the world of private banking
the world of private banking
the world of private banking
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
LONDON’S FIRSt ‘BIG BANG’? 85<br />
Although amongst institutions south <strong>of</strong> Hadrian’s Wall only one bank failed<br />
(West <strong>of</strong> England & South Wales District), and three stopped payment (<strong>the</strong> Cornish<br />
Bank <strong>of</strong> Tweedy Williams & Co. [subsequently converted], Fentons <strong>of</strong> Rochdale<br />
and <strong>the</strong> Preston Banking Company), while <strong>the</strong> Bank <strong>of</strong> England did not face a cash<br />
crisis, <strong>the</strong> collapse <strong>of</strong> <strong>the</strong> City <strong>of</strong> Glasgow Bank had widespread effects within<br />
England and Wales. Branches <strong>of</strong> both <strong>the</strong> Yorkshire Banking Co. and <strong>the</strong> York<br />
City & County experienced runs, as did <strong>the</strong> Queen’s Building Society and savings<br />
banks in Lancashire. In <strong>the</strong> north east, Hodgkin & Co., Lambton & Co. and o<strong>the</strong>r<br />
local banks approached <strong>the</strong> Bank <strong>of</strong> England’s Agent for assistance. O<strong>the</strong>r banks<br />
were badly shaken as <strong>the</strong> failure <strong>of</strong> <strong>the</strong> City <strong>of</strong> Glasgow reverberated upon <strong>the</strong>ir<br />
illiquid advances to industrial customers at <strong>the</strong> trough <strong>of</strong> a trade depression. This<br />
was <strong>the</strong> experience <strong>of</strong> both Lloyds and <strong>the</strong> Midland in Birmingham.<br />
One clear consequence <strong>of</strong> <strong>the</strong> 1878 crisis was <strong>the</strong> greater adoption <strong>of</strong> limited<br />
liability, especially by unlimited banks established before 1857. The failure <strong>of</strong> <strong>the</strong><br />
unlimited City <strong>of</strong> Glasgow directly ruined 2,000 families, as <strong>the</strong>ir resources were<br />
repeatedly drained to satisfy <strong>the</strong> bank’s depositors. This showed that opponents <strong>of</strong><br />
limited liability for <strong>banking</strong> were technically correct when <strong>the</strong>y had maintained<br />
that depositors in unlimited banks were fully covered. However, that only 254<br />
out <strong>of</strong> <strong>the</strong> City <strong>of</strong> Glasgow’s 1,819 shareholders were solvent after this bank’s<br />
affairs had been wound-up revealed to all <strong>the</strong> costs involved. The answer was<br />
‘reserved liability’, with <strong>the</strong> necessary legislation quickly passed in 1879, largely<br />
due to <strong>the</strong> efforts <strong>of</strong> George Rae, General Manager <strong>of</strong> <strong>the</strong> shaken North & South<br />
Wales Bank. 55 During <strong>the</strong> early 1880s, 27 unlimited joint-stock banks quickly took<br />
advantage <strong>of</strong> this new legislative provision and, by <strong>the</strong> 1890s, very few joint-stock<br />
banks were unlimited concerns.<br />
The fur<strong>the</strong>r take-up <strong>of</strong> limited liability, albeit reserved liability, had yet ano<strong>the</strong>r<br />
consequence for <strong>private</strong> commercial <strong>banking</strong> in both London and <strong>the</strong> provinces.<br />
The 1879 Act introduced greater publicity requirements, including <strong>the</strong> publication<br />
<strong>of</strong> half-yearly balance sheets. This placed partners in many <strong>of</strong> <strong>the</strong> remaining <strong>private</strong><br />
banks in a dilemma. If <strong>the</strong>y presented <strong>the</strong>ir accounts, <strong>the</strong>n, generally, <strong>the</strong>se would<br />
display reserves proportionally smaller than those <strong>of</strong> <strong>the</strong>ir joint-stock competitors.<br />
If <strong>the</strong>y did not, <strong>the</strong> absence <strong>of</strong> a balance sheet would raise questions over <strong>the</strong>ir<br />
solvency. The escape from this situation proved to be amalgamation with jointstock<br />
banks. During <strong>the</strong> 1880s <strong>the</strong>re were 66 amalgamations between <strong>private</strong> and<br />
joint-stock banks, some <strong>of</strong> which also arose from o<strong>the</strong>r operative factors, such as a<br />
waning <strong>of</strong> personal entrepreneurial drive or, simply, a psychological loss <strong>of</strong> faith. 56<br />
<strong>of</strong> <strong>the</strong> occurrence <strong>of</strong> a crisis in 1878, see Cottrell, ‘Credit, Morals and Sunspots’, pp. 63–4.<br />
55<br />
Crick and Wadsworth, Hundred Years, p. 428.<br />
56<br />
Sykes, Amalgamation Movement, pp. 30–43: see also, Sayers, Lloyds, pp. 244–56.