the world of private banking

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