BRITAIN'S BANKS

Evening Post, Volume CXV, Issue 108, 10 May 1933, Page 10

BRITAIN'S BANKS

SOUND POSITION

LESSONS WELL LEARNT

THE BRANCH SYSTEM

We have heard much recently of the banking crisis in the United States and how depositors on the other side of the Atlantic, having lost faith in their banks, precipitated a financial crisis by withdrawing their funds to an 'aggregate) totalling hundreds of millions. We also, learn that in the past three years some 5000 American banks have had to close their doors through.failure, writes Herbert A. Meredith in the "Daily Mail." ■ _ To the average |Englishman, -enjoying the security of ono or other of our big banks, such information is almost unbelievable. Fortunately, in this country we have unlimited faith in our banks, and justly so. Their stability and strength are beyond question, and, even during the fateful months of 1931 when we were forced off the gold standard, never so much as a; whisper of suspicion was heard as .to the position of our great banking institutions. . Speaking generally, banks in this country have had an excellent record, although in the past >ye have) had our bank crises and our bank failures. Our present immunity from these financial shocks is due to the policy of amalgamation, which reached its height in the year 1918, and' left the major portion of the banking business in this country in the hands of the five great joint stock banks. .1 RESULT OF XHIOWTH. Our present banking system, however, is not the result of any carefully thought-out scheme. It has arrived not by any "sudden revolution of methods but by centuries of evolution, . If we go back to the sixteenth century, we find that the banking business in this country was carried on by the goldsmiths, who subsequently became known as the Goldsmith-Bankers. The first banking crisis in this country occurred in 1672 and was caused by no less a person than- King Charles 11, who, having borrowed heavily from Jihe goldsmiths —who financed the transactions with their customers' deposits— . repudiated the loans,- and so caused general suspension of payments.- , .'. Lombard Street then, as it is .today* was a popular site for banks, no fewer than twenty-seven of the goldsmithbankers having premises in this thoroughfare. : A step forward in banking occurred in the creation of the Bank of England in,1694. The Bank of England, in return for granting a loan of £1,200,000, was given the privilege of keeping the Government's accounts and bf being a joint stock company with limited liability. In the eighteenth century private banks sprang up in all parts of the country and supplied banking facilities in. their immediate neighbourhood. The London banks, however, covered a much ■wider area. In the early'days of the nineteenth century, when joint sto6k banking was in its infancy, protests were voiced in the House of Commons as to the dangers of those "large" institutions, which, it was feared, would lead to the elimination •of the private bank. This certainly proved to bo the case, but the process occupied a century.:';.. : AMALGAMATIONS. In 1800 there .were no fewer than 458' banking firms in England, -includ- , ing forty-six private banks in London, or one to every 19y200 of the population. During the second half of the nineteenth century the private bank made way for the joint stock bank. In 1890 there were 104 separate joint stock . banks in England and Wales. Ten years later amalgamations had reduced the number to 77; >by 1910 the number was; reduced to 45. At the outbreak-of war there were 38 joint stock banks, with 5800 branches. . Today the "Big Five" (which; is the name given to Barclays, Lloyds, Midland, National Provincial} arid Westminster Banks) have 8500 branches, in ; addition to ■ which there is a limited number of important independent banking institutions.1 > ' Let us now turn back to the major banking crises of the nineteenth century. The first was in 1847,, and was a direct reflection of the first railway boom and ensuing slump. The second was in 1857, and was attributed'to fin-' anoing in this country the oyer-rapid development in the United States. The third was in 1866, and was caused by the failure of, Oveiend and Gurney, a famous London finance house. On each of these occasions the Bank Act had to ■be suspended. , . . ; , Another serious crisis occurred in 1890, with the temporary ' collapse of 1 the banking house of Baring Brothers. ; In addition to these banking crises, i there was the failure of" the City of ;. Glasgow. Bank in 1878, which led to disastrous results in Scottish banking . circles. : Shareholders in this bank had • unlimited liability, with /the result that • each was called upon to pay £500 for - every £100 of capital stock held as his > share of the bank's liabilities. ' Following this incident banks genei rally adopted the limited liability form i of company. LESSONS LEARNT. The amounts involved in these vari--1 ous crises were small in comparison with : present-day figures, but each at the time 1 probably caused as much consternation 1 as. do our troubles today. The lesson • of each, however, was learnt; and led to a sounder banking position ' being ' built up in this country, which the post--1 war amalgamations (the prime mover in ■ which was the late Sir Edward Holden, lof the then London City and Midland Bank) brought to its present strength. We have reason to be proud and ' thankful for our banks. We may riot always see eye to eye with the policy of those who control their destinies, but they~ have centuries of sound tradition behind them.- Our bankers have made London the financial centre of the world, and have given us that banking security which is the envy of all nations./ Today finance is international and the strength of our banks is not merely : a national asset, butone of primary importance to every financial centre in the world. ■ ■', . •