The joint stock banks spread their tentacles north, south, east, and west of his sacred City, thereby effectually preventing his expansion, and "concentrating" his energies in the one street aforesaid, just as the nations of Europe have "concentrated" the kingdom of the unspeakable Turk. Great movements seldom originate within London, which is strikingly lacking in originality, and that new blood from the provinces which flows in an ever-increasing stream towards the great City, and alone arrests decay, also seems to bring with it the new ideas.
The London private bankers waited in vain for the expected disappearance of their rivals, who, despite severe panics and crises, continued to add rapidly to their resources, until, surrounded by rival branches, profitable expansion became difficult for the private banker, whose business is now so localised as to render effective competition with the companies impossible. He cannot make rapid progress because he does not possess the branches through which alone the necessary credit can flow to the central office, and therefore the extinction of private banking in its present form seems only a question of time, for the wealthy are certain to deal with those banks whose vast accumulations are at least the outward and visible sign of the confidence the public has in their stability.
But the joint stock banks did not confine their energies to London. The London and South Western Bank, which was established in 1862, began a vigorous crusade in the London suburbs, with the happiest results to its shareholders; and the London and Provincial Bank, which was formed two years later—in 1864—established small suburban branches in every direction, with equally satisfactory returns for its enterprise; while the London and County, larger and, perhaps, more cautious than either, also recognised the advantages of suburban expansion. A branch bank belonging to one of these three banks is now to be found in almost every London suburb.
The London and Westminster Bank (established in 1834) was the first in the field, but the atmosphere of the City is not favourable to progress, and the Westminster, though an exceptionally strong and well-managed bank, undoubtedly failed to move with the times. So, too, did the London Joint Stock Bank and the Union Bank of London, which has recently somewhat altered its name. It was not until the provincial joint stock banks invaded London that these companies began to realise the opportunity they had missed; Lloyd's and Parr's Banks however, evidently taking in the situation, adopted the new system, and by skilful amalgamations rapidly forced themselves to the front. The country banks, in short, practically took possession of Lombard Street.
Why the Bank of England did not share the same fate as the private bankers has already been demonstrated. It certainly was not one whit better informed than they; and it sympathised with them in their distrust of the intruders, whose speedy downfall it quite expected to witness. That the joint stock banks must come to grief was the opinion of the majority of City men in 1834, and the then directors of the Bank were City men imbued with those tenets which found credence within the sacred square mile.
The bank which keeps the Government account must always be a great power in the land. Had that account been removed in 1844, together with the last vestige of monopoly, the Bank—the directors of which shared to the full in that tenacity and narrow-mindedness characteristic of wealthy City merchants, whose businesses, and therefore whose ideas, flow in the narrowest of grooves—must have ceased to be a progressive institution. But no Government has ever hinted at deserting the Bank, whose record, though bristling with mistakes, is one of unbroken integrity; and the public has always looked upon its management as above suspicion. Especially was this the case during the first few decades of the new movement.
The Bank of England had public opinion behind it; and the joint stock banks, concerning whose stability opinion was divided, were not then strong enough to keep their own reserves and to defy the Bank; but when their system had stood the test of time, the Bank opened its doors to them, and the companies meekly bowed to the inevitable—for they were not the power in Lombard Street in those days that they are now.
In the first instance, we found the private bankers grouped around the Bank; and now we see our huge joint stock banking companies in a similar relation to her. They kept their reserves with her when their system was in its infancy, when the Bank of England, as a result of monopoly, was the greatest credit institution in the country. As the companies spread their tentacles throughout the land, accumulating credit at an extremely rapid pace, those reserves grew proportionately, until, to-day, we find the Bank of England in the centre of a system which owes over £910,000,000 in cash to the public.
Our modern credit system has developed around the Bank, which, as the holder of the bankers' reserves, now occupies an almost national position. That position is, undoubtedly, the indirect result of a monopoly which, prior to 1826, enabled the Bank of England to build up a huge business unopposed by others of its kind. In other words, it had a start of 132 years. The greater, consequently, attracted the smaller. But united Lombard Street is now a much greater power than Threadneedle Street—therefore it is always wise to remember that the Bank of England can only retain its position in the centre of the money market so long as Lombard Street is agreed that it shall.
The banks are not legally obliged to keep their reserves with the Bank of England. Were they so inclined, they could withdraw them to-morrow and accumulate stores of the precious metals of their own. It follows, therefore, that the best of feeling should exist between the "Old Lady" and Lombard Street. Obviously she is not now in a position to dictate her own terms, as her greatest power is derived from the "bankers' balances" on the left-hand side of her balance sheet.