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Bank of England History

Bank of England History

This entry is part 1 of 1 in the series British Finance and Banking History

Bank of England History and Timeline

Bank of England Old Lady of Threadneedle
Bank of England Old lady of Threadneedle Street Satirical Cartoon

The Bank of England’s history, started as a ‘private company’ formed and funded by private subscription.  The Bank of England only became a British public institution at the end of WW2 in 1946. One of the earliest Companies, and one of the few to survive across the centuries, it is difficult today to envisage it being run for by private shareholders today. It was the goldsmiths of London who ironically would be the first producer’s of anything resembling a bank note.  There was a run on the Bank that threatened it’s survival and forced the bank to rely upon rescue by the House of Rothschilds shipping into Falmouth and paying Gold Sovereigns in to the Bank’s coffers the same day. It seems the Bank of England’s history has not been as steady and straightforward as we might imagine?

The Bank is today a cornerstone of British economic management, the guardian of the wealth of a nation but how did that come to be? Find out with this concise summary of the timeline of events that led to the Bank of England as we know it today. 

17th Century Bank of England founded 1694

The Bank was founded by Royal Charter in 1694, following the Glorious Revolution of 1688.  William III, of Orange and Queen Mary had ascended to the throne following the revolution. Queen Mary died in 1694, the year of the bank’s founding but her husband’s expensive wars left the country’s finances in a mess. The public purse was more than stretched and needed to be financed. William’s misadventures had included the Jacobite Wars (Battle of the Boyne 1690, and war with France 1689.) A number of schemes were proposed for the resolution of this thorny problem but the ideas of William Patterson were those that were settled upon.

Sealing of the Bank of England Royal Charter 1694
Sealing of the Bank of England Royal Charter 1694

The Bank of England was one of Patterson’s better ideas, he was also founder of an attempt to create a Scottish Empire or colony in Panama. But his proposal to finance the government debt by private subscription of individual shareholders was innovative in it’s days. His ideas were set out in ‘A Brief Account of the Intended Bank of England.’

“THE want of a Bank, or publick Fund, for the convenience and security of great Payments, and the better to facilitate the circulation of Money, in and about this great and oppulent City, hath in our time, among other Inconveniences, occasion’d much unnecessary Credit, to the loss of several Millions, by which Trade hath been exceedingly discourag’d and obstructed: This, together with the height of Intetrest or Forbearance of Money, which for some time past hath born no manner of proportion—to that of our Rival Neighbors, and for which no tolerable Reason could ever be given either in Notion or Practise, considering the Riches and Trade of England, unless it were the want of publick Funds; by which the Effects of the Nation, in some sort, might be disposed to answer the Use, and do the Office of Money, and become more useful to the Trade and Improvements thereof.”  William Patterson’s introduction to his pamphlet A Brief Account of the Intended Bank of England.

The ideas alone required political sponsorship and this was provided by the new Chancellor Charles Montagu , he was a talented scholar and attended Trinity College Cambridge, where he formed a lasting association with Isaac Newton. Montagu who acted upon Patterson’s plans which had been drawn-up some three years previously and quickly made them a reality.  The process is reported as can be seen here in the contemporary reports in the House of Commons ‘Article on the foundation of the Bank: -1694.’ The History and Proceedings of the House of Commons: Volume 5, 1713-1714. London: Chandler, 1742. 74. British History Online. Web. 25 March 2015.

The benefits to the shareholders would be that in return for the capital invested that would finance the government debt, their company would be incorporated by Royal Charter and become the only limited-liability entity allowed to issue Bank Notes and trade in Bonds and re-lend against the government debt. These powers enabled the bank to have a monopoly at that point in time, although within a few years however would  that be challenged by the founding of the ill-fated South Seas Company, which would compete with the Bank of England. But for the moment in just 12 days the full £1.2m subscription was raised and half was promised to be used to rebuild the navy and start to reassert Britain’s Empire protected by a recovered naval power. Charles Montagu had only become a member of parliament in 1691 and as a new Chancellor his importance in the success of the initial subscription was significant and impressive in its achievement. Imagine a major bank being founded today on the back of a newly appointed MP, in less than a fortnight, perhaps not.

But what of these Bank Notes what were they and how did they originate?

The ‘Goldsmids’ or Goldsmiths controlled the supply and holding of Gold and historically had used a system of notes to record what deposits they held and their value as in effect receipts that their clients could keep. Over time they had created by convention an informal market and these notes operated as virtual money. Examples of the combination of Goldsmith and Banker roles can be viewed in the British Museum’s collections with examples of Goldsmith’s notes pre and post founding of the Bank of England.

Gold Bullion and the Gold Standard's connection to the Bank of England
Gold Bullion and the Gold Standard’s connection to the Bank of England

With the need to in effect finance the national debt there had been a range of ideas tabled as to how this might be affected but key tot the success of the Bank as a subscription would be enabling it to have a formal monopoly on the issuing of what would become known as Bank Notes. The Goldsmith Company had existed in various forms since the 14th century and continues today as the Worshipful Company of Goldsmith in the city of London, with also part of the University of London, Goldsmith College having been founded under its original generous patronage. Gold is of course still important in the sound management of any economy but at the time of founding of the Bank of England it was at its very core. The Gold Standard would set the relative value of international currency exchange for centuries to follow, as set out later in our timeline account and rather intriguingly would involve Sir Issac Newton (as Master of the Royal Mint), Montagu’s associate in its reason for being. NEWTON Cover Principia Mathematica

 Development of the Bank and the foundation of British Banking

The Royal Charter was passed by Parliament in 1694,( its full text can be found here on the Bank’s website as a PDF) . Th subscriptions of £1.2 million were raised and in current value terms that sum would be worth much more today, this was a profound moment in British Economic history and significantly influenced markets around the world as well.  The Bank of England  bought heavily in to government stock and issued notes on the security and ownership of that debt, whilst also accepting private deposits.

This was the start of the process of managing debt as an intangible asset represented by say a Banker’s note or bond that had in itself no intrinsic value, unless realised in a tangible asset of value such as Gold.  In essence a ‘Banker’s note’ would still hold a value and represent an obligation to pay on demand if required under certain agreed conditions in Gold the equivalent value but of course the material or paper that it was written on was not where the value was realised but in the equivalent Gold value it represented. The ‘Banknote’ evolved and was modelled on the receipts and notes used by the Goldsmiths the concept of the National Debt and Paper (Note) based money came into being at the same time as the Bank opened for business. The Government needed to spend more than it was earning as income from taxation, sound familiar?  Is this the moment when the nation’s finances start to be separately managed from the Monarch’s. Need to research some more connections on that point so back to the Bank.

Bank of England Threadneedle Street London
Bank of England Threadneedle Street

The Bank of england had been opened by Subscription as a Private,not a national Company, approved and authorised by Royal Charter, but it was not alone and had to compete for its markets. Within just three years of opening its doors, there would also be the complications brought about by the South Seas Company debacle and all of this was running alongside the likes of the East India Company, which operated itself as an authorised Company State in its operations of the Indian markets and continued to accrue substantial profits. The Bank’s role would certainly be key in the development of government economic policy, the success and failure of associated organisations, companies and institutions in London, Britain and across the world.

What happened when in the history of the Bank of England?

The timeline and chronology of events in the history of the Bank of england, is summarised below. We will update, correct add and revise from time to time as we find new connections and resources we can share but here is the current order and notes to date.

 17th Century beginnings of the Bank of England

From the founding in 1694 at the tail end of a century, what else transpired in the early days:

  • 1696 recoinage reduced the need for small denomination notes, it was decided not to issue any notes for sums of less than £50. Since the average income in this period was less than £20 a year, most people went through life without ever coming into contact with banknotes.
  • 1697 Parliament forbade the opening of any more Joint Stock companiesThis was a deliberate and anti-competitive practice as a barrier to market entry for would be competitors to the South Seas Company, which saw the Bank of England  as its main competitor. The law now required a Royal Charter for an organisation to become a Company, duly recognised as an entity in law. The circumstances were tied to the sorry affairs of the South Sea Company an artificial inflation of its stock value. When this took place the Bank of England, a private organisation (Company) itself was potentially in competition with the South Seas Company.  It subsequently led to the Bubble Act as well, to get a wider picture of these events take a look at our law , business and organisations themes.

18th Century Bank of England founded

The 18th century saw the development of Banking throughout Europe, the Bank of England established itself as the major institution in Britain but still not officially a part of formal government. Private banks in London and the country proliferated and fuelled business and economic growth across the country. Despite the South Seas debacle, longer term the Bank of England was beginning to establish its central role in the British economy.

  • 1708 Bank of England granted the Monopoly to Issue Bank Notes Bank notes originated as notes and receipts issued by Goldsmiths for holding deposits for their clients, which they circulated as ‘virtual money.’
  • Acts of 1708 and 1709 had given it a partial monopoly by making it unlawful for companies or partnerships of more than six people to set up banks and issue notes. The ban did not extend to the many provincial bankers – the so-called country bankers – who were all either individuals or small family concerns.
  • 1717 Gold Standard established “after the master of the mint, Sir Isaac Newton, overvalued the guinea in terms of silver, and formally adopted the gold standard in 1819.” surprising for a man of such obvious intellectual capacity. It was not introduced formally in Britain in terms of adoption by the Bank of england until 1816. Newton as mentioned previously was a close associate of Montagu the founding Chancellor of the Bank.

    Isaac Newton master of the Royal Mint Pound Note Picture
    Isaac Newton Master of the Royal Mint, an uncharacteristic error leading to the Gold Standard?
  • 1725 the Bank was issuing partly printed notes for completion in manuscript. The £ sign and the first digit were printed but other numerals were added by hand, as were the name of the payee, the cashier’s signature, the date and the number. Notes could be for uneven amounts, but the majority were for round sums
  • 1745 Bank notes were being part printed in denominations ranging from £20 to £1,000.
  • 1759, gold shortages caused by the Seven Years War forced the Bank to issue a £10 note for the first time. Smaller notes were needed in times of economic hardship.
  • 1780s saw a period of lucrative growth in particular in the British economy.
  • 1793 The first £5 notes were issued at the start of the war against Revolutionary France.
  • 1797 Bank of England released from its obligation to exchange its notes on demand for release of gold:  this significantly liberalised the overall market for money and finance as a business in its own right.
  • 1797-1821 Restriction Period , when a series of runs on the Bank, caused by the uncertainty of the war, drained its bullion reserve to the point where it was forced to stop paying out gold for its notes. Instead, it issued £1 and £2 notes.

19th Century and the Bank of England

  • 1800-1821 Restriction Period Continues: the difficult economic climate at the end of the 18th Century continued into the new century. The French Revolutionary and Napoleonic Wars even when Britain was the victor had taken and continued to exert its financial toll on society. This continues for 21 years of a new century. and is reflected in the protracted continuance of the ‘Restriction Period.
  • 1814 Rothschild’s provide coin and local currency to fund Wellington’s troops  in the field: the Bank of England could not match the capability of the Rothschild’s dynasty as this point in history. Their international network were second to none, possibly the earliest British PFI (Private Finance Initiative?) Rothschilds is again powerful enough to assist national governments and provide the resources that the country’s own national bank could not. The Rothschild was founded by one man in Frankfurt who had the foresight to send his sons to develop and expand the family business across the major markets, expanding reach and reducing risk of depending on a single market. How incredible was such entrepreneurialism when that family business not only matches the power governments but exceeds the capability of the Bank of England. There is as much myth as fact to some of the Rothschilds involvement across history but there certainly was a connection although the family archives do not substantiate the wild claim that Rothschilds was with Wellington. But more of that later.
  • 1816 Gold Standard Introduced: it remained in place until 1914, the outbreak of WW1. The Pound Sterling was value or ‘pegged’  against other currencies on the basis of its relative value in gold. The obligation that banks should be capable on demand of exchanging all issued notes for the Gold Standard value in gold on demand.
  • 1821 Convertibility of the Banks Notes was re-imposed The Restriction Period, as it was known, lasted until 1821 after which gold sovereigns took the place of the £1 and £2. It was the Restriction Period prompted the Irish playwright and MP, Richard Brinsley Sheridan, to refer angrily to the Bank as “… an elderly lady in the City” and the cartoonist, James Gillray, to the Old Lady of Threadneedle Street, a name that has stuck ever since.
  • 1825 Run on the Bank of England and Rescue by House of Rothschild’s The Bank of England had suffered a run on it’s reserves and was down to its last 100k sovereigns. Rothschild’s landed a ship in Falmouth and in a single day injected 150k sovereigns into the Bank of England, narrowly avoiding suspending payments and withdrawals.  The name of the Rothschilds family and its businesses would feature repeatedly and interwine with the history of the bank and a number of British Government key points when the Bank of England failed to have the capacity to assist or move swiftly enough to assist its own government. Unthinkable today, the power and importance of private capital in the 19th century and the foundations of the financial markets we all rely upon to day often exceeded that of the governments and monarchs it served.
  • 1826 Country Bankers’ Act of 1826 allowed the establishment of note issuing joint-stock banks with more than six partners, but not within 65 miles of London. The Act also allowed the Bank of England to open branches in major provincial cities, which gave it more outlets for its notes.
  • 1825-1826 Bank Charter Act finally freed-up the ability for many new Joint Stock basis Companies to be formed without the need for Royal Charter. These boomed initially outside London then in and around London itself. See thesis reference .
  • 1826, English Provincial Banks that were Joint Stock Companies were given the opportunity with oversight of the Bank of England to issue their own notes. This took place following the failure of many country based banks.
  • 1833, Bank Charter Act 1833, along with liberalising the bank’s ability to set interest rates this act made the Bank of England’s notes officially legal tender. The Bank’s notes were made legal tender for all sums above £5 in England and Wales so that, in the event of a crisis, the public would still be willing to accept the Bank’s notes and its bullion reserves would be safeguarded.,
  • 1836 and 1839 further banking crises drove Robert Peel to restrict the issue of bank notes solely to the Bank of England with a view to creating a more stable market and money supply.
  • 1844, Bank Charter Act 1844, this act settled the debate on the ratio of gold that needed to be held, in effect this still is part of the bank’s responsibilities relative to the notes it issues and circulates in the market. In 1844 it was settled in the favour of the gold held must exceed the notes issued. New banks could no longer issue their own notes.
  • 1846 Barings Banking Crisis before and during the crisis (when the Barings found themselves overextended in Argentina which suddenly stopped making repayments.) The government and the Bank of England had made a secret agreement to cover half of Barings losses in order to prop-up the market, a familiar problem?  The Bank of England played an important role in avoiding a complete collapse of the market. The Barings events did however restrict British overseas investment  until confidence began to return and the prospect of exploiting the resources of South Africa began to show their full potential for producing spectacular profits.Following the Barings crisis the Bank took an increasing lead in maintaining the value of British Currency against the Gold Standard.
  • 1853 first fully printed notes The first fully printed notes appeared in 1853 relieving the cashiers of the task of filling in the name of the payee and signing each note individually.1857 and 1866 Further Banking crises There similar crises 1857 and in 1866 and again to prevent the Bank’s collapse provisions for gold reserve levels had o be suspended. There continued to be a series of Banking crisis’s during the 19th century and in the worsening economic climate normally the ratio of gold deposits held and retained relative to notes issued was often relaxed. A rescue operation in the form of a guaranteed fund for banks in the Square Mile was established by the Governor of the Bank and more than £17 million was promised, much of it by now powerful joint-stock banks.

20th Century and the Bank of England

The role and function of the Bank of England would continue to develop during the 20th century. It would have to navigate through a traumatic first 50 years with two world wars which financially damaged Britain’s economy because of the high costs of the wars themselves, the making of peace afterwards and the lack of reparation in both cases from Germany to Britain specifically. War debt has constantly cost the country hugely and continues to do so. In the recent past the current Chancellor has still been managing debt going back to WW1.

  • 1914 the necessity to back with gold was removed. The First World War saw the link with Gold Standard broken once again; the Government needed to preserve its stock of bullion and the Bank ceased to pay out gold for its notes.
  • 1914 the Treasury printed and issued 10 shilling and £1 notes, a task which the Bank took over in 1928.
  • 1921 Last private Bank issuing notes Fowler and Co in 1921.
  • 1946 Bank of England Nationalised
  • 1925 Britain returned to the Gold Standard with Winston Churchill as Chancellor of the Exchequer. This was not one of Winston’s successes. The gold standard was partially restored and the Bank was again obliged to exchange its notes for gold, but only in multiples of 400 ounces or more.
  • 1931 Britain left the Gold Standard, the Bank’s note issues became entirely fiduciary(wholly backed by securities instead of gold bullion.). The country’s gold and foreign exchange reserves were transferred to the Treasury although their day-to-day management was and still is handled by the Bank. The note issue was no longer backed by gold.
  • 1957, the Bank of England started once again to issue gold sovereigns. To distinguish between the previous issues, which would in many cases seen circulation, and the new, mint condition coins, all the earlier sovereigns were termed by dealers as “old” sovereigns, as distinct from “new” sovereigns.
  • 1997 Bank of England Committee Independence on Monetary Policy the Government announced its intention to transfer full operational responsibility for monetary policy to the Bank of England. the Bank of england’s guidance on “What does independence of the Bank of England Mean?” is available here as PDF.
  • 1998 UK Debt Management Office was created in April 1998 as an executive agency of HM Treasury to take over responsibility for debt management.

21st Century What happened in the first 15 years?

Times change that is for sure:

  • 2004 Rothschilds shocked the market by withdrawal from the London Gold Market, see Independent’s article
  • 2008 Banking crisis and rescue by UK Government and Bank of England: Plan provided for several sources of funding to be made available, to an aggregate total of £500 billion in loans and guarantees. Most simply, £200 billion was made available for short term loans through the Bank of England’s Special Liquidity Scheme.
  • 2009 Further rescue by Government in consultation with the Bank of England was required: totalling at least £50 billion was announced in response to global crisis to increase the amount of money that banks could lend to businesses and private individuals. Aid took the form of an initial £50 billion being made available to big corporate borrowers and an undisclosed amount to insure potential losses of the banks and support the system during the crisis as a means of avoiding a collapse. The importance of the central bank is as critical if not more so than ever. It certainly would not have had th same steadying function if it was a private institution.

    Bank notes more women on designs called for in 21st century
    Bank of England Governors criticised for too few women on Bank Notes Campaign see Jane Austen honoured surely there should be more?
  • 2013 Canadian Mark Carney as Governor appointed at the Bank of England: times have changed but has the bank? Who could have imagined a foreign Governor of the Bank of England, but the Bank has shown and so has the current government a willingness to employ the best.

The importance and significance of the Old Lady of Threadneedle Street continues to change and respond to the needs of the time, fulfilling an important and arguably essential role in UK financial management. It has certainly featured and guided the development of Banking as an important market and a critical marketplace for financial services based in London and around the world. The Stock market has also benefited from the reliability of the institution and subsequent posts will look to the Stock Exchange and other key British institutions that were responsible not just for the development of finance in Britain but across a network of global markets. The role of the Bank looks certain to continue at least throughout this century.

More to explore

Additional resources about the history of the bank and the banking industry:

  1. Review of the Bank Charters and their impact on Political Economy 1694 to 1844
  2. Bonds and Brands 1820-1830 Flandreau and Flores
  3. Visit the Bank of England Museum
  4. Telegraph A Century of the bank of England in Pictures
  5. Digital content Bank of England Archives