The birth of joint-stock banking: England and New England compared

Business History Review

Volumn 84, Issue 1, 2010, Pages 27-52

  Newton, Lucy ^a  

^a UNIVERSITY OF READING   (United Kingdom)

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EID: 77952846891     PISSN: 00076805     EISSN: None     Source Type: Journal    
DOI: 10.1017/S0007680500001239     Document Type: Review

References (129)

1. This study follows a tradition of international comparisons in banking history, notably those of Rondo Cameron. See Rondo Cameron, Banking in the Early Stages of Industrialisation (Oxford, 1967);.
2. and Cameron, ed., Banking and Economic Development: Some Lessons from History (Oxford, 1972).
3. Naomi Lamoreaux, Insider Lending: Banks, Personal Connections and Economic Development in Industrial New England, 1784-1912 (New York, 1994).
4. The word "proprietaries" is used, rather than "shareholders" or "stockholders," as these were not modern joint-stock corporations. Shares did not have limited liability, and therefore shareholders, or proprietors, who owned the company were responsible for the financial members of the business community in which the bank was located. Thus, the success of the banks upheld the success of the local economy. They were effectively copartners. The next section on bank shares and shareholders expands on this topic.
5. Cameron, "Scotland," in Banking in the Early Stages of Industrialisation;.
6. Sydney G. Checkland, Scottish Banking: A History, 1695-1973 (Glasgow, 1975);.
7. Charles W. Munn, The Scottish Provincial Banking Companies, 1745-1864 (Edinburgh, 1981).
8. The Bank of England was permitted to establish branches outside London, which serviced other banks, thus limiting their competition with JSBs. Dieter Ziegler, Central Bank, Peripheral Industry: The Bank of England in the Provinces, 1826-1913 (Leicester, 1990), 6-7.8-31.
9. Michael Collins, Money and Banking in the U.K.: A History (London, 1988), 24. A total of 46 banks out of the 138 established have been analyzed here.
10. The number of private banks fell from 650 in 1825 to 236 by 1875 (with 595 offices and branches), while joint-stock banks numbered o in 1825 and rose to 122 by 1875 (with 1, 364 offices and branches). Collins, Money and Banking, 27, 52.
11. The Banking Co-partnerships Act, 1826, 7 Geo. IV, c.46, XIII.
12. See Charles R. Hickson and John D. Turner, "Shareholder liability Regimes in English Banking: The Impact upon the Market for Shares," European Review of Economic History, vol. 7, issue 1 (2003): 99-125.
13. Charles R. Hickson, John D. Turner, and Claire McCann, "Much Ado about Nothing: The Limitation of liability and the Market for Nineteenth Century Irish Bank Stock," Explorations in Economic History 42, no. 3 (2005): 463.
14. See Richard Sylla, "The United States," 199-262, in Banking and Economic Development, ed. Cameron.
15. Howard Bodenhorn, State Banking in Early America: A New Economic History (Oxford, 2003), 73, 78, 85.
16. Howard Bodenhorn, A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building (New York, 2000), 12.
17. See also Larry Schweikart, Banking in the American South from the Age of Jackson to Reconstruction (Baton Rouge, 1987), ch. 5;.
18. and George Green, Finance and Economic Development in the Old South: Louisiana Banking, 1804-1861 (Stanford, 1972), 18.
19. Lamoreaux, Insider Lending, 4, 12-18.
20. Following the New York Free Bank Act of 1838, the principle of "free banking"-whereby banking was not to be restricted to a privileged few but rather was to be open to all-was largely adopted in the United States. By 1860, over half of the states had enacted some type of free banking law. Hugh Rockoff, The Free Banking Era: A Reexamination (New York, 1975).
21. See Lucy A. Newton, "Regional Bank-Industry Relations during the Mid-Nineteenth Century: Links between Bankers and Manufacturers, c.1850 to c.1855," Business History 38, no. 3 (1996): 64-83;.
22. and Lamoreaux, Insider Lending, 82.
23. Rhode Island banks chartered in the early 1830s were an exception. Lamoreaux, Insider Lending, 29.
24. For the variety in legislation in early nineteenth-century New England alone, see Bodenhorn, State Banking, 81-87;.
25. and Lamoreaux, Insider Lending, 57.
26. Two national banks had been chartered before this date: the First Bank of the United States in 1791, and the Second Bank of the United States in 1816, which ceased in 1836.
27. Bodenhom, State Banking, 12-18, 250, 270.
28. Peter Temin, ed., Engines of Enterprise: An Economic History of New England (Cambridge Mass., 2000), chs. 3, 4;.
29. Arthur M. Johnson and Barry Supple, Boston Capitalists and Western Railroads: A Study in Nineteenth-Century Railroad Investment (Cambridge Mass., 1967).
30. Peter Mathias, The First Industrial Nation: The Economic History of Britain, 1700-1914 (London, 2001, 2nd ed.).
31. Lucy A. Newton, The Victorian Economy in Transition: A Regional Perspective (Alder-shot, forthcoming).
32. Joseph Sykes, The Amalgamation Movement in English Banking, 1825-1924 (London, 1926), 8-17.
33. For example, HBC Prospectus, H41/18, HSBCGA.
34. Cheryl Bailey, "The Circular to Bankers," Bulletin: Newsletter from the European Association of Business Historians (EABH), 1999, no. 2:20-21.
35. For example, Coventry Union Banking Co. [CUBC], Board of Directors minutes [BDM], AB3, HSBCGA.
36. Lamoreaux, Insider Lending, 18-19, 58, 62-63.
37. Coventry & Warwickshire Banking Co. [CWBC], BDM, 24 Oct. 1835, 045, LTSBGA.
38. The influence of specific families on boards of banks was often long lasting. See Lamoreaux, Insider Lending, 23-25;.
39. and Lucy A. Newton, "Change and Continuity: The Development of Joint Stock Banking in the Early Nineteenth Century," University of Reading discussion paper, 2007.
40. Lamoreaux, Insider Lending, 3-4, 77.
41. Robert E. Wright, "Bank Ownership and Lending Patterns in New York and Pennsylvania, 1781-1831," Business History Review 73 (Spring 1999): 58, 59.
42. For example, see Sheffield Union Bank [SUB], BDM, 12 June 1844, AD2, HSBCGA.
43. See Bradford Banking Company [BradBC], book no. 5, 25 May 1846, B6, HSBCGA.
44. Nottingham & Nottinghamshire Banking Co. [NNBC], BDM, 21 Jan. 1834, 574, RB-SGA. Hie rejection rate of 29 percent was higher than the rate for credit applications (24.3 percent). See also Charles R. Hickson and John D. Turner, "The Trading of Unlimited Liability Bank Shares: The Bagehot Hypothesis," Journal of Economic History 63, no. 4 (2003): 940.
45. For an analysis of investment patterns of Londoners on the London Stock Exchange, see Lance E. Davies and Robert A. Huttenback, Mammon and the Pursuit of Empire: The Economics of British Imperialism, abridged ed. (New York, 1988), 178-79.
46. Lamoreaux, Insider Lending, 22.
47. Lamoreaux, Insider Lending, Ibid, 19, 71, 68.
48. Mark Casson, "Culture as an Economic Asset," in Business History and Business Culture, ed. Andrew C. Godley and Oliver M. Westall (Manchester, 1996), 68.
49. Philip Ollerenshaw, "The Development of Banking in the Bristol Region, 1750-1914," in Studies in the Business History of Bristol, ed. Charles E. Harvey and Jon Press (Bristol, 1988), 65.
50. Liverpool Union Banking Co., BDM, 24 Apr. 1835 and 17 Sept. 1835, book no. 093, LTSBGA.
51. CUBC, BDM, 13 May 1836, AB3, HSBCGA.
52. North & South Wales Bank, prospectus, 1836, M166, HSBCGA.
53. CUBC, BDM, 13 May 1836, AB3, HSBCGA.
54. Lamoreaux, Insider Lending, 72.
55. Sayers, Lloyds Bank, 109-38;.
56. Lucy A. Newton and Philip L. Cottrell, "Female Investors in the First English and Welsh Commercial Joint-Stock Banks," Accounting Business and Financial History 16, no. 2 (2006): 331-32.
57. Wright, "Bank Ownership," 44.
58. BradBC, Prospectus, B42/3, HSBCGA.
59. Lamoreaux, Insider Lending, 73.
60. Lamoreaux, Insider Lending, Ibid., 74.
61. Wright, "Bank Ownership," 52.
62. Colleen A. Dunlavy, "Corporate Democracy: Stockholder Voting Rights in Nineteenth-Century American and Prussian Railroad Corporations," in Institutions in the Transport and Communications Industries, ed. Lena Andersson-Skog and ODe Krantz (Canton, Mass., 1999), 33-59;.
63. Pearson, "Shareholder Democracies?";.
64. and Newton, Victorian Economy in Transition, ch. 7.
65. Newton, Victorian Economy in Transition, chs. 3, 4.
66. Bill discounting could also act as a source of information about customers and a point of regular contact with them. Shizuya Nishimura, The Decline of Inland Bills of Exchange in the London Money Market, 1855-1913 (Cambridge, U.K., 1971).
67. Lucy A. Newton, "Trust and Virtue in Banking: The Assessment of Borrowers by Bank Managements at the Turn of the Twentieth Century," Financial History Review 7, no. 2 (2000): 177-99.
68. For example, LUBC, BDM, 23 June 1836, book No. 93, LTSBGA.
69. Ashton, Stalybridge, Hyde and Glossop Banking Co. [ASHGBC], 14 Feb. 1860, 10145, RBSGA.
70. Lamoreaux, Insider Lending, 1-3, 19.
71. Lamoreaux, Insider Lending, Ibid., 26, 76.
72. Lending data that corresponded in time to shareholding data were found for twelve of the forty-six banks surveyed. Lending data were sampled, taking three years that corresponded with shareholding data from the following sources: LTSBGA: Halifax Joint Stock Bank (Securities notebook, 1668), LUBC, BDM, 93;.
73. HSBCGA: BBC (BDM, A12 and A16), BradBC (BDM, B2 and B28), HBC (BDM, H4 and H7), CWBC (BDM, 45 and 47), SUBC (BDM, AD2);.
74. and RBSGA: ASHGBC (BDM, 10144 and 10145), Bilston District Banking Co. (BDM, 11342), NNBC (BDM, 574), Sheffield & Rotherham Banking Co. (BDM, SR/1/1, 01095S and SR/1/5, 01097S).
75. SUBC, BDM, AD2, HSBCGA.
76. Similar localization of lending occurred in the northeastern United States in the early nineteenth century. More lending occurred outside the area after 1870. See Andrew A. Beveridge, "Local Lending Practice: Borrowers in a Small Northeastern Industrial City, 1832-1915," Journal of Economic History 45, no. 2 (1985): 397.
77. Lamoreaux, Insider Lending, 53.
78. Newton, "Regional Bank-Industry Relations," 67, 73-75.
79. The two Sheffield banks are fairly representative, in terms of lending practices, of the industrial regions of England.
80. Under the National Banking Act of 1864, country banks were allowed to hold a fraction of their reserves as deposits with reserve city banks located in New York or other large financial centers. Yet this system was not sensitive to changes in demand for credit. Robert A. Degen, The American Monetary System: A Concise Survey of its Evolution since 1896 (Lexington, Mass., 1987), 18;.
81. Benjamin J. Klebaner, American Commercial Banking: A History (Boston, 1990), 92-98.
82. Joseph E. Stiglitz and Andrew M. Weiss, "Credit Rationing in Markets with Imperfect Information," American Economic Review 71, no. 3 (1981): 393-410;.
83. Stiglitz and Weiss, "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review 73, no. 5 (1983): 912-27.
84. The data cover the period from 1826 to 1870. The findings are similar to those of Forrest Capie and Michael Collins, "Industrial Lending by English Commercial Banks, 1860s-1914: Why did Banks Refuse Loans?" Business History 38, no. 1 (1996): 35;.
85. and Capie and Collins, "Banks, Industry and Finance, 1880-1914," Business History 41, no. 1 (1999): 42.
86. Lamoreaux, Insider Lending, 101, 82.
87. Beveridge, "Local Lending Practice," 399.
88. Lamoreaux, Insider Lending, 2.
89. BradBC, BDM, 1 June 1827, B2, HSBCGA.
90. Lamoreaux, Insider Lending, 21.
91. For example, see CWBC, BDM, 3 Feb. 1837, 045, LTSBGA.
92. For example, deposits and balances due by the Sheffield Union Bank increased from £86, 000 in 1850 to £161, 000 in 1860. SUB, BDM, AD 2, 3, 4, and 5, HSBCGA.
93. Lamoreaux, Insider Lending, 84, 88-89.
94. Valerie Bencivenga and Bruce D. Smith, "Financial Intermediation and Endogenous Growth," Review of Economic Studies 58 (Apr. 1991): 195-209;.
95. Robert G. King and Ross Levine, "Finance and Growth: Schumpeter May Be Right," Quarterly Journal of Economics 108, no. 3 (1993): 717-37;.
96. Ross Levine, "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature 35, no. 2 (1997): 701-9;.
97. P-L. Rousseau and Richard Sylla, "Emerging Financial Markets and Early U.S. Growth," Explorations in Economic History 42, no. 1 (2005): 1-26.
98. See Nicholas F. R. Crafts, "British Economic Growth, 1700-1850: Some Difficulties of Interpretation," Explorations in Economic History 24, no. 3 (1987): 177-99;.
99. Julian Hoppit, "Counting the Industrial Revolution," Economic History Review 43, no. 2 (1990): 173-93;.
100. R. V. Jackson, "Rates of Industrial Growth during the Industrial Revolution," Economic History Review 45, no. 1 (1992): 1-23;.
101. Maxine Berg and Pat Hudson, "Rehabilitating the Industrial Revolution," Economic History Review 45, no. 1 (1992): 24-50;.
102. Nicholas F. R. Crafts and C. Knick Harley, "Output Growth and the British Industrial Revolution: A Restatement of the Crafts-Harley View," Economic History Review 45, no. 4 (1992): 703-30.
103. Crafts and Harley, "Output Growth and the British Industrial Revolution," 712-13.
104. The establishment of JSBs occurred after the start of industrial growth in Britain (from 1826 onward), yet their formation coincided with a marked increase in industrial activity during the 1820s and 1830s, as measured by Crafts and Harley.
105. Pat Hudson, The Genesis of Industrial Capital: A Study of the West Riding Wool Textile Industry, c. 1750-1850 (Cambridge, U.K., 1986);.
106. Capie and Collins, "Industrial Lending";.
107. Capie and Collins, "Banks, Industiy and Finance";.
108. Collins and Baker, Commercial Banks and Industrial Finance in England, 1860-1913 (Oxford, 2005).
109. Lamoreaux, Insider Lending, 159.
110. Lamoreaux, Insider Lending, Ibid., 1, 4, 158.
111. Lamoreaux, Insider Lending, Ibid., 82-83.
112. See Newton, "Change and Continuity".
113. Philip L. Cottrell, Industrial Finance, 1830-1914: The Finance and Organisation of Manufacturing Industry (London, 1979), 236-44;.
114. Holmes and Green, Midland, 109-12;.
115. Frederick Lavington, The English Capital Market (London, 1921; reissued New York, 1968), 143;.
116. Newton, "Trust and Virtue.".
117. For a summary of these arguments, see Lucy A. Newton, "Government, the Banks and Industry in Interwar Britain," in Business and Politics in Europe, 1900-1970, ed. Terry Gourvish (Cambridge, U.K., 2003), 145-68.
118. Collins and Baker, Commercial Banks, ch. 3;.
119. Newton, "Trust and Virtue," 182-83;.
120. Richard S. Sayers, Lloyds Bank in the History of English Banking (Oxford, 1957), 271;.
121. Cottrell, Industrial Finance, 236-44.
122. Michael Collins and Mae Baker, "English Commercial Bank Liquidity, 1860-1913," Accounting, Business and Financial History 11, no. 2 (2001): 171-91;.
123. Peter M. Scott and L. A. Newton, "Jealous Monopolists? British Banks and Responses to the Macmillan Gap during the 1930s," Enterprise and Society 8 (Dec. 2007): 881-919.
124. Lamoreaux, Insider Lending, 133-42.
125. Lamoreaux, Insider Lending,Ibid., 139-41.
126. Lamoreaux, Insider Lending, Ibid., 105, 154, 155-.
127. For example, see James H. Bamberg, "Hie Rationalization of the British Cotton Industry in the Interwar Years," Textile History 19, no. 1 (1988): 83-102.
128. Temin, Engines of Enterprise, ch. 4;.
129. and Johnson and Supple, Boston Capitalists.