital of about
£80,000, was established, with its head office in Perth. The North of
Scotland Banking Company was formed in Aberdeen in 1836. In the same
year an attempt was made to establish another bank in Glasgow. This was
the City Banking Company of Glasgow. The attempt, however, proved
abortive, owing, in all probability, to the doubt and hesitation
prevailing among business men, as events tended towards the crisis which
burst upon the nation soon afterwards.
Among other events
deserving record was the passing of the Act 9 Geo. IV., c. 65, in 1828,
by which the circulation in England of Scotch or Irish small notes was
prohibited. The restriction did not extend to notes of £5 and upward.
The Royal Bank of Scotland obtained, at the close of 1829, a new warrant
of charter, by which it was empowered to increase its capital to
£2,000,000. This power was exercised early in 1831, by appropriating
£100,000 of reserved profits, and making a call of £400,000 on the
proprietors. [The immediate cause of this movement, which was hardly
justified on principles of financial expediency, was (according to
office tradition) an impression that the Government contemplated the
abolition of the bank-note issues, and the substitution of a State
issue, in which event a large capital might secure special privileges in
the conduct of the new system.] In 1831 the Commercial Bank and the
National Bank obtained charters of incorporation. This judicious step
was sadly marred by the adoption of the new principle, which had
recently been obtaining general acceptance, of attaching unlimited
liability to the stock of Corporations. The amount of branch extension
which occurred during the period with which we are at present dealing
was extraordinary. Not only did all the new banks open branches, but the
older banks, with the exception of the Royal Bank, which steadily
refrained for long after this time from establishing a general branch
system, spread their agencies over the land with great rapidity. About
one hundred and ten new offices were opened, of which about 93 were
branches of banks existing previously to 1827. But while the Scottish
banks were more or less affected by the prevailing excitement, it may be
doubted if the following newspaper paragraph of the time was founded on
fact. It is, however, interesting as a contemporary record "Extract from
a private letter from London.—'We have heard from good authority, that
it is the intention of the Bank of Scotland, as well as the Royal Bank
of Scotland, to follow the example of the Dundee Union Bank, and to
immediately establish branch banks in London, for the purpose of
circulating their notes."' [Courant, 10th July 1834.]
As we have already
indicated, the turning point of the period was the year 1833. From that
time an active spirit of speculation set in, the main subject of which
was joint-stock enterprise. In this department railways began to attract
the favourable attention of promoters and investors; but the railway
mania proper belongs to a somewhat later date. Of the many forms which
speculation assumed, the favourite was joint-stock banks. But numerous
other species of companies were promoted. It has been estimated that, in
the years 1834-5-6, the new companies projected involved nominal
capitals to the extent of two hundred million pounds sterling. ["No
fewer than 119 new companies have been started in London during the last
year (1835). Of these, 41 are mining companies, 35 for the establishment
of railways, and 43 miscellaneous. The nominal capital
is—Mines,£2,994,000; railways, £34,040,000; miscellaneous, £19,811,000;
total, 56,845,000."—Edinburgh Chronicle, 6th February 1836.] But
it was not thus alone that the speculative spirit found vent. Owing to
the higher rates of interest offered in America, large quantities of
United States securities were greedily absorbed in this country. This
led to a continuous and heavy drain of gold from the Bank of England,
which, despite the efforts of the bank to stem it, reduced the reserve
to a low point.
The first actual
disturbance began in Ireland in the autumn of 1836, by the suspension of
the Agricultural Bank. It appears to have been a badly-managed concern.
One or two of the few Irish private banking firms which had survived the
crisis of 1820 also gave way. English bankers became alarmed, and their
precautions led to a still further reduction of the stock of bullion in
the bank of England. A lull, however, took place; but, in March of the
succeeding year, the storm which had been brewing burst over England and
Scotland. Many bankruptcies occurred; but the recorded number for 1837
is not so much above the general average as might have been supposed,
from the active speculation which had been carried on. Of the failures
in England, few appear to have been of bankers. The most notable bank
failure was that of the Northern and Central Bank of England. It had
only been in existence for about three years. Another case was that of
the Norwich and Norfolk Joint-Stock Bank; but it was a comparatively
small affair. In neither case do the creditors seem to have lost, and
the shareholders did not suffer very severely. We have already detailed
the banking events which occurred in Scotland at this time, from which
it will be seen that the crisis fell lightly on Scottish banking.
Among minor incidents
within this period mention may be made of the loss of a remittance by
the Bank of Scotland. On 27th February 1826 the smack Delight, on her
passage from London to Leith, struck a sunken wreck off the Norfolk
coast, and foundered in fifty feet of water. The passengers and crew
took to the boats, were picked up and taken into Yarmouth. But a
valuable cargo, and specie amounting to £4500 in gold and £500 in
silver, going to the Bank of Scotland, were lost. As the remittance
seems to have been insured, it is probable that the bank was reimbursed.
In this year an Act was passed which must have been of considerable
service to the unincorporated banks. This was 7 Geo. IV. c. 67 (not c. 4
6, mentioned previously), to regulate the mode in which certain
societies or co-partnerships for banking in Scotland may sue and be
sued. It provided that all banks of issue, except the chartered banks,
should enter on oath their names, and the name and abode of every
partner and manager, in the books at the stamp office in Edinburgh,
which were to be open for public inspection; and in the course of the
year similar entries were to be made of any change of partners or
officers. It also provided that such banks might sue and be sued under
the names of their office-bearers. The introduction of the system of
closing bank offices earlier on Saturdays, so as to allow the employees
a weekly half-holiday, seems to have commenced about 1827. It may also
be noticed that notes of the Scottish banks for £1 appear to have
circulated freely 'in the north of England until 1828, when the Act 9
Geo. IV., c. 65, prohibiting them, was passed. The issue of them in
England was already illegal, but not their circulation. The change was
not accomplished without opposition, numerous petitions and other
representations in favour of the practice being presented to Parliament.
A modification of the usury laws was made by the Bank of England Charter
Act of 1833, and was extended, and made permanent, by subsequent Acts in
1850 and 1856.
Allusion may here be
conveniently made to the system of settling exchange balances. Until
1834 this was done by the debtor banks giving drafts on London at ten
days' date for the amounts due by them. But in consequence of the
stoppage of a private bank in Edinburgh (presumably Robert Allan & Son,
to whom we have just referred), while many of the other banks held its
drafts, Mr. Blair, treasurer of the Bank of Scotland, proposed that the
balances should be settled by exchequer bills, similarly to the practice
of the London Clearing House. The bills were for £1000 each, the
fractional parts of the balances being paid in Bank of England notes and
specie, and latterly in notes of the three old Scottish banks. Each bank
was to hold an agreed-on quota of bills. This system was adopted, and
continued in practice for many years. But it was an inconvenient
arrangement, and eventually a return was made to the older plan, in a
modified form. The system is still, or was until recently, in use in
Dublin, among the banks of issue. |
