We have already seen that elementary banking operations in the country were carried on by the Jews, who in course of time were succeeded by the Lombards, and that then the business, such as it was, drifted into the hands of the goldsmiths. During the more settled years of the Commonwealth the need of banking accommodation was keenly felt by merchants and traders to enable them to carry on their business, and as demand creates supply, the goldsmith bankers increased in number—and in wealth.

There was, indeed, at this time a demand made by certain persons for the establishment of joint-stock banks, on the system already in vogue in several parts of the Continent; and we find that an eminent London merchant, named Lamb, presented an address to the Lord Protector with this object in view. After enumerating all the advantages to be derived from the establishment of such institutions, his address concluded in the following quaint form:—

“Lastly, a bank with a certain number of sufficient men of estate and credit, joined together in a joynt stock, being as it were the general cashkeepers or treasurers of the place where they are settled, and divers others, tending much to the tranquility of your highness and the welfare of the English nation, which, with your highness’s favourable encouragement, I shall in all humility be ready to make known to you, and remove any objections as can be alledged in the premises, and propound a way how it may be effected, and the evils remedied and prevented, being unwilling to bury the talent in a napkin which it hath pleased the Giver of all blessings in his great goodness and mercie to bestow upon me, hoping that I shall not offend by tendering this with my best services to your highness.”

Although this matter was referred to a Parliamentary Committee, nothing came of the proposal.

In 1667 the gradually developing banking business received a check by what is known as a “run” taking place, and this appears to be the first episode of the kind of which we have any record. This event lessened the credit of the bankers, but the action of Charles II. in closing the Exchequer in 1672 nearly brought their business to an end.

By the time of the establishment of the Bank of England, however, many bankers had again regained a position of credit and wealth, and they continued to carry on and develop their business in spite of the competition of the new bank. About the same time several joint-stock banks were founded and carried on successfully until they were obliged to wind up their affairs in 1708, in consequence of the monopoly granted to the Bank of England in that year. Although the London banks, which continued in existence after the granting of this monopoly, were not prohibited by the Bank Charter from issuing their own notes, yet this part of their business gradually declined in the presence of their all-powerful rival, and it ceased altogether about the year 1750 (though some writers give the date as about 1793).

About the year 1775 the City bankers, finding great inconvenience in settling their mutual transactions, established what is called the “Clearing House,” to facilitate their exchanges with each other; of this we shall have more to say later. It may be noted that the two oldest banking houses in London are those of Messrs. Child and Company and Messrs. Hoare, both of which were established before the Bank of England.

In the early days of which we are now speaking, the personal relations of banker and customer were rather different from those of the present time of keen competition: only the merchants and wholesale dealers were personally known to their banker, who was scarcely acquainted with even the names of the retail dealers favouring him with their patronage.

The following amusing anecdote is related, bearing on the lighter side of banking, of an interview between a certain banker in Lombard Street and one of his customers who was a baker:—The baker having one day paid in £500 to his account, left the bank and stood on the doorstep debating in his mind which way he should turn, when the banker came up, and as there was no room for him to pass in without soiling his clothes against the baker’s working ones, he haughtily said, “Move away, fellow!” The baker, feeling of some importance, was naturally nettled, and replied somewhat rudely, which led to high words, and finally the banker was sent spinning into the gutter. Rising up full of wrath, he loudly called for someone to fetch a constable and arrest the fellow, when the cashier who had just received the baker’s money came forward and, to the banker’s surprise, whispered in his ear that the baker was one of his own customers. Retiring into his private room to recover himself, he soon sent for the baker. Apologies were exchanged, and it is said that the banker and baker were thereafter good friends.

Of the early history of country banks we have no very definite records, but we know that after the passing of the Act in 1708, prohibiting the foundation of banks having more than six partners,[1] a large number of private banks having fewer partners than the prescribed number came into existence to meet the necessities of the time; and after the passing of the Bank Restriction Act in 1797 their number was largely increased. At the time of the passing of this latter Act, it is calculated that there were somewhat under three hundred country banks in existence, but by 1813 we find that the number had increased to nearly one thousand.

In the eighteenth century banking was essentially free, in the fullest sense of the word, except for the one prohibition as to the number of partners constituting a bank. Anyone was at liberty to put up the magic word “Bank” over his door and commence business. We cannot say very much as to the solvency of these banks; some were doubtless sound and ably managed, but every wave of distress which swept over the country unfailingly overthrew large numbers of these so-called banks, and occasioned much local suffering.

The gradual evolution of country shopkeepers into country bankers, which was the usual course of the foundation of such institutions in the days of which we are speaking, is well exemplified in the following case, which is related in Lawson’s History of Banking:—

And thus was founded the well-known firm of Smith, Payne, and Smith, whose business has recently been amalgamated with that of the Union Bank of London.

Many are the tales told of the wit and shrewdness of the early country bankers, and the following anecdote, related in Mr. Maberley Phillips’s interesting work on Banks, Bankers, and Banking in Northumberland, Durham, and North Yorkshire, is on a par with the well-known tale of the private Irish banker, who became so very unpopular, that to show the contempt in which he was held, the inhabitants of his district gathered together all his notes which they could lay hands on, and made a bonfire of them in front of his house; much to the banker’s amusement and gain.

Mr. Phillips’s story is of Jonathan Backhouse, a Quaker, who, though originally a linen and worsted manufacturer in Darlington, founded “Backhouse’s Bank” in 1774, in partnership with his father. This institution only went out of existence in 1896, when it was amalgamated with Messrs. Barclay and Company, Limited.