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Summary of chapter. All economies except the most primitive depend on an accepted and stable currency and currency of means of exchanged. In developed societies this usually takes the form of a papers currency and paper instruments. To develop and handle these banks were developed. The banking sector was not well developed at the start of the century, but with the introduction of joint-stock banks, it spread over the whole country. Savings banks and Loan Fund Societies helped the poorer people.
Irish currency remained separate from that of
Irish currency was based on the pound sterling but was only loosely connected
with it. Irish notes and coins had the same denominations as their British
counterparts, though their respective values fluctuated with the exchange
rates. Currency transactions for an essential part of foreign
trade, and the imposing Royal Exchange (now
to 1826 the value of Irish notes and coins continued to fluctuate with the
exchange rate, but that was not the only difference between the currencies.
Irish coins had a nominal value of twelve thirteenths of the corresponding
British coin. This came about in this way. The Irish penny had been long
established by royal decree as being equal in value to one thirteenth of an
English shilling instead of one twelfth. The Irish shilling consisted of twelve
Irish pennies, and the other Irish coins, the half-crown, and the five and ten
penny pieces were also based on the Irish penny. The Irish pound, at par, was
therefore worth 18 shillings and 5½ pence in sterling, that being twelve
thirteenths of the pound sterling.
have several advantages. They provide a usually safe place to keep money. From
this flows the possibility that if two people have accounts in the same bank
payments can be made by entries in a book, without having to move the money
physically. Next, a man can settle accounts without going to the bank simply by
writing notes (cheques, checks)
directing the bank to pay out so much to named persons, or the bearer of the
note. This note can further be made over to a third or fourth party by
endorsement, i.e. writing his name on the back. If there is more than one bank
in a town they can tot up the credits and debits between themselves so that
only the difference has to be carried between them in gold or notes.
The bank can also issue 'silver notes' at face
value which are a promise to pay that sum in silver when it is presented.
banker too can make money by lending out money at interest from his vaults.
This he does by issuing notes representing loans from the bank at a discount,
which have to be repaid in full on a specified date. These notes can be passed
from hand to hand and can be counted as currency. The notes issued at a
discount (loans) were the profitable part of the bank's operations.
amount of loans issued by a bank exceed the amount of cash in hand by a
considerable amount, it having been observed that on average only a fraction of
the depositors are likely to withdraw their deposits from the bank at any given
time. Just enough money is held by the bank to cover normal demands on it.
Banks thus multiply the amount of savings that can be used for trading purposes
or investment. The borrower had to give a security to the bank and this seems
to have been invariably in the form of a mortgage on real property.
whole system depends on the public having confidence that their money is safe
in the bank. If all try to withdraw at the same time there is likely to be a
loss of confidence in the bank. An attempt by most people to withdraw their
money is called a 'run on the bank'. This is liable to be followed by a
collapse of the bank, and all the notes issued by the bank are then worthless.
A well-managed bank could have sufficient assets in property, cash reserves,
and outstanding loans to meet all demands eventually, but still be unable to
meet demands if there was a sudden run on it, and it could become bankrupt. In
such a case, as with
sound banking system is an essential part of any developed economy. In parts of
charter had been granted to the Bank of England at the end of the seventeenth
century (1694), and many people felt that a similar bank should be established
merchant was allowed to establish a bank, and the number of partners who might
join to form a bank was severely restricted. On the other hand, no laws were
passed to regulate the business. Anyone with a shop-front and a few boxes could
open a bank. In the eighteenth century a captain of dragoons with no money at
all opened a bank and within two years had issued notes of credit (with the
interest payable to himself) to the extent of
£490,000. The bank failed and all his
depositors and all who held his worthless notes lost their money.
was no provision in Irish law to protect creditors. The first person to demand
his money filed a suit of bankruptcy in the courts to get it. The other
creditors then filed suits as well. It was necessary to act speedily for those
furthest down the list with their claims might get nothing.
the bank could not meet all claims the proprietors were declared bankrupts by
the court. They could not be imprisoned for debt, but suffered some civil
disabilities. Creditors however usually tried to hold a meeting so that
whatever assets the bank owned could be realised and shared out. But the bank had to cease trading even if it
had sufficient assets to pay all its debts. This happened in the case of
was only one joint-stock bank. In 1784 a Bank of Ireland had been established
by charter. It was of benefit to the merchants of
number of private banks fluctuated wildly, though the fact that a bank was
wound up did not necessarily mean a loss to depositors. In 1800 there were 10
banks, in 1803 30, and in 1804 50 (Marmion). In that year when the Irish
Government tried to restrict the excessive issue of notes by making banks
register themselves 60 banks did so. By 1812 all but 19 of these had
disappeared, though others had been founded. They were all small affairs, being
owned and managed by an individual or a small number of partners. They were
mostly confined to one town, though at one stage Ffrench's bank in
person dealt only with his own bank. The banks were entirely independent of
each other, and each local bank stood or fell by itself. There was no clearing
scheme. The notes issued by a bank could only be dealt with by the bank that
issued it. (This latter point remained true to some extent even after branch
banking was developed.) There was no system of reserves. Nor was there any
central reserve, or even an insurance scheme, from which a bank in difficulties
could get assistance.
banking, in good times, was profitable The legal rate
of interest was 6%, but the Bank of Ireland was restricted to 5% in most cases.
Its large and secure loans to the Government were made at 3½%. The actual
interest charged by private banks because of additions to cover contingencies
was said to be 8%, or in some cases as much as 12% (DEP 30 Jan 1806)
young Robert Peel arrived in
became Home Secretary in 1822 and continued the reorganisation of Irish banking
begun by the Irish Government under the Marquis Wellesley. He abolished the
restriction on the number of partners who might join to run a banking business,
and allowed banks to be joint-stock companies owned by an unlimited number of
shareholders. The effect of this was to allow the amount of capital held by the
banking company to increase vastly. Secondly, each bank was compelled to hold a
considerable amount of money as reserves to deal with any reasonable crisis.
There was no question of restricting loans to a one-for-one ratio: multiple
loans could still be made against the bank's assets. All was required was that
the reserve kept in the bank be adequate. Unlike in
decade later, a third security for the bank's creditors was added by the Bank
of Ireland when it took on the role of lender to the other banks, being
prepared if necessary to import bullion in times of banking crises.
also dealt with the monopoly of joint-stock banking held by the Bank of
Ireland. Since about 1820 the Irish Government had been having amicable
discussions with the directors of the Bank of Ireland with regard to this, and
the directors heartily concurred with the Government's proposals. The Bank's
monopoly was to be restricted to an area within fifty Irish miles (sixty four
statute miles) from
first joint-stock bank of issue (i.e. with the right to issue notes repayable
on demand) to open its doors under the new system was the Northern Bank in
branch system was itself conceived as a further security for the general
public. It was being advocated at the time by Thomas Joplin (DNB) as the proper way to run banks. As
conceived by him each branch was to be separate with its own local board of
directors. Customers would still deal only with their
own local branch to which they would belong, nor was any formal system of
clearing between branches considered. (Though not strictly liable, in practice,
branches paid out on notes issued by other branches.) Each branch would also
maintain its own reserve. The local directors would supply local
knowledge. But the central board of
banks spread rapidly, and though partnerships banks continued they sank to the
level of moneylenders. For example, by 1834 the Bank of Ireland had established
14 branches within fifty miles of
management of Irish banks in the first half of the century was cautious, but
not unnecessarily so. Of the several banking crises which hit
were some politically-inspired attempts to destabilise the banking system by
organised runs on the banks. Daniel O’Connell proposed the first but he soon
became convinced of the need for good banks and associated himself closely with
the National Bank. In 1848 some revolutionaries tried to organise a run but
only succeeded in closing down some of the savings banks in which the poorer
people kept their savings.
the 1840's Peel again returned to the question of banking, but few further
regulations were needed for the Irish or Scottish banks. The fifty-mile limit
was abolished thus allowing the joint-stock banks to open branches in
1850 there were 165 branch banks in Irish towns, and by 1910 there were 809
banks. Deposits and cash balances held by the banks amounted to £5½ millions in
1840 and to ten times that amount in 1910 (
banks were started in
Dundalk bank soon collapsed because rumours were put about that it was a
swindle. The Belfast Savings Bank opened in 1816 with two clergymen, one of
them the future Archbishop Crolly, on the committee of directors. A group of
businessmen met to discuss how savings banks could be best regulated and
protected by law, and in 1817 Sir John Newport introduced a bill into
Parliament. The Savings Banks Act (1817) regulated their affairs for the next
1830 there were 65 savings banks with published accounts in
would seem that the savings banks appealed to a rather wealthier class than we
would have expected. The Mayo
by 366 'small farmers';
The deposits for children may have been
made to avoid debt-collectors.
were in all 1633 accounts of which 597 were under £20, 781 between £20 and £50,
and 186 between £50 and £100. The impression is given that the bank was chiefly
used by people like (women) schoolteachers who were paid quarterly. The
tradesmen, surprisingly, were poorly represented, and the cottiers not at all. Average (disclosed) savings in the
the Famine 24 savings banks closed, but with little or no loss to depositors. Some
of the closures may be attributed to the call of the revolutionary John
Mitchell for a run on the banks, but others were clearly due to mismanagement.
Because of this latter circumstance a Savings Banks Act (1850) was passed. In
1861 the Post Office Savings Bank was started.
Fund Societies were more popular with tradesmen in the Thirties and Forties.
The interest they charged for 'productive loans' was lower than what was
charged elsewhere. They were regulated by a Loan Funds Societies Act (1836). A
Central Loan Fund was set up in
societies were essentially charitable not commercial institutions, and many of
them were run at a loss. But a criticism was often made regarding savings banks
as well that they were managed by people like clergymen who had no knowledge of
trade or industry, and that the depositors' money was used to erect imposing
buildings. The savings banks charged more on loans than the loan funds. Not all
loan fund societies were connected with the Central Board in
could also legally grant loans at interest. There were 477 of them registered
in 1849. The legal rate they were allowed to charge was one halfpenny on two
shillings per month that is five shillings in the pound simple interest per
annum or 25%. (This is not very different from the interest now charged by
credit card companies.) However, as the loans might be outstanding for a
considerable time an annual rate of 40% might be nearer the mark in practice.
moneylenders or gombeen men (from Latin cambium
exchange) charged what they liked. An example of a shilling in the pound per
week (about 520% simple interest or 1,200% compound interest per annum) was
quoted in the Evening Packet (4
August 1842). It is reasonable to conclude from what occurs in primitive
societies that the cottier class as a whole was heavily in debt to the
moneylenders. Weddings and funerals always needed an outlay of cash and it was
unthinkable not to spend it. Despite the nominal exorbitant rate of interest it
is unlikely that the moneylenders ever expected repayment or wished for it. The
actual return to the moneylender would probably have been much less in most
cases than what was demanded, but we have no way of calculating it It was better to have a permanent first claim on any income
of the borrower. It is for this reason that taking interest on non-productive
loans has always been denounced as usury.
companies existed in
first native Irish company was established in 1771. Marine and fire insurances
were popular. There were six insurance companies operating in
seems to have been only one building society in
stocks was originally meant the amount an individual contributed to an
enterprise. Unlike bonds this contribution was not returnable. But it was
saleable. His return was in proportion to his contribution. The term was
extended to cover loans from the Government that carried a fixed interest until
the debt was repaid.
the amount of stock authorised by Parliament could be issued. These stocks
could be bought and sold. Their price was not their nominal one, but rose and
fell according to demand. Shares meant the same thing except that all the units
In 1804 18 different kinds of stocks were
being quoted, Government stocks, Treasury bills, Bank of Ireland stock, city bonds,
and the canal stocks. By 1826 the Arigna
Iron and Coal Company, the Hibernian Mining Company, several insurance
companies, two joint stock banks, the Phoenix Gas Supply Company, and the Irish
Manufacturing Company had been added to the list. In 1845 23 Irish railway
companies had floated their shares on the Irish stockmarket. It is never clear
on what grounds a company floated its shares in
structure of British and Irish coinages up to decimalization was identical, and
remained so even after. Both were based on a silver pound, or pound sterling,
in Latin librum, written as L of £.
The pound was divided into twenty silver shillings, in Latin solidus written as s. (In France the
corresponding livre was divided into
twenty sols or sous). The shilling was
divided into twelve pennies or pence, bronze since the seventeenth century, in
Latin denarius written as d.
The abbreviations £.s.d. indicates pounds,
shillings, and pence, as in the form £5.5s.5d, but more commonly in the
nineteenth century the form £5 5/5, pronounced five pounds five and fivepence,
or five pounds five and five, was used. If there were no pence the form 5/- was
used. The halfpenny was pronounced hayp'ney, and the quarter penny called a
farthing. There were coins for the guinea, the pound called a sovereign, 10
shillings called a half sovereign, five shillings called the crown, two
shillings and sixpence called half crown, two shillings called a florin, one
shilling, six pence, three pence, one penny, half penny, and quarter penny
called the farthing.
Only the pound, the shilling, the penny, the
halfpenny, and the farthing were used in keeping accounts, all other coins
being reduced to their values in these coins. Before 1817 there was a gold coin
called a guinea valued at 21 shillings, but it was replaced by a gold pound
coin called the sovereign in that year.
(For reasons of tradition and sentiment the sale of some articles like
livestock is still conducted nominally in guineas.)
regard to purchasing power it was regarded that £5 would support a grown man
for a year.
(In 1971 the British and Irish Government simultaneously decimalised their currencies in the same manner. The pound sterling was divided into 100 new pence, and £1 10/- is now written as £1.50. The advantages of the similar and simultaneous decimalization were lost when the Irish Government floated the Irish pound independently. As in the eighteenth century the Irish pound found it’s level somewhat below that of the British pound. Irish coinage is now written as Ir £1.50.)
Copyright Desmond J. Keenan, B.S.Sc.; Ph.D. ;.London, U.K.