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:—
“In a borough town of importance in one of the north midland counties dwelt a respectable draper, possessing a good connection with the farmers frequenting the market of the town. Although the name of Robin Hood had long lost its terrors, those of Turpin and Nevison filled all men’s minds with fear—and with good reason, for they and their fraternity exercised their calling with such energy and success that it was always a matter of doubt with travellers whether or not they should arrive in safety at the next inn or their destination, whatever that might be. With the farmers above alluded to there were more than ordinary grounds of alarm; the town almost adjoining the scene of the far-famed exploits of Robin Hood and his merry men, was admirably situated for a levy by their less romantic successors of extemporaneous taxes. To avoid as much as possible the losses thus arising, farmers, having full confidence in the honesty of the draper with whom they dealt, made him the depositary of their ready cash. Ready cash of his friends was to our draper as valuable as capital of his own, and buying for ready money was profitable. Still, money remained idle in his hands, and by degrees he began to grant accommodation to his neighbours. Our draper now became famous for his extraordinary command of money, and his correspondence extended as far as Preston, in Lancashire. The profits thus arising seemed boundless, and the next step was taken by our adventurous shopkeeper: he allowed a small interest to his friends the depositors. The new business flourished to such an extent that it swallowed up the old one, and our draper at length became a banker proper, and no more a shopkeeper.
“Such was the origin of the Smiths. First confined to the town of Nottingham, afterwards extended to Hull and Lincoln, the business of the firm required a London correspondent entirely in their interest, and such they found in the late Mr. Payne.”
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.
“Before the time of railways, near the beginning of the century, the commercial traveller of that day made his visits to the towns of the county of Durham either by mail coach or other conveyance, and sojourned for some days in each town, where he was an important person, especially at the head hotel or hostelry of the place. It so happened that one of these gentlemen, after having dined freely at the ‘King’s Head,’ Barnard Castle, was boasting to a company present in the commercial room of his own importance and wealth, and exhibiting in proof a sheaf of bank-notes taken on his journey.
“Jonathan Backhouse, attired in the usual dress of the Society of Friends, unknown to the rest of the company, was in the room quietly reading his newspaper, when he was attacked by the wealthy commercial, and by a series of sarcastic remarks held up to ridicule as a man out of harmony with the spirit of the time and place. Following up this raillery the commercial, displaying his handful of notes, offered to bet the Quaker £5, or any sum, that he could not produce as much money as he was exhibiting. Mr. Backhouse, after a great deal of banter, said he did not bet, but to show his indifference to money offered to put a £5 note in the fire if the commercial would do the same. Suiting the action to the word, Mr. Backhouse took out a £5 note and put it into the fire. The commercial, not wishing to be behind, did the same. Mr. Backhouse offered to repeat the process, but the commercial, considerably cowed, declined; when Mr. Backhouse quietly thanked him for having burned one of his (Mr. Backhouse’s) bank-notes for which he had received £5, while the note he (Mr. Backhouse) had burned was on his own bank, and only cost him the paper.”