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Until the mid-eighteenth century the majority of private banks were located in the city of London. The politician Edmund Burke, in 1750, stated that ‘there were not above a dozen bankers, outside London, in the country’. By 1798 there were just over 300 country bankers. Until 1826, all private banks were partnership banks which, under common law, meant that the partners were jointly and severally liable for the whole of the partnership debts. This had the effect of restricting the establishment of branches as that implied trusting someone else with one’s assets.

Those banks situated outside London were known as ‘country’ or ‘provincial’ banks. Nearly all provincial banks would have had a London agent, who would deal with stockbrokers, bill discounters and acceptance houses on their behalf. He would also give advice and act as a “lender of last resort”. Around 1770 the London banks ceased issuing their own notes and instead issued Bank of England notes.

Many provincial banks were started by businessmen as a means of generating capital for investment. Agricultural banks for example were created to generate the required capital for the mechanisation of farming. Anyone who had large sums of money lying unused for a period of time was tempted to start a bank. Brewers for example had perhaps six months grace on paying malt duties to the Government. This money could not easily be invested in their businesses but it could be used to support the issue of banknotes. The issue of banknotes was equivalent to money borrowed free and lent at interest.

Banknotes were payable on demand, it being an act of bankruptcy not to immediately meet such a demand. Banks therefore had to keep enough coin in hand to meet likely calls for redemption of notes. Banknotes would often be exhibited at bankruptcy hearings as evidence of debt. The banker’s aim was to confine his notes to the immediate locality, where they would be recognised and trusted, and hopefully remain in circulation for a long time. Once outside the vicinity, the notes would gravitate to his London agent for redemption.

Other than through poor management, banks could also become bankrupt because of an unusually large demand for payment of notes. This might happen through a fear that the bank was not safe. If, for example, England was under threat of invasion, a man might well prefer to keep his gold himself rather than have it in a bank. Invading armies would almost certainly loot any banks and if a man’s house and family were threatened then he could use the money to buy off the invading soldiers. When France declared war on England in 1793 the resulting crisis brought down over two thousand firms including about a hundred banks.

Sometimes owing to personal differences a person, or group of persons, would deliberately set out to ruin a bank. One story of this kind is the attempt by Lord Darlington to break the Backhouse bank in that town. Lord Darlington instructed his tenants to pay their rents in notes issued by the bank, with the intention of collecting a large sum and presenting the notes in one batch, for payment in gold. Jonathon Backhouse heard of this plan and managed to obtain sufficient gold from London to meet the demand. Baron Rothschild is said to have attempted a similar bid to ruin the firm of Jones, Lloyd and Co.

In 1825 a crisis occurred which saw the collapse of many private banks. A major factor was the over-issuing of notes such that they could not be honoured if a number came in for payment together. Other contributory factors included a tighter fiscal policy by the London banks and bad speculation in the booming industries coinciding with a slump in agriculture. The collapse of one or two banks caused a run on the others creating a ‘domino effect’ and general panic set in. There are numerous stories from this period about the ruses used by the banks in an attempt to allay the panic. Staff would haul large sacks of scrap metal across the bank in full view of the customers, the sacks having a handful of gold coins on the top to make it appear that the bank had large funds. Other banks would employ a number of people who would come into the bank one after the other and ‘pay in’ amounts of gold coin, which would immediately be taken out the back and brought around for the next ‘customer’. In May 1826, an Act was passed which allowed the establishment of joint-stock banks with more than six partners, provided that they had no place of business within 65 miles of London. Whilst the partners were still liable for their debts the act did provide for the appointment of ‘public officers’ through which the banks could sue and be sued. Although there was not the perhaps expected rush of people setting up joint-stock banks, they did gradually become established with chains of branches. This had the effect of stabilising the banking scene. It also created very tough competition for the private banks.

In 1844 the Bank Charter Act aimed to eliminate note issue by all except the Bank of England. Only banks issuing on 6th May 1844 could issue after that date. In addition the maximum value of notes that any bank could have in issue after 10th October 1844 was fixed at the average circulation for the 12 weeks previous to 27th April 1844. This had the effect of immediately reducing the number of provincial banknotes in circulation. Somewhat surprisingly, this was the first time that the government, (which had controlled the minting of coins for hundreds of years), had attempted to regulate the production of bank notes. Issuing banks could also choose to relinquish their right to issue notes in return for an agreement allowing them to issue Bank of England notes. The banks were allowed to issue notes up to the value of their previous circulation limit - each year the Bank of England would pay them 1% of the value of notes issued.

Towards the end of the nineteenth century and the early part of the twentieth century the place of the private banker in the financial organisation of the country was becoming increasingly difficult. This period saw a number of take-overs and amalgamations leading to the situation we see today with just a few large banks with many branches. By 1921 the last provincial note issue had ceased.

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