The Industrial Revolution of the late 18th and early 19th
centuries brought significant growth in the number of country
banks. They provided a way of redistributing capital locally
between businesses, and geographically from agricultural areas with
surplus funds to industrializing areas looking for investment. It
is not surprising that textiles and metals, two main drivers of
industrialization, were also key sources of country banks. As well
as the pioneering Smiths of Nottingham, the Matlocks, woollen
drapers in Cambridge, and the highly successful Backhouses of
Darlington, manufacturers of linen and wool, came from textiles,
while the Alexanders in Suffolk and Lloyds of Birmingham (the
antecedents of Lloyds TSB) are two important banks that developed
By providing other businesses with credit for long-term costs
for raw materials and machinery, local banks contributed directly
to the changing economic landscape; at the same time, they helped
to alter the physical landscape by investing heavily in transport
initiatives such as turnpike roads, canals and, later, railways.
Better transport opened up opportunities for growth in trade and
new centres of population – which in turn created more business for
the young banks. Just as important, however, were short-term
demands for variable costs such as wages for the growing labour
force expecting regular pay. Country banks could supply this ready
money, often in the form of their own banknotes. This was an
important development, as for most people money meant metal coin of
gold, silver or copper. As we have seen, money in the form of paper
was initially used by financial agents, merchants and businessmen;
it had also been restricted to the relatively affluent, as
banknotes could only legally be issued for amounts of over £5. That
changed dramatically with a crisis at the Bank of England following
the outbreak of war with France in 1793, which catapulted banknotes
into the lives of a wider public and so further encouraged country
to issue notes.
The costs of war with France, loss of business certainty and people’s instinct to hoard money in times of danger all combined to drain the Bank of England’s reserves of gold and silver. The Bank’s decision to issue notes for £5 gave temporary relief, but the public’s confidence, already fragile, was shattered by the apparent invasion of the Welsh coast by French troops in 1797. In fact this small group, led by an Irish-American adventurer, were easily dealt with by the local militia, but the damage was done. Faced with mounting panic and falling reserves, the Bank of England was ordered by the Privy Council to stop exchanging its notes for cash. To compensate for the lack of coin in circulation, the Bank also issued notes for £1 and £2 for the first time. As a result, banknotes were now used in greater quantity, and by a wider range of people. The effect was double-edged. The less wealthy and less well educated, used to coins with intrinsic value, were suspicious of paper money. To make matters worse, those who could not read were easy targets for forgery at a time when just using a forged note was punishable by transportation or even death. Indeed, the rise in forgery and the public’s vulnerability prompted the Bank of England to spend almost 25 years experimenting with new note designs and printing techniques . This was, however, largely a problem for the Bank of England. The notes of country banks were forged less frequently; furthermore, licence to issue notes for smaller values gave a tremendous boost to the young banking industry outside London. Earlier, notes had evolved from financial services; now, businessmen were tempted to float new banks simply on the strength of issuing their own notes, hoping that this would encourage depositors and so build up their capital base. By 1812 private country banks in England and Wales had reached their peak number of just over 700.
Their fortunes were mixed. Those whose ambition outweighed their business sense went to the wall: for example, Benjamin Tanner, a shipbuilder in Dartmouth, hoped to profit from the wartime increase in demand for ships by expanding a local dry dock with capital raised from setting up a bank and issuing notes (which optimistically carried a little engraving of shipbuilding). Tanner did not attract enough capital, and the bank failed. Better businessmen were able to steer a safer course through war and commercial turbulence: for instance, the pretty scene of a horse-drawn barge on the notes of the long-lived Suffolk and Essex Bank appropriately symbolized the economic benefits brought by shrewd support for local developments such as the Stowmarket Navigation.
Reactions to the banks’ notes were equally varied. A local note from East Anglia was inscribed with the following cynical verse:
The rage for banking now is grown
So great in country and in town,
That all our Rags, Shirts, Shifts and Coates,
Will soon be turned to One Pound Notes .
In Lancashire the collapse of some local banks cast a shadow over the others, and many people placed greater trust in notes issued by the Bank of England. However, in the wealthy agricultural county of Somerset, the extremely successful salt manufacturer and banker Vincent Stuckey reported that in 1816 and 1817 he incurred considerable costs carrying unwanted gold coin to London as ‘we could not get rid of it in the country, our customers preferring our notes’ .