TRUSTWORTHY BANKERS: New study of the first bank directors in England and Wales, 1826-1844

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Date:
30 Mar 2016

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The new joint stock banks that were made possible by UK government legislation to stabilise the banking system after the financial crisis of 1825/26 operated without a regulator or full central bank and no professional body. Yet according to research by Victoria Barnes and Lucy Newton, the directors managed the banks that they established successfully and fraudulent behaviour was uncommon.

The study, to be presented at the Economic History Society’s 2016 annual conference in Cambridge, finds that these were local banks established by men in the local community and, as such, they established their own management structures, governance methods and informal codes of practice with great success.

Who can we trust to run banks? The aftermath of the 2007/08 financial crisis was not the first time this question has been asked. It was also asked in the nineteenth century, following the financial crisis of 1825/26.

The crisis of 1825/26 saw the financial system close to collapse and thousands losing money and their businesses. The Bank Act of 1826 that followed led to the establishment of joint stock banks owned by shareholders, where before there were only private banks owned and run by up to six partners.

These new joint stock banks were set up with the aim of to stabilising the banking system in England and Wales as they had a greater number of owners (as opposed to a few private owners in private banks) and a broader capital base. The act was successful: there were far fewer bank failures among joint stock banks than private banks and joint stock banks grew in number.

This research considers the directors of the new joint stock banks and their governance methods, given that they had very little guidance as to how to run their institutions.

Duties of the bank directors were defined, but loosely. Many had other business to run – usually enterprises in the local trades and industries. Who became a director? What were directors other business interests? How much time did they put into running the bank? How did they deal with conflicts of interest?

As some were members of the local business community, they were accountable to their peer group. Was such peer monitoring successful?

It was in the interests of joint stock banks to govern themselves responsibly and honestly in order to establish a trustworthy reputation and to remain accountable to the local communities that they served. But did such moral obligation also lead to moral practice?

In answering such questions, this research sheds light on the early governance of joint stock banks from a banker’s perspective. These directors identified their roles and remit with no template, other than that from the private bankers that they wished to move away from.

They operated without a regulator (such as the Financial Conduct Authority that the UK has today); no professional body (The Institute of Bankers wasn’t established until 1878); and the Bank of England didn’t act as a full central bank at this time and was opposed to the formation of joint stock banks.

On the whole, they managed the banks that they established successfully and fraudulent behaviour was uncommon. These were local banks established by men in the local community and as such they established their own management structures, governance methods and informal codes of practice with great success.

ENDS

Local elites and power: the first bank directors in England and Wales, 1826-1844
Victoria Barnes and Lucy Newton, University of Reading 

Victoria Barnes is a PhD student in the School of Law, University of Reading, under the supervision of Lucy Newton since October 2012. Victoria currently holds a studentship in socio-legal studies funded by the Economic and Social Research Council and has been a visiting lecturer at the University of the West of England, Bristol. 

Email: v.s.barnes@pgr.reading.ac.uk 

Recent conference papers 

2013 ‘Banks, branches and shareholders: the spread of joint-stock banking, 1826-1844’ [with Lucy Newton], Queen’s University Centre for Economic History Workshop, Queen’s University, Belfast. 

2013 ‘The 1826 Bank Act and the spread of provincial joint-stock banking, 1826-1844’ [with Lucy Newton], Association of Business Historians Conference, University of Central Lancashire, Preston. 

2013 ‘Statistical Societies, Business Networks, and Academia: a comparative assessment of the changing role and nature of the Manchester Statistical Society, 1833-1983’ [with Peter Wardley] Business History Conference, Columbus, Ohio. 

Dr Lucy Newton is an Associate Professor in Business History in the School of International Business and Strategy, Henley Business School, University of Reading. She was awarded her PhD. in Economic and Social History from the University of Leicester, where she was supervised by Prof. P. L. Cottrell. She was elected a Trustee of the Business History Conference in 2003, serving until 2007, and elected as Council member of the Association of Business Historians (UK) in 1997, serving to 2000. She is currently Secretary to the ABH (2013-). She has published her work on banks and, more recently, nineteenth century consumer durables, in a variety of business history journals. 

Recent publications 

2013, ‘Pianos for the People: From Producer to Consumer in Britain, 1851–1914’, Enterprise & Society, Vol. 14, Issue 1, pp. 37-70, with Francesca Carnevali. 

2012, ‘Advertising, promotion, and the rise of a national building society movement in interwar Britain’, Business History, 54 (3). pp. 399-423, with Peter Scott. 

2010, ‘The Birth of Joint Stock Banking: a Comparison of England and New England in the Nineteenth Century’, Vol. 84 (1), 27-52, Business History Review. 

2009, ‘British retail banking in the twentieth century: decline and renaissance in industrial lending’ in R. Coopey and P. Lyth (eds.), Business in Britain in the Twentieth Century Decline and Renaissance? (Oxford University Press). 

2009, ‘Decline and Renewal of British Multinational Banking’, in R. Coopey and P. Lyth (eds.), Business in Britain in the Twentieth Century Decline and Renaissance? (Oxford University Press), with Geoffrey Jones. 

2008, ‘Women and wealth. The nineteenth century in Great Britain’, in A. Laurence, J. Maltby and J. Rutterford (eds.) Women and their money, 1700-1900. Essays on women and finance (Routledge), with P. L. Cottrell, J. Maltby and J. Rutterford. 

2008, ‘Women investors in early joint stock banks’, in A. Laurence, J. Maltby and J. Rutterford (eds.) Women and their money, 1700-1900. Essays on women and finance (Routledge),with P. L. Cottrell. 

2007, ‘Jealous monopolists’? British banks and responses to the Macmillan Gap during the 1930s’, Vol. 8, Issue 4, Enterprise and Society, with Peter Scott. 

2006, ‘Female investors in the first English and Welsh commercial joint-stock banks’, Accounting Business and Financial History, Vol. 16, No. 2, pp. 315-340, with P. L. Cottrell.

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