Till Time's Last Sand

by David Kynaston

  May not the Bank, as a Company in which a great body of Proprietors are interested, have a separate interest from those of the country at large? – I conceive such a thing to be possible …

  Should you anticipate a better system of management of the circulation of the country if Government had more immediate control than it has over the circulation of the Bank of England? – I am inclined to think not.

  But a last word goes to another private banker with likewise a mind of his own, George Carr Glyn. ‘Is your intercourse with the Bank almost daily?’ he was asked. ‘Hourly, I may say,’ replied Glyn. And: ‘Do you find any facilities afforded in your transactions with the Bank? – Every facility.’

  Just over a year later, in August 1833, the Bank’s Charter was duly renewed, in effect for a minimum of another eleven years. From the Bank’s point of view, the terms featured one definite minus, one arguable minus and two definite pluses. Permitting joint-stock banks in London (and thereby abandoning the 65-mile restriction) would, the Bank vainly petitioned the House of Lords shortly before the Bill was enacted, ‘have the effect of destroying the present character of the Bank of England and forming it into a Bank of competition’; but politically speaking, following the 1832 Reform Act, a further reduction of the Bank’s monopoly was perhaps inevitable. The more arguable minus was the Bank Act’s stipulation that the Bank henceforth be required to provide the Treasury with a weekly return of its total of bullion, securities, circulation and deposits, with a monthly average to appear in the London Gazette – undoubtedly repugnant to some at the Bank, though as Norman had conceded to the committee, the Court was ‘much divided’ on the question of publishing the amount of bullion in the Bank’s possession. By contrast, the two unequivocal pluses were firstly the provision liberating the Bank’s discount rate from the 5 per cent maximum embodied since 1713 in anti-usury legislation – an important moment in the Bank’s embryonic development of credit control; and secondly, the clause that made all Bank notes above £5 legal tender (except at the Bank itself or at its branches, where gold was still payable), a measure likely to reduce future internal drains of bullion. Altogether, eight years after the horrors of the 1825 crisis had left the Bank badly exposed, it was in a better place than it might have been. While as for the continuing vexed private/public relationship, it might have taken comfort from the words of Althorp introducing the legislation: ‘I feel confident, that persons standing so prominent as the Bank Directors will be as completely controlled by public opinion as if they were acting under legal responsibility.’14

  By this time the Bank’s branches were a well-established part of the provincial banking scene. Back in 1826, responding to the government shake-up of the banking structure, the Bank had moved quite quickly into action, with branches opened by the end of the year in Gloucester (where there had been a particularly widespread failure of country banks), Manchester and Swansea; these were followed in 1827 by Birmingham, Liverpool, Bristol, Leeds and Exeter, in 1828 by Newcastle, and in 1829 by Hull and Norwich. Subsequently, over the next decade and a half, branches were opened in 1834 at Plymouth and Portsmouth, and in 1844 at Leicester, while the unprofitable Exeter and Swansea branches were closed in 1834 and 1839 respectively – ultimately followed by Gloucester (1849), Norwich (1852), Leicester (1872) and Portsmouth (1913), leaving eight branches at the start of the First World War. These new Bank branches were not universally welcome in their localities – ‘Of all men who are sinned against by this uncalled-for interference on the part of the Bank of England,’ complained the Exeter Flying Post in December 1827, ‘none are less deserving it than the bankers of our own City’ – and in each case it was down to the branch’s agent and deputy agent, salaried but receiving on top a percentage of net profits, to manage a sometimes difficult situation. Perhaps the most important branch was Birmingham, headed by George Nicholls for its first eight years. In his mid-forties when he took on the position, Nicholls had spent much of his adult life at sea, as an officer of the East India Company, as well as being a Poor Law reformer and a canal engineer. The evidence is that he ran the branch only reasonably efficiently, while the work itself failed to satisfy a restless, questing spirit. ‘Mere banking – that is, the receipt and payment of money and the discount of bills – is of all the associations with which it has been my lot to be connected,’ he would reflect in his autobiography, ‘the least interesting and intellectual; I think I may also add, the most narrowing and restrictive in its influence on character.’15

  For both government and Bank, the prime purpose of the branches was to expand the Bank’s note issue in the provinces, at the expense above all of the note issue of the country banks, and generally to give the Bank greater control over circulation as a whole. ‘To effect this,’ explains Dieter Ziegler, a leading historian of the Bank’s branches, ‘the main device was the introduction of the so-called “circulation accounts”, or “three per cent accounts”, a privileged discount account for those banks which abandoned their issuing right and circulated Bank of England notes only. Up to the amount of the former note circulation – with a minimum of 14 per cent below this figure – these banks were entitled to re-discount at their Bank of England branch at three per cent.’ And, adds another historian, David Moss, ‘from the contracting bank’s point of view, the guaranteed supply of notes, backed by the Bank’s gold reserves, reduced the risk of failure during a monetary crisis when confidence in the banking system was low and country notes could be held in poor esteem’. On paper it was a mutually attractive arrangement, but in practice, amid continuing local jealousies, it worked out better in some branches than others. Liverpool achieved the greatest success with these privileged circulation accounts, to the extent that provincial banknotes were displaced there altogether by 1840; Birmingham did pretty well, at least for a time; while elsewhere was mixed. By the early 1840s, through these accounts and other means (including the offer to provincial banks of ordinary open accounts with the Bank), the Bank had gone some way, but far from the whole way, to meeting its objective: during the first half of 1841, as many as 281 private banks and 91 joint-stock banks were still issuing their own banknotes; and of total banknotes being circulated in the provinces, around £6.3 million had been issued by the country banks and around £3.7 million by the joint-stock banks, with the Bank itself responsible for around £4 million – less than one-third.16

  The branches were also supposed to make money for the Bank. Palmer may have claimed in his 1832 evidence that the Bank had established them ‘without any profit to the Bank of England, the object being to give solidity and strength to the whole circulation of the country’, but six years earlier the Bank’s Committee for Branch Banks had explicitly stated that opening branches in the provinces would be ‘for the benefit of the Bank as well as to the interest of the public and the Government’, while of course Norman had bullishly anticipated that ‘they would furnish large profits to the proprietors’. In reality, that turned out to be, admitted Norman, ‘an exaggerated view’; yet at the same time, during the 1830s and into the 1840s anyway, the income from branch discount business often exceeded that from Threadneedle Street’s discount business, notwithstanding that branch agents often chafed at the tight controls imposed upon them by Head Office, while several branches – including Newcastle, Gloucester, Bristol, Hull and Plymouth – struggled for a long time to make any sort of profit. Altogether, the measured optimism in September 1843 of the Committee for Branch Banks, recommending to the Court the opening of a branch in rapidly industrialising Leicester, was probably fair enough: ‘The Committee do not contemplate a large profit in the first instance, but they have reason to believe that the Branch will pay its expenses with a surplus and with a fair prospect of increasing profit.’17

  In March 1834, less than a year after the renewal of the Bank’s Charter and the accompanying loss of its London monopoly over joint-stock banking, the London and Westminster Bank (direct forerunner of the modern NatWest) opened in Throgmorton Stre
et for deposit-taking business. It received a cool welcome from the City establishment – not least from the Bank, which through a protracted legal tussle tried to clip its powers, refused until 1842 to open a drawing account for it, and for a time would not even discount bills payable at the new bank. The Bank’s attitude won few friends, with The Times as early as 1834 identifying ‘a petty jealousy and meanness’ that was ‘unworthy not only of men filling a high public trust, but of men of character’. By contrast, the Bank’s relationship during the same years with the Bank of Ireland was more one of stern mentor, as England’s embryonic central bank did its best to guide Ireland’s (founded in 1783). ‘The elevated position occupied by the Bank of Ireland as the chartered Bank of that country and which it doubtless wishes to maintain imposed on it not the care of its own Credit only but the protection of the Banking and Commercial Security of Ireland, generally,’ the older institution’s governor, James Pattison, reminded in December 1836 his counterpart in Dublin; ‘and it is therefore indispensable,’ he went on, ‘that more extended views should be taken by that Corporation and it should as regards the Security of that Country occupy in Ireland a similar station to that which this Bank sustains in relation to the security of England.’18

  Pattison himself – somewhat reluctant Liberal MP for the City, and described by the financial journalist David Morier Evans as looking less like a Bank director than ‘a respectable country farmer’, with ‘his bluff face, his long flapped black coat, his drab smalls [breeches] and gaiters, ornamented with small bright buttons’ – was writing during anxious times. American trade and its financing had been booming, but the rapid and alarming downturn of the American economy from earlier in 1836 resulted in a crisis that lasted the best part of a year – a crisis that at the London end was played out in three main phases and intimately concerned the Bank as well as the leading ‘American’ houses: principally, Barings, Morrison Cryder, Browns (based in Liverpool) and the three Ws (Wiggins, Wilsons and Wildes).

  ‘The Governor of the Bank pretends to be or really is most alarmed about the gold going to America and the amount of American bills in circulation,’ was the report in July 1836 of Joshua Bates, the dour Bostonian who was for many years the main man at 8 Bishopsgate, home of Barings. Two months later, the Bank decided to take overt action against the American houses, temporarily refusing to discount their paper – a manoeuvre condemned by Bates as ‘shabby’ – before in late October the governor called in the partners of each firm and formally told them that ‘the extensive Credits hitherto given to the Bankers of the United States and others, either as open Credits or in anticipation of the Sale of States Securities in this Country, are objectionable so far as the Bank of England is concerned …’ Bates was convinced that the Bank, in its understandable concern to restore its dwindling bullion reserves, had got it wrong, complaining that ‘it is useless for the Bank to make war on Bills of exchange’; but in the Bank itself during the closing weeks of 1836 a rival focus was an internal disciplinary matter. ‘The circumstances connected with the origin, progress and communication to the Public of the Report respecting the House of George Wildes & Co’ was the subject of the report on 14 December of the Committee of Inspection of the Drawing Office &c, following the spread of false rumours six days earlier, rapidly reaching the press, that the undoubtedly over-extended Wildes had failed. The report found

  that Mr Smith of the Bill Office was the first to name the House as having failed; that Mr Whitford, the Principal of the Bill Office, having heard from Mr Worthington, who was told by one of the Out Tellers, that the House had failed, on giving instructions to the Clerks to expedite their business imprudently named the failure of the House as the reason of his doing so, without having made due inquiry into the fact; that Mr Ormes, who is a Junior Clerk in the Establishment, on hearing in the Bill Office, that the House had stopped payment, within 20 Minutes communicated the information to a Stock Broker in the Rotunda of the name of James Woolley, and as he states, that he did it in confidence, and told Woolley that it was in confidence, it is evident that he knew, he was not justified in making the communication Public.

  For Ormes, his big mistake had been to trust Woolley – ‘a schoolfellow of mine’, he revealed under examination. He and Smith were compelled to resign, with the latter writing forlornly to the Court:

  I have been in the Establishment upwards of 26 Years, – 24 years of which Period I have attended at the Bill Office, as early as ½ past seven and occasionally as early as seven oClock in the Morning (Sundays excepted) and have to the best of my Ability discharged the Duties of my Situation with zeal and fidelity. I am now in the fiftieth year of my Age with my Health seriously impaired and my Eye sight defective.

  Accordingly, he asked the Court ‘to make some Provision during the remainder of my Life’; and some provision, though not handsome, was indeed made.19

  Against the background of an unnervingly steady flow of bad news from across the Atlantic, the second phase of the crisis was under way by March 1837, with an especially sharp City commentary being provided by George Carr Glyn, seriously concerned that too many of the Bank’s directors were ‘impregnated with political economy doctrines’, an approach he contrasted with the ‘practical knowledge’ of Horsley Palmer, fortunately still a director. ‘I may tell you,’ he confided in a correspondent at the Bank of Liverpool, ‘that had it not been for the firmness of Horsley Palmer & the Deputy Governor [Timothy Curtis], the Governor and his party in the Court would have brought down every American house.’ ‘I really think,’ he added, ‘the Governor is mad upon this subject. He and I have been brought into disagreeable collision.’ Later in March, two of the Bank of Liverpool’s directors came down to London, where they stayed at St Paul’s Coffee House and wrote to the governor, warning of ‘the great embarrassment which prevails in Lancashire both in the Mercantile and Manufacturing interest, arising chiefly from the want of confidence occasioned by the doubt and discredit thrown upon American paper’, so that ‘unless immediate steps are taken to restore confidence and mercantile credit, we must soon inevitably witness the most awful crisis ever known in this or any other Country’. ‘We are sure,’ hopefully concluded their petition to Pattison (due shortly to vacate the governor’s chair), ‘that it must be particularly gratifying to you at the close of your administration of the affairs of the most important institution in the World, to be instrumental in preserving the Country from the calamities with which it is now threatened.’ That was on the 21st, and it is clear that the Bank’s directors were deeply divided, with Norman among those instinctively but nervously on the side of leaving the more reckless American houses to their fate. ‘I can see very serious difficulties in the way of assistance from the Bank and very serious objections upon principle to any such measure,’ his close friend Samuel Jones Loyd wrote to him on the 25th in stiffening mode. Eventually in April, after the government had declined to intervene, the Court took a deep breath and agreed to save Wildes, the most stretched of the three Ws and unable to offer any collateral – a decision no doubt made easier by the fact of Curtis now being governor, with the similarly pragmatic Sir John Rae Read as his deputy.20

  The final phase was not long following. By May remittances from the United States were still notable by their absence, many bills were arriving only to be dishonoured, and even those bills accepted were proving problematic. ‘Has known the business in US all his life & has been in London 16 years, never knew such a state of things before,’ noted James Morrison on the 21st after a conversation with Bates, while Glyn soon afterwards accurately mirrored the City’s keen desire that the Bank further assist the still desperately struggling three Ws, telling the Bank of Liverpool that ‘we all entertain the strongest hopes of the Bank taking the decisive step and determining to carry these houses’. The crunch came at the very end of May and beginning of June. Wilsons and Wiggins formally besought the Bank for relief, blaming ‘the temporary and almost universal suspension of credit throughout the
principal commercial Cities of the United States’; ‘the Bank deliberating on the W’s – and all consternation dismal forebodings no sleep all night,’ recorded Morrison in his diary; ‘from what Mr Palmer tells me, I fear the result’, related Glyn. His forebodings were justified. The Court requested Curtis and Reid to lay before the prime minister (Lord Melbourne) and his chancellor (Thomas Spring Rice) the Wilsons/Wiggins applications for relief, but insisted that they state to the politicians ‘the apprehension of many of the Directors, from the character of the accounts received from America, of the eventual solvency of the Houses in question’. The politicians declined to get involved. And, by a single vote (according to Glyn’s information, presumably from Palmer), the Court decided against extending relief: the three Ws would never trade again. In effect, although some small firms fell in their wake, that lanced the boil of the crisis, especially after the Bank later in June gave significant help to both Morrison Cryder and Browns. But it was a crisis that, taken as a whole, had significantly damaged the Bank’s reputation, not least for unity and consistency. ‘Floundering about from one expedient to another, so as to resemble nothing but a ship at sea, without rudder or compass, exciting the pity of those who are placed beyond their influence, and the terror of those who are within its reach’: such was the verdict of The Times’s City editor at the end of June, and although exaggerated it had an undeniable kernel of truth.21

  The Bank was in a different sort of jeopardy in January 1838. On a freezing night, with snowbound streets almost impassable, virtually the whole of the Royal Exchange burned down – the fire having been discovered, too late, in its north-west corner, only twenty-one feet from the Bank. Luckily, the wind that night was blowing from the north-east, not the south-east, while vigorous action, not least on the part of William Mellish (in the closing months of his forty-six-year directorship), saved Taylor’s Bank Buildings to the west of the Exchange. Soon afterwards, in April, governor Curtis took the decision to expel the stockbrokers from the Rotunda, linked possibly to the destruction of brokers’ offices in the recent fire and consequent overcrowding of the Rotunda, but possibly also to the unfortunate Ormes/Woolley episode. Either way, this did not make the governor flavour of the month among the stockbrokers, and three years later they enjoyed their revenge, as the floor of the Stock Exchange, in nearby Capel Court, bellowed out three cheers on the news of his firm’s failure. Plans by this time were well afoot for a new and enlarged Royal Exchange, complete with plaza in front; and one consequence was the soon regretted demolition of the Bank Buildings. Complementing the new Royal Exchange – officially opened in October 1844 by Queen Victoria, who during her reign apparently never visited the Bank – was the wonderful (and still standing) statue of Wellington on horseback. In 1836 the Committee of Treasury had declined to help with the cost of its erection, ‘the Bank not being in the habit of contributing to such objects’; but two years later the Bank relented, to the extent of 100 guineas.22