Joint stock banking

Joint-stock was the name given to companies which are owned by several people who each possessed a certain number of shares in the capital. Their liability for the company's debts would be limited to that amount. That is why most of the major banks of London were established after 1826, as they were able to start with more capital.

At the end of 19^th century joint-stock banking became permissible throughout the United Kingdom. The rest of the century saw a long struggle for survival; the private bankers with the Bank of England on their side against the new joint-stock bankers. Private bankers enjoyed a comfortable living and saw the new joint-stock banks threatening their own business, for it was these men who had fought against joint-stock banking in the Parliament of the early 1880s. In 1854, the new bankers were admitted to the Clearing House, a bankers institution in London for exchanging bills and cheques and settling balances, which was to give them greater strength.

The first joint-stock bank was opened in Lancaster in 1826. The private banks were absorbed by the joint-stock banks, making larger and larger concerns. This process was to reach its culmination at the end of the first world war, when the Big Five took shape.

1854 saw the entrance of the joint-stock banks to the Clearing House which was to revolutionize the cheque. The achieve this the major banks had to take over London banks. In 1884, Lloyds Bank, previously confined to the midlands, took over two famous London banks whilst the Birmingham Banking Company entered London, by absorbing the Royal Exchange Bank.

The pattern of amalgamation continued and by 1936 had emerged as eleven banks, holding a total of over £2,000,000,000 of which the Big Five accounted for 87%. The twentieth century showed services in foreign exchange, and trustee and executor business were beginning to replace competition in price and size.

Joint-stock banks began to open more branches, a system which seemed likely to provide a more stable structure and one more suited to the needs of the now advanced Industrial Revolution. However, the branches needed to be controlled from Head Office, which was to prove difficult with poor communications and lack of skilled men.

In 1833, an Act of Parliament permitted joint-stock banks in London, and confirmed the legality of cheques drawn on them. The use of cheques made for more rapid commercial transactions. Where cheques were drawn and paid at different branches of the same bank, they could be cleared through Head Office, a system of internal debiting and crediting, which took several days. Access to the London Bankers Clearing House was still denied to joint-stock banks until 1854.

The second half of the nineteenth century was an age of British industrial and commercial supremacy, which called for an expansion of the services provided by the established banks. For example, the London and Manchester Bank had four branches in 1850, and seven by 1865.

Many of the old private and small joint-stock banks were unable to meet the demands of the growing industrial nation, so were forced to sell out. The reason for the improvement of the branch system was the removal of legislative obstacles, the growing dominance of the cheque, the completion of the railways and the development of the telegraph.

Two world wars had little effect of the banking structure of the country. The amalgamations at the end of the First World War were the culmination of the long process of structural development. A massive branch banking system had grown out of the piecemeal development of the past.

In 1918 there were five large banks and six smaller survivors, which caused widespread fear that competition would be restricted if the process was carried further. However, this view changed when it was seen that five or six banks in the same High Street could operate at maximum efficiency. In 1967 the National Board for Prices and Incomes put forward the case for further amalgamation and rationalization, Since then a lot of mergers have followed, leaving the Big Four and two smaller banks in England and Wales.

Like their predecessors of hundred years ago, today's bankers seek to extend their business in every possible aspect, developing foreign exchange, finance of foreign trade and trust services. Within their own system a very high degree of mechanization has occurred; all branches now having a computer linked to a vast network for time saving, greater efficiency and speed.

The credit card system, first introduced in 1966 from a well-established American tradition, has now been undertaken by all the major banks and may prove to be an innovation with far reaching effects. Cash dispensers, cheque cards and budget accounts are other recent services offered to aid the convenience of the customer, while the more recent Euro-cheque system enables a traveller in Europe to cash his down British cheque in the currency of the country where he is staying.

The banks are showing no signs of standing still, pushing for fresh ideas of diversification, discussing an all-electronic future and, unlike their predecessors, are willing to inform the public of their intentions through advertising and public relations.

The goldsmiths who set up as bankers three hundred or more years ago would recognize the essentials of today's banking, but they would be surprised by its ramifications.