Till Time's Last Sand

by David Kynaston

  For Neave personally, no less than for Overstone, what had really stuck in his gullet about the previous year’s crisis was what he saw as the grossly irresponsible conduct of the discount houses. On 11 March 1858 the Court met to decide whether to forbid bill brokers from discounting any bills at the Bank whatever, but instead only to be eligible (at the Bank’s strict discretion) for advances; and by the governor’s casting vote, this policy was carried, controversial from the start. The Times signalled its approval – ‘if those houses choose to receive money at call to an unlimited extent, they must themselves bear the responsibility of being at all times prepared to meet the engagements into which they may enter’, no longer able to rely ‘on their immediate ability in times of sudden pressure to throw the onus of any difficulty on the Bank’ – but the Economist was far more doubtful, contending that the new approach not only failed to take into account ‘the character of the house or the quality of the bills it may offer’, but might be dangerously inflexible in times of monetary strain. Neave himself, however, had no doubts about its justice, as he explained to the Select Committee within days of the announcement:

  The object is to keep the resources of the Bank more within her own compass, and not to give the opportunity to the discount brokers, who accumulate such very large sums in their hands, to rely entirely and totally for cashing their bills upon the Bank of England. When those [mainly the joint-stock banks] who have deposited money with them want it, the discount brokers have been in the habit of considering that they could repay their loans at an hour’s notice by merely coming over to the Bank, and asking for the cash to do it with. The immense drain upon the Bank in the last panic has shown that that power is an inconvenient one.

  Did this really mean that the Bank would not necessarily be lender of last resort to the discount houses? Not according to Wood, who argued that ‘the main object of the rule was to threaten the brokers vaguely, with the idea of forcing them to maintain reserve balances at the Bank’; while Bagehot at the time, writing in the Economist in early April, asserted, ‘I own that I question whether the rule recently laid down will much diminish the real advances which the Bank of England will think itself obliged to make during a crisis of difficulty,’ even if the bill brokers could no longer approach the Bank directly and had to secure accommodation from the Bank via their own bankers.20

  Which is not to say that the bill brokers themselves were not immediately resentful, feelings that deepened as the money market began to show signs of tightening in early 1860. Overend Gurney took it hardest. ‘Mr Gurney had an interview with the Governors to urge a Relaxation of the Bank’s Exclusion of Discount Houses,’ noted Dobree (by now governor) at the end of January. ‘The Govrs did not give him the smallest hope that an Appeal to the Court would be attended with any success.’ A dramatic denouement unfolded in April, starting between the 9th and 11th with Overend Gurney deploying its powerful Quaker connections in the City to make £1.6 million of withdrawals (all in £1,000 notes) from the Bank and soon openly boasting, a Stock Exchange source informed Dobree, of their intention ‘to reduce the Bank’s Reserve to the lowest possible Amount’. Monday the 16th saw the conflict further escalate. ‘If the Rule excluding the dis Houses should be modified,’ the message went to Dobree through an intermediary, ‘the Notes withdrawn & still locked up in Lombard St shall be returned to the Bank “tonight”.’ The governors refused ‘to entertain any such proposal’; but next morning there arrived on Dobree’s desk a sinister anonymous message: ‘Overends can pull out every note you have, from actual knowledge the writers can inform you that with their own family assistance they can nurse seven millions!!’ This proved, however, the final threat, for later that day Dobree learned that the firm had told John Masterman (City MP and banker) that ‘if it would be considered a conciliatory step on their part, they will at once return to the Bank the Million, Five Hundred & Fifty Thousand Bank Notes locked up in Lombard St’ and that ‘they are sorry for what they have done’. On Wednesday the notes were indeed returned to the Bank, ‘identical but all cut into halves’; and next day a relieved Court ‘approved of the Course pursued by the Govrs in this disreputable Affair’.

  Were Overend Gurney truly repentant? When, a couple of months later, two directors of the Sheffield and Hallamshire Bank spent the best part of a week in the City calling on leading figures, their highlight was a visit to the ‘Corner House’, on the corner of Lombard Street and Birchin Lane, where they found ‘Mr Gurney junior the most intelligent & business like, & Gentlemanly Person, we had up to this time met with’:

  He entered on the subject of their controversy with the Bank of England & said – that he thought this subject was not understood by the public – who thought that the question was solely between Bank of England and Overends, whereas it was between the Bank of England and the Commercial public. The latter would have to pay in inconvenience & the price of money for the restrictions now in force.

  If the Bank of England did not relax, Peel’s act would again have to be broken; but – not by them, but by the Bank of England, for its own salvation.

  ‘We now do business on the principle known & acknowledged of taking care of ourselves,’ added Henry Edmund Gurney; and he stressed again to his suitably impressed visitors, ‘all must take care of themselves in any future Panics’.21

  By this time the Bank’s less than favourite politician was back at the Treasury, with the Bank once again finding itself quickly on the back foot. John Hubbard, governor in the mid-1850s, had suffered particularly at Gladstone’s hands – friends though the two men were through religious affinity – and at the end of 1860 he wrote to Dobree complaining of the chancellor’s continuing ‘aggression’ and regretting that ‘the defenders of the Bank bulwarks have demolished them at the first blast of the trumpet sounded by this modern Joshua’. A few weeks later, the trumpet sounded louder than ever, as Gladstone on 31 January 1861 sent Dobree and his deputy (Alfred Latham) a ten-page letter detailing his proposals for the management of the national debt over the next twenty-five years, involving a significant reduction in the Bank’s annual remuneration. ‘A veritable skinflint’ was Neave’s private reaction, writing to Dobree on 5 February; but next day the Court reluctantly acceded, with the governors informing Gladstone that the directors did so ‘mainly because the combined management of the National Debt, and of the collateral Departments of Issue and Banking, enable them to exercise a very important economy in the labor charge, and in the other expenses of Bank administration’. The proprietors still had to ratify the decision, and a General Court met on the 7th to do so. ‘They were called upon to make a sacrifice it was true,’ argued Prescott, ‘but in return for that sacrifice they would secure the good will of the country, and the permanence for 25 years of the arrangement, which he regarded as a valuable consideration’; though for R. Mills ‘the proposal was unjust’ and ‘his submission was certainly unaccompanied with any feeling of cordiality’. Gladstone’s victory was further cemented in 1861 by his successful creation of the Post Office Savings Banks, their deposits (accessible to the Treasury) reaching £15 million as early as 1870. ‘I had an object of first-rate importance, which has been attained,’ he would reflect with satisfaction shortly before his death in 1898. That object was, he went on, ‘to provide the minister of finance with a strong financial arm, and to secure his independence of the City by giving him a large and certain command of money’.22 Gladstone never wavered from his conviction that the Bank was a vested interest, at best only semi-reformed; and his relationship with it was destined, like his relationship with Queen Victoria, to remain star-crossed.

  In the financial world at large, the next few years, especially 1863 and 1864, were far from Gladstonian in spirit, as a sustained bull market raged and the City was awash with speculative froth, including an array of new-fangled finance companies. Somewhere near the heart of the action was Overend Gurney, whose response to the Bank’s exclusion had been to diversify radically away from its c
ore business, becoming shipbuilders, shipowners, grain traders, ironmasters, railway financiers and probably much else. Too many of these new lines, though, involved ill-judged lock-up investments, and by July 1865 it was probably as a desperate final throw that it converted to a limited liability company, seeking to concentrate again on its traditional discounting business. ‘It is an extraordinary change,’ reflected the private banker Robert Fowler. ‘They have lost a good deal of money, but they must have a splendid business at bottom.’ The following winter, they sought to borrow money from Glyn Mills at a special rate on securities which seemed to that bank’s Bertram Currie of uncertain value. When he ventured to express qualms, Henry Edmund Gurney retorted indignantly: ‘Do you presume to question the credit of Overend, Gurney and Co?’23 But by the spring of 1866, it was not only Currie who was asking the question.

  The memorable Overend Gurney crisis was played out during the second week of May.24 By Wednesday the 9th, with the money market in a lather, the key question on everyone’s lips – or at least everyone in the know – was whether Overend Gurney would be rescued by the Bank, which had appointed a committee of three wise men (Kirkman Hodgson, a recent governor, and two private bankers) to scrutinise the books. On the 10th their answer became known to all: the business was essentially rotten and there could be no possibility of the Bank offering a helping hand. The formal announcement of the stoppage was made late that afternoon. ‘The fatal day, the long expected day has come & O.G. has put up his shutters,’ Currie informed his father. ‘For some weeks I have ventured to predict this event … The panic is pretty smart & and beats 47 or 57 … I think some of the new Banks will have a hard time & financial companies & contractors must go right & left.’

  It was indeed the third big crisis in twenty years, and next morning – the City’s Black Friday – The Times anticipated that the shock of Overend Gurney’s failure ‘will, before this evening closes, be felt in the remotest corners of the kingdom’. The atmosphere was certainly bad enough in the City itself, recorded by the partners of Prescotts as ‘a day of most intense excitement and panic, in fact such a day has never been experienced in the memory of any one’, while The Times described ‘throngs heaving and tumbling about’ as by noon ‘the tumult became a rout’ and ‘the doors of the most respectable Banking Houses were besieged’. Gladstone was still chancellor, still an austere Peelite to the core, yet he could not but take notice when he received that morning a hasty scribbled note from Bagehot (by now the esteemed editor of the Economist) about ‘a complete collapse of credit in Lombard Street and a greater amount of anxiety than I have ever seen’, anxiety accentuated by several serious stoppages. The Bank for its part, responding manfully to what was a serious credit crunch, lent to banks, discount houses and merchants in the course of the day the very considerable amount of £4 million; but the pressure on Gladstone to authorise yet another de facto suspension of the 1844 Act came less from the governor (Lancelot Holland, a linen-yarn manufacturer) than from a series of urgent deputations, including country bankers as well as what Gladstone in his diary called ‘a stream of City magnates’. As in 1847, as in 1857, it was essentially psychological relief that was craved, and once again a Treasury letter did the necessary. ‘The Government allowing the Bank to issue Notes at 10% gave relief,’ recorded the young banker Richard Biddulph Martin at the close of Saturday, 12 May, ‘& the panic subsided to a great extent.’ Bank rate remained at 10 per cent until August, and there was a handful of further significant banking stoppages, but the crisis itself was over.

  Had it been solely for objective financial reasons that the Bank had let Overend Gurney go down? Certainly those reasons were compelling enough. ‘The Governor took the view,’ reflects King in his history of the discount market, ‘that the Bank could not assist one concern unless it was prepared to assist the many others which were known to be in a similar plight.’25 Yet remembering the history of an intensely strained relationship from at the latest 1857, culminating in 1860 in the infamous £1½ million gun held at the Bank’s head, it is hard not to feel that other considerations – conscious or unconscious – were involved. After all, the mid-Victorian City was in many ways a club, run along strictly hierarchical lines; and it would never do if that club’s ex officio chairman allowed such blatantly disrespectful behaviour to go unpunished.

  7

  Matters of Conduct and Behaviour

  ‘London was still London,’ recalled many years later the American writer Henry Adams about the world capital that as a young man he had encountered in 1858. ‘A certain style dignified its grime; heavy, clumsy, arrogant, purse-proud, but not cheap; insular but large; barely tolerant of an outside world, and absolutely self-confident … Every one seemed insolent, and the most insolent structures in the world were the Royal Exchange and the Bank of England.’

  Inside those four walls, the Victorian Bank remained physically very much Soane’s creation, though his successor, C. R. Cockerell, built a new Dividend Warrant and Pay Office, followed in 1849–50 by a new Private and Public Drawing Office, the latter giving the Bank’s commercial customers a handsome and up-to-date banking hall comparable to those of the burgeoning joint-stock banks. Probably not all that many of the staff fell in love with the place, but one who did so was Herbert de Fraine, arriving as a clerk in the 1880s:

  It was a magnificent conglomeration, due to the piecemeal acquisition of the site. Nothing could have been less like the stream-lined office block of today [the 1950s]. You could seldom go direct from place to place, and dead ends seemed almost a rule … Most of the Bank was only one storey high, and many of the offices had domes or lanterns, with the solid roof supported by columns or caryatides. Separating the buildings were the Garden and various courts and yards, including the Bullion Yard and the Well Yard.

  Looked at from above, the roof was peppered with domes, skylights and lanterns, in the midst of which towered the great dome of the Rotunda. There were no windows on the street on any of the four sides …

  The Pay Hall (called by de Fraine ‘the Great Hall’) still had at one end its original statue of King William III in Roman garb; Soane’s Transfer Offices were ‘all beautifully proportioned, all beautifully light’, each with its ‘graceful features’; Cockerell’s Drawing Office was ‘majestic’; the parlour featured an ‘exceptionally fine’ ceiling, three fireplaces with ‘grates of burnished steel’, and at each end a ‘triple arcade supported by Corinthian columns of wood’; and altogether in the Bank’s many offices ‘the general impression was one of space, light and harmony’, so that ‘as a young man I was overwhelmed by their quiet dignity, which was even enhanced by the perfection of detail’.

  Yet that quiet dignity could never be taken for granted. A revealing moment occurred in May 1867, when a large demonstration in Hyde Park, calling for an extension of the franchise, prompted an urgent, little-publicised meeting between the governor and Colonel Burnaby, commanding the Grenadier Guards at the Tower:

  It appeared that the Bank were in possession of about 120 Muskets and Bayonets and the same number of Pistols, with various Pikes, Cutlasses &c: the same being kept in the Porters’ Armoury. In addition to these, the Volunteers’ Armoury contained about 150 Enfield muzzle loading Rifles with bayonets. In the Magazine were 1000 rounds of ball cartridge for the muskets, and the same number of rounds for the pistols. There was however no ammunition for the Enfield Rifles. At the suggestion of Col. Burnaby, and by the Governor’s direction, the Secretary wrote a letter on that day to the Officer commanding the Grenadier Guards at the Tower, requesting that 10,000 rounds of Breech loading Ball cartridge, and 10,000 of muzzle loading do. [i.e. ditto] with caps, might be supplied to be kept in Store at the Bank. This Ammunition including 11,000 caps was duly supplied from the Royal Arsenal at Woolwich …

  The Bank’s understandable concern for its security as well as its dignity seldom faltered; and in 1883 it was the turn of the ‘Out-Door Porters and Street-Keepers’ to receive their orders from t
he deputy governor:

  They shall attend during the time the Gates are open, to keep the approaches to the Bank clear, to prevent cabs and omnibuses standing near the Gates to ply for fares, and generally to prevent and remove any obstruction or annoyance to persons having business at the Bank.

  One man shall be constantly stationed at the Front Gate, another at the Gate in Prince’s Street, and the third shall patrol round the Bank, giving special attention to the Gates in Lothbury and Bartholomew Lane …

  In case of a crowd passing, or any unusual collection of persons in the street, the Street-Keeper will at once close the Outer Iron Gates, and caution the Gate-Porter on duty inside that he may be prepared to close the Inner Gates, and to give notice by means of the Electric Bell to the Head Gate-Keeper, or, if the emergency requires it, to obtain immediate assistance from the nearest point where it may be available.

  Still, most of the time it was quiet and orderly enough, especially of course at night. That was certainly the case on the evening when the young Spanish philosopher George Santayana was invited by an acquaintance – the officer commanding the guard – to take dinner at the Bank. The date was 1901, but it could have been at least twenty or thirty years earlier:

  The room into which I was ushered had a dingy Dickensian look of solidity grown old-fashioned and a bit shabby. There was a walnut mantelpiece with a small clock and two candlesticks without candles; heavy black walnut chairs, with horse-hair bottoms and a table set unpretentiously, with thick white plates and thick glasses. But there was a pleasant fire in the grate, and the rather superannuated butler served us an excellent absolutely English dinner: mock-turtle soup, boiled halibut with egg-sauce: roast mutton: gooseberry tart and cream, and anchovies on toast; together with one bottle of claret and one of port.1