banking

banking. During the 17th and 18th centuries financial intermediaries developed in response to a growing demand, especially from landlords, for cash remittance between provincial Ireland and Dublin and between Dublin and Britain. The demand for small‐denomination currency, for safe deposit facilities for cash, and for the discount of bills of exchange also led to specialization of function and to the emergence of formal banking facilities. At the same time, financial transactions such as lending on mortgage were undertaken by a range of individuals, especially attorneys, through whose hands a great deal of money might pass. Banks were often established as an adjunct to other business activities, and the first bank in Ireland appears to have been that of Edward and Joseph Hoare, established in 1680 in Cork. The Hoare brothers were merchants extensively involved in overseas trade and foreign exchange, and theirs was the first of many banks that were mercantile in origin. Another early example was the highly successful bank established by David Digues La Touche, a Huguenot whose textile business from the early 1690s brought him into contact with a substantial number of businessmen in both Dublin and provincial Ireland, and who developed an extensive correspondent network in Ireland, Britain, and Holland. Underpinned by the growth of trade, formal banking facilities appeared in several towns and cities during the 18th century, though bank failures in the 1750s led to more state intervention. In order to distinguish bankers and merchants more clearly and prevent abuse of credit facilities, one of the clauses in an act of 1756 specifically prohibited bankers from carrying on ‘trade or traffick as merchants in goods or merchandises imported or exported’. By the later 1790s Dublin was the most important banking centre in Ireland, followed by Cork, and then by Clonmel, Limerick, Waterford, and then by Clonmel, Limerick, Waterford, and Belfast.

Although there was intermittent pressure for the establishment of a national bank, most notably in 1695 (the year after the formation of the Bank of England and the same year that the Bank of Scotland was established), and again in 1719, this aim was not achieved until 1783 when the Bank of Ireland was established in Dublin by royal charter, with a capital of £600,000. Managed by a governor (the first was David La Touche), deputy governor, and court of directors (on which Catholics and, initially, even Quakers were prohibited from serving) the bank became government banker and also performed a range of public and commercial banking duties. Despite its resources, the Bank of Ireland did not establish branches either within or outside Dublin. Consequently the country continued to rely on a small but growing number of private banks. These were subject to a range of restrictions, including unlimited liability and a maximum of six partners. A major weakness of this structure was its vulnerability to abrupt downturns in economic activity; this was demonstrated most clearly in the bank failures that accompanied post‐war deflation and depression after 1815. Indeed, by 1820 the number of private banks had declined to 20, about half the number operating in 1804.

In an effort to promote financial stability, the law was changed to allow banks to have more than six partners, though still with unlimited liability. Two clusters of joint‐stock bank promotion followed: the first saw the creation of the Northern (1824), the Provincial and the Hibernian (1825), and the Belfast (1827); in the second, the most significant new creations were the Agricultural and Commercial (1834), the National (1835), the Ulster and the Royal (1836), and the Tipperary Joint Stock (1838). Banks established at this time, together with the Bank of Ireland, dominated the system until well into the 20th century. After the 1820s, bank failure was relatively rare in Ireland and the system evolved into a remarkably stable one irrespective of economic climate. Of the few failures, two stand out: the grossly mismanaged Agricultural and Commercial in 1840, and the Munster Bank Ltd. (set up in 1864 and which had taken over La Touche's Bank in 1870) in 1885. Out of the wreckage of the latter, however, came the enduring Munster and Leinster Bank Ltd., with its head office in Cork. In times of financial crisis, the Bank of Ireland sometimes stepped in to help support the system and limit the damage, thereby acting in this respect as a central bank. Three major banks (Northern, Belfast, Ulster) had head offices in Belfast, three (Bank of Ireland, Royal, Hibernian) in Dublin, and two (National and Provincial) in London. Banks became limited liability concerns in the 1880s. Apart from the Bank of Ireland, no bank based within a 50‐mile radius of Dublin was permitted to issue its own notes, but all others did, and the restriction was lifted in 1845. To overcome an initial staff shortage, especially at more senior levels, banks recruited from England and Scotland, both of which had more established banking traditions.

Banks offered a range of credit facilities (overdrafts or ‘cash credits’ which might be renewable, fixed period loans, and discounts for bills of exchange), and both current and deposit accounts. Through the development of branch networks from the 1820s, they also played a major role in providing country districts with metallic and paper currency in appropriate denominations. Moreover, by allowing banks to spread their business over a wider geographical area, branch systems improved the stability of the system, but were never a sufficient guarantee against failure. From fewer than 200 branches in 1850 the system developed quickly, if unevenly, to reach over 850 by 1913. An increasingly noticeable feature from mid‐century was the opening of sub‐branches on a part‐time basis, often on market days or fair days, and such offices accounted for about 40 percent of the total in 1913. In addition to the joint stock banks, there were Trustee Savings Banks dating from 1817, aimed specifically at the ‘small’ saver, and Post Office Savings Banks from 1861. The former were hit hard by the Great Famine, while the latter rapidly became the more important, and by 1920 had accumulated deposits of £14.1 million, four times the £3.5 million in the Trustee Savings Banks. But even the combined total of deposits in both systems was less than 10 per cent of the £183 million in the joint‐stock banks at this date.

To a large extent, banking business in Ireland remained subject to regular seasonal patterns, reflecting the agricultural base of the country and the fact that important industries such as distilling, brewing, and linen were related to agriculture. The linen boom of the 1860s had a profound impact on the profitability of those banks heavily involved in the north‐east, leading to dividends of up to 30 per cent, while agricultural depression, in the early 1860s, late 1870s/1880s, or early 1920s, led to tight credit restrictions in rural Ireland.

The last years of the Union were prosperous ones for Irish agriculture and for the banks. This was a key factor leading to the affiliation of two of them, the Belfast with London, City and Midland, and the Ulster with London, County and Westminster, in 1917. This move, coming as it did during a long period of rising tension in Anglo‐Irish relations, provoked considerable controversy, though in keeping with their well‐established policy the banks wherever possible refrained from public comment on political questions. Partition inevitably led to changes in the banking system, though all banks which had branches in each of the now separate states continued to operate them, the exception being the Belfast Bank, which sold its Free State branches to the Royal Bank in 1923.

Unlike several new states founded after the First World War, the government of the Irish Free State inherited a banking system in which there was complete trust and which enjoyed enduring stability, assisted by the reputation gained over the decades before partition and the huge increase in deposits that had characterized the years before 1921. In the 1920s and 1930s the Bank of Ireland retained its status as the Free State's premier bank, and its governor normally chaired the standing committee of Irish banks, originally assembled as an hoc committee to deal with the problem of labour unrest in 1919, but now a permanent body. A major banking commission in 1926, followed the next year by a Currency Act (which created a currency commission and a separate Saorstát pound tied to sterling) and in 1938 by a banking commission, were the financial landmarks of the first decades of independence. Among the most important net results of these were that individual banks in the Free State (unlike those in Northern Ireland) lost their power to issue their own notes, and also that informed opinion in the Free State moved increasingly in favour of a fully‐fledged central bank. The creation of the latter was hastened by the increase in financial pressures occasioned by the outbreak of war in 1939 and following the Central Bank Act of 1942 it came into existence in 1943. Since that time its functions have been periodically widened: it became responsible for supervising banks in 1971 and building societies in 1989.

Another major development in both the Republic and Northern Ireland since the Second World War was amalgamation on an unprecedented scale. Thus, the Bank of Ireland took over the Hibernian in 1958 and the National Bank in 1966. In the latter year Allied Irish Banks came into existence with the merger of the Munster and Leinster, the Provincial, and the Royal Banks, while four years later the Northern Bank absorbed the Belfast Bank but was itself sold by Midland to National Australia Bank in 1987—a reminder of the global nature of the banking system by the late 20th century.

Bibliography

Barrow, G. L. , The Emergence of the Irish Banking System 1820–1845 (1974)
Hall, F. G. , The Bank of Ireland 1783–1846 (1949)
McGowan, Padraig , Money and Banking in Ireland (1990)
Ollerenshaw, Philip , Banking in Nineteenth‐Century Ireland (1987)

Philip Ollerenshaw