Banking In The United Kingdom
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Banking in the United Kingdom can be considered to have started in the
Kingdom of England The Kingdom of England (, ) was a sovereign state on the island of Great Britain from 12 July 927, when it emerged from various Anglo-Saxon kingdoms, until 1 May 1707, when it united with Scotland to form the Kingdom of Great Britain. On ...
in the 17th century. The first activity in what later came to be known as
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
was by
goldsmith A goldsmith is a metalworker who specializes in working with gold and other precious metals. Nowadays they mainly specialize in jewelry-making but historically, goldsmiths have also made silverware, platters, goblets, decorative and servicea ...
s who, after the dissolution of English
monasteries A monastery is a building or complex of buildings comprising the domestic quarters and workplaces of monastics, monks or nuns, whether living in communities or alone (hermits). A monastery generally includes a place reserved for prayer which ...
by
Henry VIII Henry VIII (28 June 149128 January 1547) was King of England from 22 April 1509 until his death in 1547. Henry is best known for his six marriages, and for his efforts to have his first marriage (to Catherine of Aragon) annulled. His disa ...
, began to accumulate significant stocks of gold.


17th century

Many goldsmiths were associated with
The Crown The Crown is the state in all its aspects within the jurisprudence of the Commonwealth realms and their subdivisions (such as the Crown Dependencies, overseas territories, provinces, or states). Legally ill-defined, the term has differ ...
but, following seizure of gold held at the
Royal Mint The Royal Mint is the United Kingdom's oldest company and the official maker of British coins. Operating under the legal name The Royal Mint Limited, it is a limited company that is wholly owned by HM Treasury, His Majesty's Treasury and is un ...
in the
Tower of London The Tower of London, officially His Majesty's Royal Palace and Fortress of the Tower of London, is a historic castle on the north bank of the River Thames in central London. It lies within the London Borough of Tower Hamlets, which is sep ...
by
Charles I Charles I may refer to: Kings and emperors * Charlemagne (742–814), numbered Charles I in the lists of Holy Roman Emperors and French kings * Charles I of Anjou (1226–1285), also king of Albania, Jerusalem, Naples and Sicily * Charles I of ...
, they extended their services to gentry and aristocracy as the Royal Mint was no longer considered a safe place to keep gold. Goldsmiths came to be known as ‘keepers of running cash’ and they accepted gold in exchange for a receipt as well as accepting written instructions to pay back, even to third parties. This instruction was the forerunner to the modern
banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
or
cheque A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
. Around 1650, a cloth merchant, Thomas Smith opened the first provincial bank in
Nottingham Nottingham ( , East Midlands English, locally ) is a city status in the United Kingdom, city and Unitary authorities of England, unitary authority area in Nottinghamshire, East Midlands, England. It is located north-west of London, south-east ...
. During 1694 the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
was founded. The Governor and Company of the
Bank of Scotland The Bank of Scotland plc (Scottish Gaelic: ''Banca na h-Alba'') is a commercial and clearing bank based in Scotland and is part of the Lloyds Banking Group, following the Bank of Scotland's implosion in 2008. The bank was established by th ...
was established by an Act of the
Parliament of Scotland The Parliament of Scotland ( sco, Pairlament o Scotland; gd, Pàrlamaid na h-Alba) was the legislature of the Kingdom of Scotland from the 13th century until 1707. The parliament evolved during the early 13th century from the king's council o ...
on 17 July 1695, the Act for erecting a Bank in Scotland, opening for business in February 1696. Although established soon after the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
, the Bank of Scotland was a very different institution. Where the Bank of England was established specifically to finance defence spending by the
English English usually refers to: * English language * English people English may also refer to: Peoples, culture, and language * ''English'', an adjective for something of, from, or related to England ** English national ide ...
government, the Bank of Scotland was established by the Scottish government to support
Scottish business The economy of Scotland is an Open economy, open mixed economy which, in 2020, had an estimated nominal gross domestic product (GDP) of $205 billion including oil and gas extraction in Scottish waters. Since the Acts of Union 1707, Scotland's ...
, and was prohibited from lending to the government without parliamentary approval. The founding Act granted the bank a
monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
on public
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
in Scotland for 21 years, permitted the bank's directors to raise a nominal capital of £1,200,000
Pound Scots The pound (Modern and Middle Scots: ''Pund'') was the currency of Scotland prior to the 1707 Treaty of Union between the Kingdom of Scotland and the Kingdom of England, which created the Kingdom of Great Britain. It was introduced by David I, ...
(£100,000
Pound Sterling Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and t ...
), gave the Proprietors (shareholders)
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
, and in the final clause (repealed only in 1920) made all foreign-born Proprietors naturalised Scotsmen "to all Intents and Purposes whatsoever". John Holland, an
Englishman The English people are an ethnic group and nation native to England, who speak the English language, a West Germanic language, and share a common history and culture. The English identity is of Anglo-Saxon origin, when they were known in ...
, was one of the bank's founders. Its first chief accountant was George Watson.


18th century

During this period, services offered by banks increased. Clearing facilities, security investments and
overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
protections were introduced. An
Act of Parliament Acts of Parliament, sometimes referred to as primary legislation, are texts of law passed by the Legislature, legislative body of a jurisdiction (often a parliament or council). In most countries with a parliamentary system of government, acts of ...
in 1708 restricted banks with more than six partners from issuing bank notes. This had the effect of keeping private banks as small partnerships.
Joint stock A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are ...
investment companies were already well established, but joint stock banks did not become well established until the following century. The
Industrial Revolution The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
and growing international trade increased the number of banks, especially in London. These new "merchant banks" facilitated trade growth, profiting from England's emerging dominance in seaborne shipping. Two immigrant families,
Rothschild Rothschild () is a name derived from the German ''zum rothen Schild'' (with the old spelling "th"), meaning "with the red sign", in reference to the houses where these family members lived or had lived. At the time, houses were designated by sign ...
and Baring, established merchant banking firms in London in the late 18th century and came to dominate world banking in the next century. Many merchant banks were also established outside London, especially in growing industrial and port cities such as
Manchester Manchester () is a city in Greater Manchester, England. It had a population of 552,000 in 2021. It is bordered by the Cheshire Plain to the south, the Pennines to the north and east, and the neighbouring city of Salford to the west. The t ...
,
Birmingham Birmingham ( ) is a city and metropolitan borough in the metropolitan county of West Midlands in England. It is the second-largest city in the United Kingdom with a population of 1.145 million in the city proper, 2.92 million in the West ...
,
Newcastle Newcastle usually refers to: *Newcastle upon Tyne, a city and metropolitan borough in Tyne and Wear, England *Newcastle-under-Lyme, a town in Staffordshire, England *Newcastle, New South Wales, a metropolitan area in Australia, named after Newcastle ...
and
Liverpool Liverpool is a city and metropolitan borough in Merseyside, England. With a population of in 2019, it is the 10th largest English district by population and its metropolitan area is the fifth largest in the United Kingdom, with a popul ...
. By 1784, there were more than 100 provincial banks. The industrialist turned banker such as
Fox, Fowler and Company Fox, Fowler, and Company was a British private bank, based in Wellington, Somerset. The company was founded in 1787 as a supplementary business to the main activities of the Fox family, sheep-herding and wool-making. Banknote issue Like many ot ...
could assist his own industry since he not only provided a local means of payment, but also accepted deposits. A great impetus to country banking came in 1790 when, with England threatened by war, the Bank of England suspended cash payments. A handful of Frenchmen landed in
Pembrokeshire Pembrokeshire ( ; cy, Sir Benfro ) is a Local government in Wales#Principal areas, county in the South West Wales, south-west of Wales. It is bordered by Carmarthenshire to the east, Ceredigion to the northeast, and the rest by sea. The count ...
, causing a panic. Shortly after this incident, Parliament authorised the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
and country bankers to issue notes of low denomination.


19th century

On 23 October 1826 a new joint stock bank, Lancaster Banking Company, was formed. However earlier that year the Bristol Old bank had converted from a private to a joint stock bank, making it the first joint stock bank. This was quickly followed by other institutions such as the Manchester & Liverpool District Banking Company and the
National Provincial Bank National Provincial Bank was a British retail bank which operated in England and Wales from 1833 until 1970 when it was merged into the National Westminster Bank. It continued to exist as a dormant non-trading company until 2016 when it was vo ...
. The National Provincial was the first bank to be considered a truly national bank with twenty branches across England and Wales. In 1844 the government introduced the
Bank Charter Act The Bank Charter Act 1844 (7 & 8 Vict. c. 32), sometimes referred to as the Peel Banking Act of 1844, was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks ...
to regulate the issuing of bank notes. Two banking collapses, one in 1866 and another in 1878 caused significant reputation damage but in consequence record keeping and accounting improved. The resulting new organisations became huge bureaucracies with a board of directors, general manager, secretary and an army of accounting clerks. In 1896 twenty smaller private banks formed a new joint-stock bank. The leading partners of the new bank, which was named ''Barclay and Company'', were already connected by a web of family, business and religious relationships. The company became known as the Quaker Bank, because this was the family tradition of the founding families. This bank eventually became
Barclays PLC Barclays () is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services. Barclays traces ...
.


20th century

Between the wars, there was a decline to match the general depression of the time. But the banks fought back by taking action to recruit less wealthy customers and by introducing small saving schemes. It would take until 1950 for real recovery where there was a huge increase in provincial branch offices and the emergence of the high street bank. Relaxation of some controls over mergers and acquisitions led to consolidation in the 1960s in which the ''Big Five'' became the ''Big Four'', along with the takeover of several regional banks ( Martins,
District Bank The Manchester and Liverpool District Bank was formed in 1829 and it became one of the leading provincial joint stock banks; its name was shortened to District Bank in 1924. The Bank was acquired by the National Provincial Bank in 1962 but kept ...
,
National Bank In banking, the term national bank carries several meanings: * a bank owned by the state * an ordinary private bank which operates nationally (as opposed to regionally or locally or even internationally) * in the United States, an ordinary p ...
, Glyn Mills and William Deacons). At the same time the government launched a new banking service, the
National Girobank National Girobank was a British public sector financial institution run by the General Post Office that opened for business in October 1968. It started life as ''National Giro''  then ''National Girobank'' and finally ''Girobank plc'' be ...
. In 1976 the Banking Act increased the supervisory role of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
. Introduction of computing, credit cards and many new services continued to drive the expansion of banks and as deregulation was introduced competitiveness increased. Banks improved services, refurbished antiquated premises and brought in further technology such as ATM.


21st century

Currently most banks in the United Kingdom offer very similar services, distinguished only by differing interest rates. Indeed, a very recent trend has been to not advertise interest rates as this avoids the banks having to offer such advertised rates to at least 60% of their customers. In 2006, the
Office of Fair Trading The Office of Fair Trading (OFT) was a non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforced both consumer protection and competition law, acting as the United Kingdom's economic ...
found that the banks were exploiting penalty
bank charge The term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal current accounts or checking account. These charges may take many forms, including: * ...
s on credit cards and has suggested that banks restrict such penalty to a maximum of £12. Penalty charges or
Liquidated damages Liquidated damages, also referred to as liquidated and ascertained damages (LADs), are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late ...
are illegal in UK contract law unless they represent the real cost of a breach of contract incurred through an unauthorised overdraft level or bounced cheque. This ruling by the OFT had been taken by many customers to extend to their personal bank accounts and subsequently the UK small claims court system was flooded with cases of customers reclaiming these ‘illegal’ penalties. It was reported that nearly 1.8 million template letters to take the banks to court had been downloaded from the website
MoneySavingExpert.com MoneySavingExpert.com is a British consumer finance information and discussion website, founded by financial journalist Martin Lewis in February 2003. The website's focus is to provide people with information on saving money in the form of dea ...
. In October 2009, the
Supreme Court A supreme court is the highest court within the hierarchy of courts in most legal jurisdictions. Other descriptions for such courts include court of last resort, apex court, and high (or final) court of appeal. Broadly speaking, the decisions of ...
overturned previous rulings that allowed the OFT to investigate overdraft charges, bringing to an end such claims. Although initially the OFT said it would look at other ways to pursue the matter, in November that year it decided not to continue with further action. Heads of major British banks met with the Governor of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
following days of market pressure on lenders' stocks. The
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
said after the 20 March 2008-meeting that participants had "agreed to continue their close dialogue with the objective of restoring more orderly market conditions

As of 11 October 2008, the British banks have short-term liabilities equal to 156% of
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
or 368% of the British national debt, while the average leverage ratio (assets/net worth) is 24 to 1. The Financial Services (Banking Reform) Act 2013 calls for a paradigmatic shift toward the principle adopted by the US of
risk averse In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more c ...
strategies. This manifests itself in the form of "ring-fencing" retail banking to protect consumers and creating requirements for certain amounts of capital to be retained to act as a buffer against market instability. This reform is set to support the strengthening economy and is a response to the
Financial crisis of 2007–08 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
. Over the past 40 years (to 2014) the banking system in the UK experienced a 'dramatic shift' with total assets increasing from 100% of GDP to 450%, and it is 'plausible that the UK banking system will continue to grow rapidly', owing to its probable 'comparative advantage' in international banking services, with the pre-eminence of London as a financial centre. As of Dec 2015, a number of new banking licences were secured, e.g. by Atom Bank and
Tandem Bank Tandem Money is a company that owns Tandem Bank, one of the UK's original challenger banks. Tandem Bank is a digital bank with a mobile app, and no branches, with a mission to be the UK's greener digital bank. The acquisition of Harrods Bank in ...
. In 2017, Business Insider came out with a list of the 18 most profitable banks in the United Kingdom while stating that the banks were now becoming profitable after facing challenges for the past few years. The top spot was grabbed by HSBC with an income of £5.49 billion followed by Lloyds with a profit of £4.04 billion. Under a scheme launched in September 2001, 159 can be dialled by phone to contact a variety of banks directly. This has been implemented as a method of preventing financial scams.


See also

*
Credit unions in the United Kingdom Credit unions in the United Kingdom were first established in the 1960s. Credit unions are member-owned financial cooperatives operated for the purpose of promoting thrift, providing credit and other financial services to their members. Credit un ...
* UK banking law *
2008 United Kingdom bank rescue package In the period September 2007 to December 2009, during the events now widely known as the Global Financial Crisis, the UK government enacted a number of financial interventions in support of the UK banking sector and four UK banks in particular. ...
* 2009 United Kingdom bank rescue package *
Banks of the United Kingdom Central bank The Bank of England is the central bank of the United Kingdom. The Big Four British banking has been highly consolidated since the early 20th century. Unlike some other major economies, the UK does not have a major stratum of ind ...
*
Banknotes of the pound sterling Sterling banknotes are the banknotes in circulation in the United Kingdom and its related territories, denominated in pound sterling, pounds sterling (symbol: Pound sign, £; ISO 4217 currency code: GBP; traditional abbreviation: Stg.). Sterli ...
*
Bank regulation Bank regulation is a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom they ...
*
Banking Standards Board The Banking Standards Board (BSB) is a body established in April 2015 in the United Kingdom, to promote good practice among banks and building societies. The original idea for the body came from the work of the Parliamentary Commission on Banking S ...
* Banking in the United States *
British Bankers' Association The British Bankers' Association (BBA) was a trade association for the UK banking and financial services sector. From 1 July 2017, it was merged into UK Finance. It represented members from a wide range of banking and financial services. The asso ...
*
Financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
*
History of banking The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumeria. Later, in anci ...


References


Further reading

* Born, Karl Erich. ''International Banking in the 19th and 20th Centuries'' (St Martin's, 1983
online
* Lane, Nicholas. "The Fathers of English Banking" ''History Today'' (Mar 1953) 3#3 pp 190-199 * Michie, Ranald C. ''British Banking: Continuity and Change from 1694 to the Present'' (Oxford UP, 2016) 334 pp
online review
* Mottram, R. H. ''Bowler Hat: A Last Glance at the Old Country Banking'' (Hutchinson, 1940)


External links



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