BRITISH BANKS

Rotorua Morning Post, Volume 2, Issue 536, 20 May 1933, Page 3

BRITISH BANKS

STABILITY SURE GROWTH OF LONDON JOINT STOCK CONCERNS. "THE BIG FIVE." London, Saturday. 1 We have heard much recently of the hanking crisis in the United States and how depositors on the other side of the Atlantie, having lost faith in their banks, precipitated a financial crisis hy withdrawing their funds to an aggregate totalling hundreds of millions. We also learn that in the past -three years some 5000 American banks h'ave had to close their doors througho failure, writes Herbert A. Meredith in the Daily Miail. To the average Englishman, enjoying the security of one 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 stremgth a,re beyond question, and, even during the fateful months of 1931 when we were forced off the gold standard, never so much as a whisp-er of suspicion was heard as to the position of our great hanking institutions. Speaking generally, banks in this country have had an excellent record, although in the past we have had our bank crisis and our bank failures. Our present immunity from these financial shocks is due to the policy of amalgamation, which reached its heiight 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. iResult of Growth. Our present banking system, however, is not the result- of any carefully though-out scheme. It has arrived not hy any sudden revolution of methods but by centuries of evolution. If we go back to the sixteenth century, we find 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 hy no less a person than Kirug Charles II, who, having borrowed heavily -from the goldsmiths — who financed the transactions with their customers' deposits — repudiated the loans, and so caused general suspension of payments. ' Lomhard Street then, as it is today, was a popular site for banks, no fewer than twenty-seven of the gold-smith-bankers havinsr rvremises in this

thoroughfare. A step forward in banking oceurred 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 of heing 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 neighborhood. The London banks, however, • covered a much wider area.. In the early days of the nineteenth century, when joint stock hanking was in its infancy, protests were voiced in the House of Commons as to the dangers of these "large" institutions, which, it was feared, would lead to the elimination of the private bank. This certainly proved to be the ca.se, but the proeess occupied a century.

Amalgamations. In 1800 there were no fewer than 458 banking firms in England, including forty-six private banks in London, or one to every 19,200 of the population. Durinig the second half of the nineteenth century the private bank made way for the joint stock bank. In 1890 there were 104 sepaxate joint stock banks in England aind 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. To-day the "Big Five" (which is the name given to Barclays, Lloyds, Midland, National Provincial, and Westminster Banks) have 8500 branches, in addition to which there is a limdted number of important independent banking institutions. 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 financing in this country the overrapid developments in the United States. The third was in 1866, and was caused by the failure of Overend 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 the banking house of Baring Brothers. In addition to these banking crises, there was the failure of the City of Glasgow Bank in 1878, which led to

disastrous results in Scottish hanking circles. Shareholders in this bank had unlimited liability, with the result that each was called upon to pay £500 for every £100 of capita] stock held as his share of the bank's liabilities. Following this incident banks generally adopted the limited liability form of company. Lessons Learnt. The amounts involved in these various crisis were small in comparison with present-day figures, but each at the time probably caused as much consternation as dp our troubles to-day. The lesson of each, however, was learnt, and led to a sounder hanking position heing built up in this' country, which the postwar amalgamations (the prime mover in which was the late Sir Edward Holden, of the then London City and Midland Bank) broug-ht to its present strength. We have reason to be proud and th'ankful for our banks. We may not 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. To-day finance is international and the strength of our banks is not merely a national asset, but one of primiary importance to every financial centre in the world.