Banking in the United Kingdom

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Banking in the United Kingdom can be considered to have started in the 17th century. The industry grew out of the profession of goldsmiths, who after the dissolution of monasteries and makers of gold and silver plate started to have significant stocks of gold.

1 17th Century
2 18th century
3 19th century
4 20th century
5 21st century
6 See also
7 References
8 External Links

[edit] 17th Century

Many goldsmiths were associated with the crown and following seizure of gold held in the Royal Mint, Tower Hill by Charles I 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 or cheque.

Around 1650, a cloth merchant, Thomas Smith opened the first provincial bank in Nottingham.

The Bank of England was created in 1694

[edit] 18th century

The Industrial Revolution and growing trade increased the number of banks, especially in London. However there are many examples of other merchants setting up banks outside of London and by 1784 there were around 100+ provincial banks.

An act of parliament in 1708 restricted banks with more than six partners from issuing bank notes and this had the effect of keeping banks as small partnerships. In addition the services offered by the banks increased and clearing facilities, security investments and overdraft facilities were introduced.

After the South Sea Bubble, the "Bubble" Act of 1719 was passed to the effect that the formation of joint-stock banks could only occur by Royal Charter.

A great impetus for country banking came in 1797, when the Bank of England suspended cash payments; England being threatened by war. A handful of Frenchmen landed in Pembrokeshire, setting the country in panic. Shortly after this incident Parliament authorised the Bank of England and country bankers to issue notes of low denomination.

The industrialist turned banker could assist his own industry since he did not only provide a local means of payment but accepted deposits. Here we have a parallel with the early goldsmith banking.

[edit] 19th century

On October 23, 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, National Provincial Bank. The National Provincial bank 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 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 20 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.

[edit] 20th century

With the outbreak of war banking flourished and the so called ‘’Big Five’’ commenced a series of takeovers and mergers. These banks, Westminster, National Provincial, Barclays, Lloyds and Midland were eventually reigned in by government control.^{[citation needed]}

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 and in 1976 the Banking Act increased the supervisory role of the Bank of England.

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.

[edit] 21st century

Currently banks in the United Kingdom have refined their services with most offering very similar services being distinguished only by offering different 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 found that the banks were exploiting penalty bank charges on credit cards and has suggested that banks restrict such penalty to a maximum of 12 UK pounds. Penalty charges or Liquidated damages 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 has been extended by many customers to their personal bank accounts and currently the UK small claims court system is flooded with cases of customers reclaiming these ‘illegal’ penalties. It has been reported ^[1] that nearly 180,000 template letter to take the banks to court were downloaded from the website MoneySavingExpert.com^[2] in one month. To date no bank has appeared in court to justify its penalty charges and most customers have recovered such charges in full.